AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999
Registration No. 333-___
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
SUPERIOR BANK FSB
(Exact name of registrant as specified in governing instruments)
---------------
UNITED STATES
(State or Other Jurisdiction of Incorporation or Organization)
13-3614142
(I.R.S. Employer Identification Number)
---------------
ONE LINCOLN CENTRE
OAKBROOK TERRACE, ILLINOIS 60181
(708) 916-4000
(Address and telephone number of principal executive offices)
---------------
WILLIAM C. BRACKEN,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER,
SUPERIOR BANK FSB
ONE LINCOLN CENTRE
OAKBROOK TERRACE, ILLINOIS 60181
(708) 916-4000
(Name, address and telephone number of agent for service)
---------------
COPIES TO:
KATHRYN CRUZE, ESQ.
LAWRENCE S. RIGIE, ESQ. THACHER PROFFITT & WOOD
777 WESTCHESTER AVENUE - SUITE 204 TWO WORLD TRADE CENTER
WHITE PLAINS, NEW YORK 10604 NEW YORK, NEW YORK 10048
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
PROPOSED
PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT MAXIMUM AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED OFFERING PRICE OFFERING PRICE FEE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AFC Mortgage Loan Asset Backed
Certificates.......................... $3,000,240,872.08 100%(1) $3,000,240,872.08 $722,800(3)
======================================================================================================================
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<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated in reliance upon 457(a).
(3) $400,240,872.08 aggregate principal amount of AFC Mortgage Loan Asset
Backed Securities registered by the Registrant under Registration
Statement No. 333-61691 referred to below and not previously sold are
consolidated in this Registration Statement pursuant to Rule 429. All
registration fees in connection with such unsold amount of AFC Mortgage
Loan Asset Backed Certificates have been previously paid by the
Registrant under the foregoing Registration Statement. Accordingly, the
total amount registered under the Registration Statement as so
consolidated as of the date of this filing is $3,000,240,872.08.
------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus
which is a part of this Registration Statement is a combined prospectus and
includes all the information currently required in a prospectus relating to the
securities covered by Registration Statement No. 333-61691 previously filed by
the Registrant. This Registration Statement, which relates to $3,000,240,872.08
aggregate principal amount of AFC Mortgage Loan Asset Backed Securities,
constitutes Post-Effective Amendment No. 1 to Registration Statement No.
333-61691.
================================================================================
<PAGE>
<TABLE>
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CROSS REFERENCE SHEET FURNISHED PURSUANT TO RULE 404(A)
ITEM AND CAPTION IN FORM S-3 LOCATION IN PROSPECTUS
---------------------------- ----------------------
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1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus....................................... Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................................... Inside Front Cover Page of
Prospectus and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges............................................... Summary of Prospectus; Risk Factors
4. Use of Proceeds.................................................. Use of Proceeds
5. Determination of Offering Price.................................. *
6. Dilution......................................................... *
7. Selling Security Holders......................................... *
8. Plan of Distribution............................................. Method of Distribution
9. Description of the Securities to be Registered................... Summary of Prospectus; The
Mortgage Pool; Yield and Prepayment
Considerations; Description of the
Securities**
10. Interests of Named Experts and Counsel........................... *
11. Material Changes................................................. Financial Information
12. Incorporation of Certain Information by Reference................ Incorporation of Certain
Information by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities................................. See page II-1
</TABLE>
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* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Subject to Completion, dated July 23, 1999, Prospectus Supplement (To Prospectus
dated _____, 1999)
[Version 1]
$-----------
AFC MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES ____-_
SUPERIOR BANK FSB
DEPOSITOR AND SERVICER
<TABLE>
<CAPTION>
THE TRUST WILL ISSUE THE
FOLLOWING CERTIFICATES WHICH ARE
OFFERED HEREBY:
<S> <C>
YOU SHOULD CONSIDER INITIAL CERTIFICATE PASS-THROUGH
CAREFULLY THE RISK FACTORS CLASS PRINCIPAL BALANCE RATE
----- ----------------- ---------
BEGINNING ON PAGE S-__ IN
THIS PROSPECTUS 1A . . . . . . . . . . . . . . $____________ Variable(1)
SUPPLEMENT AND PAGE __ 2A . . . . . . . . . . . . . . $____________ Variable(1)
IN THE PROSPECTUS. ------------------
The certificates will (1) Calculated as described herein. The pass-through rate is generally based on
represent interests only in a one-month
trust consisting primarily of LIBOR plus an applicable spread rate subject to a rate cap at the weighted
mortgage loans and will not average of the
represent ownership applicable mortgage rates less certain fees.
interests in or obligations of
the servicer, the depositor, THE ASSETS OF THE TRUST WILL INCLUDE:
the trustee of the trust or
any of their affiliates. o a pool of fixed-rate mortgage loans;
o a pool of adjustable-rate mortgage loans;
This prospectus supplement o cash accounts for the purpose of purchasing additional
may be used to offer and mortgage loans; and
sell the offered certificates o credit enhancement in the form of a certificate insurance policy.
only if accompanied by the
prospectus. [Certificate insurer]
</TABLE>
<TABLE>
<CAPTION>
OFFERING INFORMATION:
Price to Underwriting Proceeds to
Public Discount Depositor
<S> <C> <C> <C>
Class 1A ___% ____% ____%
Class 2A ___% ____% ____%
Total $___________ $_________ $_________
</TABLE>
The underwriters listed below will offer the certificates described above
subject to certain conditions, which are discussed in the "Method of
Distribution" section of this prospectus supplement. Delivery of the offered
certificates is expected to be on or about ______, 199_. The proceeds to the
depositor from the sale of such certificates has been determined prior to
deducting expenses of approximately
$------.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
[Underwriters]
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to the offered certificates; and
o this prospectus supplement, which describes the specific terms of the
offered certificates.
If information varies between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
We include cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials where you can find further related
discussions. The following table of contents included in the accompanying
prospectus provides the pages on which these captions are located.
S-2
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
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SUMMARY INFORMATION...................................................................................................S-5
RISK FACTORS.........................................................................................................S-12
THE MORTGAGE POOL....................................................................................................S-20
General Description of the Mortgage Pool........................................................................S-20
Group 1.........................................................................................................S-20
Group 2.........................................................................................................S-31
YIELD AND PREPAYMENT CONSIDERATIONS..................................................................................S-42
Delay in Distributions..........................................................................................S-42
Prepayment Considerations and Risks.............................................................................S-42
Optional Purchase of Defaulted Mortgage Loans...................................................................S-43
Effect of Prepayments and Mortgage Loan Yield on Class 1A Pass-Through Rate.....................................S-44
Prepayment Model for Class 1A Certificates......................................................................S-44
Effect of Prepayments and Mortgage Loan Yield on Class 2A Pass-Through Rate.....................................S-50
Prepayment Model for Class 2A Certificates......................................................................S-51
Limitation on Adjustments.......................................................................................S-57
THE DEPOSITOR........................................................................................................S-57
Loan Origination History........................................................................................S-57
Underwriting Criteria...........................................................................................S-57
DESCRIPTION OF THE CERTIFICATES......................................................................................S-67
Registration of Certificates....................................................................................S-69
Glossary of Terms...............................................................................................S-73
The Principal and Interest Accounts.............................................................................S-79
The Certificate Accounts........................................................................................S-80
Calculation of One-Month LIBOR..................................................................................S-81
Allocation of Amount Available .................................................................................S-81
Interest Coverage Account and Reserve Account...................................................................S-87
Advances........................................................................................................S-88
Excess Spread, Overcollateralization and Cross-Collateralization Provisions.....................................S-88
POOLING AND SERVICING AGREEMENT......................................................................................S-89
General.........................................................................................................S-89
The servicer....................................................................................................S-90
The Trustee.....................................................................................................S-92
Payment of Expenses.............................................................................................S-93
Termination; Purchase of mortgage loans.........................................................................S-93
Removal and Resignation of Servicer.............................................................................S-94
Recordation of Assignments of Mortgages.........................................................................S-95
Amendment.......................................................................................................S-96
THE CERTIFICATE INSURER AND THE CERTIFICATE INSURANCE POLICY ........................................................S-96
Capitalization..................................................................................................S-96
Certificate Insurance Policy....................................................................................S-96
FEDERAL INCOME TAX CONSEQUENCES......................................................................................S-96
ERISA CONSIDERATIONS.................................................................................................S-99
LEGAL INVESTMENT....................................................................................................S-101
METHOD OF DISTRIBUTION..............................................................................................S-102
EXPERTS.............................................................................................................S-103
S-3
<PAGE>
RATINGS.............................................................................................................S-103
LEGAL MATTERS.......................................................................................................S-104
ANNEX I...............................................................................................................I-1
</TABLE>
S-4
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERED CERTIFICATES,
READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ENTIRE ACCOMPANYING
PROSPECTUS.
<TABLE>
<CAPTION>
<S> <C>
Title of Series.............................AFC Mortgage Loan Asset Backed Certificates, Series ____-_.
Cut-off Date................................_____, 199_.
Closing Date................................On or about ____, 199_.
Depositor...................................Superior Bank FSB, a federally chartered stock savings bank. Superior
Bank FSB's principal offices are located at One Lincoln Centre,
Oakbrook Terrace, Illinois 60181 and its phone number is (630) 916-
4000.
Servicer....................................__________________.
Trustee....................................._________________________________.
Certificate Insurer........................._________________________.
</TABLE>
THE TRUST
The depositor will establish a trust with respect to the Series ____-_
certificates, pursuant to a pooling and servicing agreement dated as of _____,
199_ among the depositor, the servicer, and the trustee. On the closing date,
the depositor will deposit two separate pools of mortgage loans into the trust.
The first pool is "GROUP 1" and consists of fixed-rate mortgage loans. The
second pool is "GROUP 2" and consists of adjustable-rate mortgage loans.
The Series ____-_ Certificates will consist of Class 1A, Class 2A and Class R
Certificates. Each Series ____-_ Certificate will evidence a partial undivided
interest in the trust.
THE OFFERED CERTIFICATES
Only the Class 1A and Class 2A certificates are offered hereby. The offered
certificates will have the characteristics shown in the first table on the cover
of this prospectus supplement.
The offered certificates will initially be represented by one or more book-entry
certificates registered in the name of CEDE & Co., as nominee of the Depository
Trust Company, in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof.
SEE "DESCRIPTION OF THE CERTIFICATES--REGISTRATION OF THE CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE CERTIFICATES--BOOK-ENTRY
REGISTRATION AND DEFINITIVE CERTIFICATES" IN THE PROSPECTUS.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The trustee will remit interest and principal on the 25th of each month
beginning in ________. However, if the 25th is not a business day, distributions
will be made on the next business
S-5
<PAGE>
day after the 25th of the month. The first remittance date will be _________,
199_.
As described in greater detail in this prospectus supplement, distributions on
the Class 1A certificates will generally be paid from collections on the group 1
mortgage loans and distributions on the Class 2A certificates will generally be
paid from collections on the group 2 mortgage loans.
INTEREST PAYMENTS
Interest will accrue on each of the offered certificates at the related
pass-through rate. The pass-through rates are adjustable and will be calculated
for each remittance date based on one-month LIBOR plus an applicable spread
rate, subject to a rate cap at the weighted average of the applicable mortgage
rates less certain fees. The spread rate is ___% for the Class 1A certificates
and ___% for the Class 2A certificates.
If on any remittance date the interest paid on the Class 2A certificates is
based on the rate cap rather than LIBOR plus the applicable spread rate, the
resulting difference, subject to an available funds cap rate, together with
interest on that amount, will be carried forward and paid as an additional
interest payment on future remittance dates from funds available to that group
after all other distributions, other than distributions on the Class R
certificates, have been made.
SEE "DESCRIPTION OF THE CERTIFICATES--CALCULATION OF ONE MONTH LIBOR";
"--ALLOCATION OF AMOUNT AVAILABLE"; AND "--DEFINITIONS" IN THIS PROSPECTUS
SUPPLEMENT.
PRINCIPAL PAYMENTS
Generally, the required amount of principal distributable on each class of
offered certificates on each remittance date will be the lesser of:
(1) principal actually received on the mortgage loans in the related group plus
any excess of the certificate principal balance of that class over the mortgage
loan balance of that group due to losses on those mortgage loans; and
(2) the amount, if any, needed to pay down the certificate principal balance of
such class so that the outstanding balance of the related group exceeds such
certificate principal balance by the amount required by the certificate insurer
for the related group. Such excess is referred to as the "REQUIRED
OVERCOLLATERALIZATION AMOUNT."
However, the amount of principal distributable on a certificate will never be
greater than the outstanding principal balance of that certificate.
Under certain circumstances, the amount of required principal distributable to
you may be zero. This can occur on any remittance date on which the required
overcollateralization amount for the group related to your certificate has been
reached or maintained.
SEE "DESCRIPTION OF THE CERTIFICATES-ALLOCATION OF AMOUNT AVAILABLE"; AND
"--DEFINITIONS" IN THIS PROSPECTUS SUPPLEMENT.
CREDIT ENHANCEMENT
Credit enhancement refers to features of the offered certificates that are
intended to reduce the effect on holders of the offered certificates of losses
on the mortgage loans. The credit enhancement consists of excess spread, cross-
collateralization, overcollateralization and the certificate insurance policy,
each as described below.
EXCESS SPREAD
On each remittance date, the amount of interest due on the mortgage loans of
each group will generally be greater than the amount needed to make monthly
interest payments on the related certificates and to pay certain fees for that
month. Such excess interest that is collected is referred to
S-6
<PAGE>
as "EXCESS SPREAD". As described in greater detail in this prospectus
supplement, excess spread from a group of mortgage loans will be used first to
cover any shortfalls in the required payments of principal on the offered
certificates related to such group, and then for cross-collateralization and/or
overcollateralization as described below.
On the closing date, the certificate insurer will establish for each group of
mortgage loans a maximum dollar amount of excess spread that may be used to
cover realized losses in principal for such group. On the date on which the
aggregate amount of excess spread applied to cover those losses is equal to such
dollar amount, excess spread will no longer be available to cover shortfalls in
required principal payments, or to create overcollateralization on that group.
That date is referred to as the "CROSS-OVER DATE" for a group.
SEE "DESCRIPTION OF THE CERTIFICATES--EXCESS SPREAD, OVERCOLLATERALIZATION AND
CROSS- COLLATERALIZATION PROVISIONS"; AND "-DEFINITIONS" IN THIS PROSPECTUS
SUPPLEMENT.
CROSS-COLLATERALIZATION
Cross-collateralization generally refers to the use of amounts received on one
group of mortgage loans, after payment of required interest and principal on the
related offered certificates, to pay shortfalls of required interest and
principal on the offered certificates related to the other group. In addition,
after payments of required interest and principal payments on both groups,
excess funds for such group will be used, if necessary, first to reach the
required overcollateralization amount for such group, and then to reach the
required overcollateralization amount for the other group.
The excess funds for a group are from two sources: (1) excess spread that is not
needed to pay shortfalls in principal for that group and (2) excess principal
that is not needed because principal received for that group exceeds the amount
necessary to reach or maintain the required overcollateralization amount.
SEE "DESCRIPTION OF THE CERTIFICATES--EXCESS SPREAD, OVERCOLLATERALIZATION AND
CROSS- COLLATERALIZATION PROVISIONS"; AND "-DEFINITIONS" IN THIS PROSPECTUS
SUPPLEMENT.
OVERCOLLATERALIZATION
Overcollateralization refers to the actual amount by which the aggregate
principal balance due on the mortgage loans in a group exceeds the aggregate
principal balance due on the related offered certificates. That excess is
intended to protect certificateholders against shortfalls in required payments
on the related offered certificates.
An initial amount of overcollateralization will be required for each group. The
following chart indicates the amount of initial overcollateralization as of the
closing date:
Cut-off Date Over-
Mortgage Loan Closing Date collateralization
Balance and Pre- Certificate (expressed as a % of
Funding Amount Balance group balance)
-------------- ------- --------------
Group 1: Class 1A:
$---------- $--------- ---%
Group 2: Class 2A:
$---------- $---------- ---%
On the closing date, the certificate insurer will also specify the required
overcollateralization amount for each group (which will vary throughout the life
of the certificates). The required overcollateralization amount for a group is
intended to be reached by an additional payment of principal from amounts that
are available for such group after payments of required principal and interest
payments on all offered certificates and certain fees and expenses. That amount,
if any, will be used to pay principal on the related offered certificates on an
accelerated basis in relation to the related
S-7
<PAGE>
mortgage loans, thereby increasing the amount of overcollateralization for the
related group.
SEE "DESCRIPTION OF THE CERTIFICATES--EXCESS SPREAD, OVERCOLLATERALIZATION AND
CROSS- COLLATERALIZATION PROVISIONS"; AND "-DEFINITIONS" IN THIS PROSPECTUS
SUPPLEMENT.
CERTIFICATE INSURANCE POLICY
____________________, a _________ insurance corporation, will issue a
certificate insurance policy. Subject to certain limitations described in this
prospectus supplement, the policy will irrevocably and unconditionally guarantee
payment to the holders of the Class A certificates of the required monthly
payment of interest due (which does not include the payment of interest carried
forward and payable to the Class 2A certificateholders) to each Class A
certificateholder and the ultimate receipt of the certificate principal balance
of each such certificate.
If the certificate insurer fails to make a payment due under the certificate
insurance policy, you will directly bear the risk of loss.
SEE "THE CERTIFICATE INSURER AND THE CERTIFICATE INSURANCE POLICY" IN THIS
PROSPECTUS SUPPLEMENT.
PRIORITY OF PAYMENTS
In general, the trustee will remit funds available for a group (after payment of
certain fees and expenses) on each remittance date in the following order of
priority:
FIRST, to make the required payments of interest on the offered certificates
related to that group;
SECOND, to make the required payments of principal on the offered certificates
related to that group;
THIRD, to pay any accrued but unpaid trustee's fees related to that group;
FOURTH, to make the required payments of interest and principal on the offered
certificates related to the other group, if funds available for that other group
are insufficient;
FIFTH, if the remittance date is prior to the cross-over date for that group, to
make an additional payment of principal on the offered certificates related to
that group, if necessary, in order to reach the required overcollateralization
amount for that group;
SIXTH, if the remittance date is prior to the cross-over date for the other
group, to make an additional payment of principal on the offered certificates
related to that other group, if necessary, in order to reach the required
overcollateralization amount for that other group;
SEVENTH, to reimburse the servicer and/or depositor for certain unreimbursed
expenses or advances related to that group;
EIGHTH, if the offered certificates related to that group are Class 2A
certificates, to make an additional payment of interest on those offered
certificates equal to any additional interest amount carried forward;
NINTH, to pay the balance of any funds available to the Class R
certificateholders.
SEE "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF AMOUNT AVAILABLE" IN THIS
PROSPECTUS SUPPLEMENT.
THE MORTGAGE LOANS
The trust will consist of two groups of mortgage loans. The group 1 mortgage
loans are fixed-rate mortgage loans secured by first or second liens on
residential, commercial or mixed-use residential and commercial real properties.
The group 1 mortgage loans have an aggregate principal
S-8
<PAGE>
balance of approximately $____________ as of _________, 199_.
FOR ADDITIONAL INFORMATION REGARDING THE FIXED- RATE MORTGAGE LOANS, SEE "THE
MORTGAGE POOL- GROUP 1" IN THIS PROSPECTUS SUPPLEMENT.
The group 2 mortgage loans are adjustable-rate mortgage loans secured by first
liens on residential real properties. The adjustable-rate mortgage loans have an
aggregate principal balance of approximately $______________ as of _______,
199_.
FOR ADDITIONAL INFORMATION REGARDING THE ADJUSTABLE-RATE MORTGAGE LOANS, SEE
"THE MORTGAGE POOL-GROUP 2" IN THIS PROSPECTUS SUPPLEMENT.
COLLECTIONS ON THE MORTGAGE LOANS AND ADVANCES BY THE SERVICER
The servicer will collect monthly payments of principal and interest on the
mortgage loans. Each month, the servicer will retain its servicing fee and
amounts payable or reimbursable to it or the depositor and forward the remainder
of the collections, including unscheduled payments, to the trustee. For any
month, if the servicer receives an interest payment on a mortgage loan that is
less than the full interest payment due (or if no interest payment is received
at all), the servicer will advance to the trustee its own funds to cover that
shortfall in interest.
SEE "DESCRIPTION OF THE CERTIFICATES--THE PRINCIPAL AND INTEREST ACCOUNTS"; AND
"ADVANCES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE CERTIFICATES-
MONTHLY ADVANCES IN RESPECT OF DELINQUENCIES" AND "-COMPENSATING INTEREST" IN
THE PROSPECTUS.
PRE-FUNDING ACCOUNTS AND SUBSEQUENT
MORTGAGE LOANS
On the closing date, the depositor will pay to the trustee approximately
$______________ which will be held by the trustee in two separate pre- funding
accounts as follows:
Group 1 Pre-Funding $__________
Account
Group 2 Pre-Funding
Account $__________
For a period of not more than 90 days after the closing date, the depositor will
be obligated to sell and the trustee will be obligated to purchase with the
funds in each pre-funding account additional mortgage loans to be included in
the related group. Each mortgage loan purchased by the trust during this period
must meet the criteria set forth in the pooling and servicing agreement, which
are described in this prospectus supplement. Any amounts remaining in the
pre-funding accounts at the end of the 90-day period following the closing date
will be distributed on the next remittance date to the holders of the related
Class A certificates as a payment of principal.
SEE "THE MORTGAGE POOL-GROUP 1-CONVEYANCE OF GROUP 1 SUBSEQUENT MORTGAGE LOANS
AND THE GROUP 1 PRE-FUNDING ACCOUNT" AND -- "GROUP 2-CONVEYANCE OF GROUP 2
SUBSEQUENT MORTGAGE LOANS AND THE GROUP 2 PRE-FUNDING ACCOUNT" IN THIS
PROSPECTUS SUPPLEMENT.
OPTIONAL TERMINATION
When the aggregate principal balance of the mortgage loans (and properties
acquired in respect thereof) remaining in the trust has been reduced to less
than 5% of the sum of (1) the aggregate principal balance of the mortgage loans
as of ____, 199_, and (2) the aggregate amounts on deposit in the pre-funding
accounts on the closing date, the servicer, at its option, may purchase all
S-9
<PAGE>
the remaining mortgage loans and properties on behalf of the trust, and thereby
cause an early retirement of the certificates.
SEE "THE POOLING AGREEMENT-- TERMINATION; PURCHASE OF MORTGAGE LOANS" IN THIS
PROSPECTUS SUPPLEMENT.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat designated portions of the trust as a real
estate mortgage investment conduit for federal income tax purposes. The offered
certificates will represent ownership of regular interests in the trust. Such
certificates will generally be treated as debt instruments for federal income
tax purposes. You will be required to include in your income all interest and
original issue discount, if any, on your certificate in accordance with the
accrual method of accounting regardless of your usual method of accounting. For
federal income tax purposes, the Class R certificates will be the sole residual
interest in the real estate mortgage investment conduit.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS.
RATINGS
When issued, the offered certificates will receive the following ratings from
[_______________] and [__________________]:
OFFERED [RATING [RATING
CERTIFICATES AGENCY] AGENCY]
- -------------------------------------------------------------
Class 1A Aaa AAA
Class 2A Aaa AAA
The security ratings address the likelihood that you will receive all
distributions on the underlying mortgage loans to which you are entitled. A
security rating is not a recommendation to buy, sell or hold a security and is
subject to change or withdrawal at any time by the assigning rating agency. The
ratings do not address the frequency of prepayments on the mortgage loans or the
corresponding effect on yield to investors. In addition, the ratings do not
address the likelihood of payment of any interest carried forward and payable to
the Class 2A certificateholders on future remittance dates.
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
LEGAL INVESTMENT
The Class 1A certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984. When issued,
the Class 2A certificates will not constitute "mortgage related securities" for
purposes of SMMEA. However, when the group 2 pre-funding account has been
reduced to zero, the Class 2A certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated not lower than
the second highest rating category by one or more nationally recognized
statistical rating organizations and, as such, will be legal investments for
certain entities to the extent provided in SMMEA and applicable state laws. You
should consult your legal advisors in determining whether and to what extent the
offered certificates constitute legal investments for you.
SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
If you are buying the offered certificates on behalf of an individual retirement
account, Keogh plan or employee benefit plan, special rules may apply to you.
These rules are described in this
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prospectus supplement under the caption "ERISA Considerations." Buying
certificates on behalf of an employee benefit plan may result in a so-called
"prohibited transaction" unless you meet the requirements of certain exemptions.
The Department of Labor has given exemptions to the two underwriters listed on
the cover page of this prospectus supplement. These exemptions generally apply
to certificates like the offered certificates if certain requirements are met.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
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<PAGE>
RISK FACTORS
You should consider, among other things, the following factors in
connection with the purchase of the offered certificates.
[APPROPRIATE RISK FACTORS AS NECESSARY]
[THE YIELD TO MATURITY ON YOUR CERTIFICATES WILL DEPEND ON A VARIETY OF FACTORS
INCLUDING PREPAYMENTS
The yield to maturity on each class of offered certificates will depend
on a variety of factors, including:
o the rate and timing of principal payments on the mortgage loans
related to that class;
o the rate and timing of payments of excess spread and excess
principal to accelerate payments of principal on such class;
o the pass-through rate for that class; and
o the purchase price of that class.
Since a majority of the mortgagors are permitted to prepay their
mortgage loans at any time, without penalty, the rate and timing of principal
distributions on the offered certificates are highly uncertain. Generally, when
market interest rates increase, borrowers are less likely to prepay their
mortgage loans. Conversely, when market interest rates decrease, borrowers are
more likely to prepay their mortgage loans. General economic conditions and
homeowner mobility will also influence such decisions.
Refinancing programs, which may involve soliciting all or some of the
mortgagors to refinance their mortgage loans, may increase the rate of
prepayments on the mortgage loans.
Prepayments of principal may also be caused by the following:
liquidations of defaulted mortgage loans; insurance payments on the mortgage
loans; repurchases due to breaches of representations and warranties or
defective documentation; optional purchase by the servicer of defaulted mortgage
loans and the optional purchase by the servicer of all the mortgage loans in
connection with the termination of the trust.
A prepayment of a mortgage loan in a group will usually result in a
prepayment of principal on the related offered certificates which would
otherwise be distributed over the term of the related mortgage loan. Increased
prepayments could result in a faster return of principal to you at a time when
you may not be able to reinvest those funds at an interest rate as high as the
pass-through rate on your class of certificates. Conversely, reduced prepayments
could result in a slower return of principal to you at a time when you may be
able to reinvest those funds at a higher rate of interest than the pass-through
rate on your class of certificates. In particular, a reduction in the rate of
principal payments will occur when interest only vouchers are used to defer
principal payments and interest only payments are made under the depositor's
periodic payment loan program described in this prospectus supplement.
In general, if you purchase a class of offered certificates at a price
higher than its outstanding principal balance and principal distributions on
such class occur faster than you anticipate at the time of
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purchase, the yield will be lower than you anticipate. Conversely, if you
purchase a class of offered certificates at a price lower than its outstanding
principal balance and principal distributions on that class occur more slowly
than you anticipate at the time of purchase, the yield will be lower than you
anticipate.
SEE "YIELD AND PREPAYMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.]
[ACCELERATED PAYMENTS OF PRINCIPAL ON THE OFFERED CERTIFICATES WILL AFFECT THE
YIELD TO MATURITY ON YOUR CERTIFICATES
Your yield to maturity will also depend on whether, and to what extent,
excess spread and excess principal are used to make additional principal
payments to you in order to reach the required overcollateralization amount for
your group. If the required overcollateralization amount with respect to the
group related to your certificate has not been reached, excess spread and excess
principal may be used to accelerate the return of principal to you on each
remittance date prior to the cross-over date for your group. However, excess
spread and excess principal will first be used to cover any shortfalls in the
required payments of interest and principal on your certificates. By applying
these amounts first to shortfalls, the amounts available to accelerate payment
of principal in satisfaction of the required overcollateralization amount is
reduced and the rate at which payments of principal would otherwise be
accelerated is less than it would have been if excess spread and excess
principal were first applied to reach the required overcollateralization amount.
On and after the cross-over date for a group, this acceleration of principal
feature will no longer apply to the offered certificates related to that group.
In general, if you purchase a class of offered certificates at a price
higher than its outstanding principal balance and principal distributions on
that class occur faster than you anticipate at the time of purchase, the yield
will be lower than you anticipate. Conversely, if you purchase a class of
offered certificates at a price lower than its outstanding principal balance and
principal distributions on that class occur more slowly than you anticipate at
the time of purchase, the yield will be lower than you anticipate.
SEE "YIELD AND PREPAYMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.]
[THE VARIABLE PASS-THROUGH RATE ON THE CERTIFICATES MAY AFFECT YOUR YIELD TO
MATURITY
The pass-through rate applicable to your certificate on each remittance
date will affect your yield to maturity. The pass-through rates on the offered
certificates are based on one-month LIBOR plus an applicable fixed spread rate
(subject to certain caps). The mortgage rates on the group 1 mortgage loans are
fixed. The mortgage rates on the group 2 mortgage loans adjust annually or
semi-annually based upon six-month LIBOR. One-month LIBOR will fluctuate in
response to economic and market conditions, whereas the fixed mortgage rates
will remain fixed. Six-month LIBOR will also fluctuate but may respond
differently to the same economic and market conditions than one-month LIBOR, and
there is not necessarily any correlation between them. One-month LIBOR may
increase to a level such that the amount of interest collected on the mortgage
loans is insufficient to pay interest on some or all of the offered certificates
at one-month LIBOR plus the applicable spread rate. If that occurs, the rate
payable on the affected offered certificates will be capped at the rate equal to
the weighted average of the mortgage rates for the related group less certain
fees. The Class 1A certificates do not contain a "carry forward" or "catch-up"
feature if the amount of interest paid is so capped. Accordingly, if mortgage
market interest rates or market yields for securities similar to the Class 1A
offered certificates rise, the value of such certificates may decline. The
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Class 2A certificates do contain a "carry forward" or "catch-up" feature and the
amount of the shortfall resulting from paying interest based on the cap rate
will be paid on future remittance dates, but only on a subordinated basis from
any amounts that would otherwise be distributable on the Class R certificates
and such "carry forward" or "catch up" payments are subject to an available
funds cap rate.
SEE "YIELD AND PREPAYMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.]
[PRINCIPAL DISTRIBUTIONS ARE UNPREDICTABLE AND, THEREFORE, MAY BE AN
INAPPROPRIATE INVESTMENT FOR YOU
If you require a particular amount of principal on a specific date or
an otherwise predictable stream of principal distributions, an investment in any
class of offered certificates may be an inappropriate investment for you. As
described in greater detail in this prospectus supplement, the amount and rate
at which principal distributions will be made on the offered certificates is
unpredictable. The amount of principal distributable to each class on a
remittance date may be any one of the following: the amount of principal
received on the mortgage loans from the related group, a lesser or greater
amount based on the required overcollateralization amount for such group, or
zero if such required overcollateralization amount has been reached on such
remittance date. The depositor cannot assure you as to the amount of or the rate
at which principal distributions will be made to you.]
THE PAYMENT PERFORMANCE OF THE CERTIFICATES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE TRUST FUND; SOME TYPES OF MORTGAGE
LOANS MAY BE PRONE TO DEFAULTS AND MAY EXPOSE YOUR CERTIFICATES TO GREATER
LOSSES
The excess spread, cross-collateralization, overcollateralization and
certificate insurance features described in this prospectus supplement are
intended to enhance the likelihood that you will receive regular payments of
interest and principal. However, higher than anticipated rates of delinquencies
or defaults on the mortgage loans may result in delays in the receipt of
principal by you, thereby affecting the yield to maturity on your certificates.
In the event that the mortgaged properties fail to provide adequate security for
the mortgage loans, any resulting losses will be covered by funds available
through the excess spread, cross- collateralization and overcollateralization
features described above and by amounts paid under the certificate insurance
policy. Any such payments would result in prepayments of principal that would
otherwise be distributed over the remaining terms of the mortgage loans and thus
will affect the yield to maturity of your certificate as described above. The
risk of delinquency, defaults or losses may be higher for certain mortgage
loans. You should consider the following:
[MULTIFAMILY, COMMERCIAL, MIXED-USE LOANS. Approximately ___% of the
group 1 mortgage loans (by group 1 statistical principal balance) are secured by
multifamily properties. Approximately ___% of the group 1 mortgage loans (by
group 1 statistical principal balance) are secured by commercial properties.
Approximately ___% of the group 1 mortgage loans (by group 1 statistical
principal balance) are secured by mixed-use residential and commercial
properties. Multifamily loans, commercial loans and mortgage loans secured by
mixed residential and commercial properties are generally viewed by lenders as
exposing the lender to a greater risk of loss than mortgage loans secured by
one- to four-family residential properties, units in planned unit developments,
individual condominium units or manufactured homes. That is because multifamily
lending, commercial lending and mixed use lending typically involves larger
loans that may result in larger losses than those on residential properties. In
addition, repayment of multifamily, commercial and mixed-used loans is typically
dependent upon the successful operation of the related mortgaged property.
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Income from and the market value of the mortgaged property would be adversely
affected if space in the mortgaged property could not be leased, if tenants were
unable to meet their obligations or if for any other reason rental payments
could not be collected. Successful operation of an income-producing mortgaged
property is dependent upon, among other factors, economic conditions generally
and in the geographic area, operating costs and the performance of the
management agent, if any. In some cases, that operation may be subject to
circumstances outside the control of the borrower or lender, including the
quality or stability of surrounding neighborhoods, the development of competing
properties or businesses, maintenance expenses (including energy costs), rent
control or stabilization laws and changes in the tax laws. If the cash flow from
a particular mortgaged property is reduced (for example, if leases are not
renewed, if tenants default or if rental rates decline), the borrower's ability
to repay the loan may be impaired and the resale value of the particular
property may decline. No assurance can be given to you that the values of the
mortgaged properties securing the multifamily loans, commercial loans and
mixed-use loans have remained or will remain at the levels in effect on the
dates of origination of the related loans. FOR FURTHER INFORMATION REGARDING THE
PRIMARY RISK TO HOLDERS OF MORTGAGE LOANS SECURED BY MULTIFAMILY PROPERTIES,
COMMERCIAL PROPERTIES AND MIXED-USE PROPERTIES, SEE "LEGAL ASPECTS OF MORTGAGE
LOANS" IN THE PROSPECTUS.]
[SECOND LIENS. Approximately ___% of the group 1 mortgage loans (by
group 1 statistical principal balance) are secured by second liens and the
related first liens are not included in the trust. The primary risk to holders
of mortgage loans secured by second liens is the possibility that funds received
in connection with a foreclosure of the related first lien will be inadequate to
satisfy fully both the first lien and the second lien. In the event that a
holder of the first lien forecloses on a mortgaged property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the first
lien. The claims of the holder of the first lien will be satisfied in full out
of proceeds of the liquidation of the mortgage loan, if such proceeds are
sufficient, before the trust as holder of the second lien receives any payments
in respect of the mortgage loan. Consequently, the trust as holder of the second
lien may receive substantially less than it is owed on such loan, or nothing.
Even assuming that the mortgaged properties provide adequate security for the
mortgage loans, substantial delays could be encountered in connection with the
liquidation of defaulted mortgage loans and corresponding delays in the receipt
of related proceeds by certificateholders could occur. FOR FURTHER INFORMATION
REGARDING THE PRIMARY RISK TO HOLDERS OF MORTGAGE LOANS SECURED BY SECOND LIENS
SEE "LEGAL ASPECTS OF MORTGAGE LOANS" IN THE PROSPECTUS.]
[MANUFACTURED HOMES. Approximately ___% of the group 1 mortgage loans
(by group 1 statistical principal balance) and approximately ___% of the group 2
mortgage loans (by group 2 original principal balance) are secured by a lien on
real estate to which a manufactured home (as defined in the prospectus) has been
permanently attached. Under the laws of most states, a manufactured home that
has been permanently attached to its site becomes subject to real estate title
and recording laws. The depositor has recorded or caused to be recorded a real
estate mortgage or deed of trust where the related manufactured home is located
in order to perfect a security interest in each manufactured home securing the
manufactured home loans to be conveyed to the trust. The depositor also obtains
a manufactured housing unit (ALTA 7 or state equivalent) endorsement from each
title insurer of a manufactured home loan stating that the insurer agrees that
the related manufactured housing unit is included within the term "land" when
used in the title policy. If however, the manufactured home is deemed not
permanently attached to the real estate, under the laws of most states, it will
be considered personal property and perfection of a security interest in such
manufactured home is effected, depending on applicable state law, either by
noting the security interest on the certificate of title for the manufactured
home or by filing a financing statement under the Uniform Commercial Code with
the office of the Secretary of State and, in some states, the office of the
county clerk of the state where the
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home is located. Consequently, if a determination is made that the manufactured
home is considered personal property, other parties could obtain an interest in
the manufactured home which is prior to the security interest retained by the
trust. FOR FURTHER INFORMATION REGARDING THE PRIMARY RISK TO HOLDERS OF MORTGAGE
LOANS SECURED BY MANUFACTURED HOMES, SEE "LEGAL ASPECTS OF MORTGAGE LOANS -
MANUFACTURED HOME LOANS" IN THE PROSPECTUS.]
[BALLOON PAYMENTS. Because borrowers of balloon loans are required to
make a relatively large single payment upon maturity, it is possible that the
default risk associated with balloon loans is greater than that associated with
fully-amortizing mortgage loans. Approximately ___% of the group 1 mortgage
loans (by group 1 statistical principal balance) are balloon loans which provide
for equal monthly payments of principal and interest based on a 30-year
amortization schedule, and a single payment of the remaining principal balance
of the balloon loan at the end of the 15th year following origination.
In addition, approximately ___% of the group 1 mortgage loans (by group
1 statistical principal balance) provide that the mortgagors have the option, at
any time during the term of the related mortgage loan, to use a limited number
of payment vouchers provided to them at origination in order to defer payment of
the principal portion of the corresponding payment. If such a voucher is used,
the mortgagor is only required to pay the interest portion due on a payment
date. Any principal so deferred will increase the principal balance that would
otherwise be due at the maturity of such loan, creating a final payment that may
be substantially greater than any other previous payment depending on how many
interest only vouchers are used by the mortgagor. FOR FURTHER INFORMATION
REGARDING THE PRIMARY RISK TO HOLDERS OF MORTGAGE LOANS SECURED BY BALLOON
LOANS, SEE "RISK FACTORS-RISK ASSOCIATED WITH THE MORTGAGE LOANS AND MORTGAGED
PROPERTIES-BALLOON PAYMENTS" IN THE PROSPECTUS.]
[THE YIELD TO MATURITY ON YOUR CERTIFICATES MAY BE AFFECTED BY THE GEOGRAPHIC
CONCENTRATION OF THE MORTGAGE LOANS IN THE TRUST FUND
The yield to maturity on your certificates may be affected by the
geographic concentration of the mortgaged properties securing the mortgage
loans. If the regional economy or housing market of any region having a
significant concentration of properties underlying the mortgage loans becomes
weak, the mortgage loans related to properties in that region may experience
high rates of loss and delinquency, or the value of properties located in such
regions may decline resulting in an increase in the loan-to-value ratios. In
addition, regardless of its location, manufactured housing generally depreciates
in value. Accordingly, when coupled with a deteriorating real estate market in a
particular region, the value of the mortgaged property improved by a
manufactured home could be or become lower than the outstanding principal
balance of the mortgage loan it secures. Approximately ___%, ___%, ___%, ___%
and ___% of the group 1 mortgage loans (by group 1 statistical principal
balance) are located in ________, _______, _________, _______ and ________.
Approximately ___%, ___%, ___%, ___%, ___%, ___% and ___% of the group 2
mortgage loans (by group 2 original principal balance) are located in ________,
____, __________, _______, ________, ____________ and ________. Any
deterioration of economic conditions in such states which adversely affects the
ability of borrowers to make payments on the mortgage loans may increase the
likelihood of losses on the mortgage loans. Such losses, if they occur, will be
covered through the credit enhancement features described above but may result
in unanticipated rates and timing of prepayments that have an adverse affect on
the yield to maturity of your certificates.]
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[THE SUBSEQUENT MORTGAGE LOANS TO BE INCLUDED IN THE TRUST FUND MAY DIFFER FROM
THE INITIAL MORTGAGE LOANS
The mortgage loans transferred to the trust after the closing date may
have characteristics different from those of the mortgage loans expected to be
in the trust on the closing date. However, each mortgage loan subsequently
transferred to the trust must satisfy the eligibility criteria referred to
herein, as applicable, under "The Mortgage Pool--group 1--Conveyance of group 1
Subsequent Mortgage Loans and the group 1 Pre-Funding Account" and "--group
2--Conveyance of group 2 Subsequent Mortgage Loans and the group 2 pre-funding
account" at the time of its conveyance to the trust and be underwritten in
accordance with the criteria set forth herein, as applicable, under "The
Depositor--Underwriting Criteria--group 1" and "--group 2".]
[YOU WILL RECEIVE A MANDATORY PREPAYMENT OF PRINCIPAL WHICH MAY AFFECT THE YIELD
TO MATURITY ON YOUR CERTIFICATES
To the extent that amounts on deposit in the related pre-funding
account have not been fully applied to the purchase of subsequent mortgage loans
by the trust, the holders of the related offered certificate will receive, pro
rata, a prepayment of principal in an amount equal to the related pre-funded
amount remaining in the related account. This prepayment, in general, will have
the same effect on Class A certificateholders as prepayments on the mortgage
loans. Although no assurance can be given to you, it is anticipated by the
depositor that the principal amount of subsequent mortgage loans sold to the
trust after the closing date will require the application of substantially all
of the amounts on deposit in the pre-funding accounts on the closing date so
that there should be no material amount of principal prepaid to you from such
pre-funding accounts. However, it is unlikely that the depositor will be able to
deliver subsequent mortgage loans with an aggregate principal balance identical
to the original amounts on deposit in each pre-funding account, with the result
being that some prepayment to you will occur on the __________________
remittance date. SEE "YIELD AND PREPAYMENT CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.]
[POTENTIAL DELAYS IN RECEIPT OF DISTRIBUTIONS
You may experience some delay in the receipt of distributions of
interest and principal on your certificates since such distributions will be
forwarded by the trustee to DTC and DTC will credit such distributions to the
accounts of its participants which will thereafter credit them to the accounts
of certificateholders either directly or indirectly through indirect
participants. SEE "DESCRIPTION OF THE CERTIFICATES-REGISTRATION OF THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.]
[LACK OF HISTORICAL DATA FOR MULTIFAMILY LOANS, COMMERCIAL LOANS, MIXED-USE
LOANS AND MANUFACTURED HOME LOANS ORIGINATED BY THE DEPOSITOR
The depositor's mortgage loan programs pertaining to multifamily loans,
mixed-use loans, commercial loans and manufactured home loans described in
"Description of the Mortgage Pool--Underwriting" in this prospectus supplement
have produced a relatively low total volume of mortgage loans. As a result, the
depositor does not have significant historical delinquency, foreclosure or loss
experience with respect to its multifamily loan, mixed-use loan, commercial loan
or manufactured home loan programs that may provide a basis to you for purposes
of estimating the future delinquency, foreclosure or loss experience on mortgage
loans similar to the multifamily loans, mixed-use loans, commercial loans and
manufactured home loans included in the trust. SEE "THE DEPOSITOR" IN THIS
PROSPECTUS SUPPLEMENT.]
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[YOUR CERTIFICATES MAY BE EXPOSED TO GREATER LOSSES BECAUSE THE UNDERWRITING
STANDARDS FOR A MAJORITY OF THE MORTGAGE LOANS ARE LESS STRINGENT THAN FANNIE
MAE OR FREDDIE MAC UNDERWRITING STANDARDS
A majority of the mortgage loans have been originated using program
criteria and underwriting standards that are less stringent than the program
criteria and underwriting standards applied by other first mortgage loan
purchase programs such as those run by Fannie Mae or Freddie Mac. Accordingly,
these mortgage loans may experience rates of delinquency, foreclosure and loss
that are higher than mortgage loans originated in accordance with Fannie Mae or
Freddie Mac guidelines. In the event that the mortgaged properties fail to
provide adequate security for the loans, any resulting losses will be covered
through the credit enhancement features described above, but may result in
unanticipated rates and timing of prepayments that have an adverse affect on the
yield to maturity on your certificates. In particular, because in the absence of
shortfalls excess spread and excess principal will, prior to the cross-over date
for a group, be used to accelerate payments of principal on the related offered
certificates, and in certain circumstances described above, the offered
certificates with respect to the other group, application of excess spread to
cover shortfalls will reduce accelerated payments of principal to you. SEE "THE
DEPOSITOR-UNDERWRITING CRITERIA".]
[THE FAILURE OF THE CREDIT ENHANCEMENT TO COVER LOSSES ON THE TRUST FUND ASSETS
WILL RESULT IN LOSSES ALLOCATED TO THE CERTIFICATES
The excess spread, cross-collateralization and overcollateralization
features described above are intended to protect you against shortfalls in
required payments of interest and principal to you. If excess spread and excess
principal on the mortgage loans are insufficient to protect against shortfalls,
the certificate insurer, subject to certain limitations described in this
prospectus supplement, will be required to make a payment to you. If the
certificate insurer is unable to meet its obligations under the certificate
insurance policy, you could experience a loss on your investment. FOR FINANCIAL
AND OTHER INFORMATION CONCERNING THE CERTIFICATE INSURER, SEE "THE CERTIFICATE
INSURER AND THE CERTIFICATE INSURANCE POLICY" AND APPENDIX A AND APPENDIX B IN
THIS PROSPECTUS SUPPLEMENT.]
[THE RATINGS ON YOUR CERTIFICATES WILL DEPEND PRIMARILY ON THE CREDITWORTHINESS
OF THE CERTIFICATE INSURER
It is a condition to the issuance of the offered certificates that each
class of offered certificates be rated "AAA" by ___________ and Aaa by
_________. A security rating is not a recommendation to buy, sell or hold
securities and is subject to revision or withdrawal at any time. There can be no
assurance to you that the rating assigned to any class of the offered
certificates will not be lowered or withdrawn by a rating agency at any time
after the initial issuance. If any rating is revised or withdrawn, the liquidity
of your certificates may be adversely affected. In addition, the rating of the
offered certificates will depend primarily on the creditworthiness of the
certificate insurer. Any reduction in the rating assigned to the claims-paying
ability of the certificate insurer below the rating initially given to the
offered certificates would likely result in a reduction in the rating of the
offered certificates. SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "RISK
FACTORS" IN THE PROSPECTUS.]
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE SERVICER TO PERFORM ITS
DUTIES
As is the case with most companies using computers in their operations,
the servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the servicer's computer programs that have
time-sensitive software may recognize a
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date using "00" as the year 1900 rather than the year 2000. Any such occurrence
could result in major computer system failure or miscalculations. The servicer
has completed its renovation, testing and implementation efforts to make its
applicable servicing systems and software year 2000 compliant. However, in the
event that any of the servicer's suppliers, customers, brokers or agents do not
successfully and timely achieve year 2000 compliance, the performance of
obligations of the servicer under the pooling and servicing agreement could be
adversely affected. SEE "POOLING AGREEMENT-THE SERVICER-YEAR 2000 COMPLIANCE" IN
THIS PROSPECTUS SUPPLEMENT.]
Some capitalized terms used in this prospectus supplement will have the
meaning designed to them under "Description of the Certificates-Glossary of
Terms" or in the prospectus under "Glossary".
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THE MORTGAGE POOL
GENERAL DESCRIPTION OF THE MORTGAGE POOL
The Class A certificates will represent a senior undivided interest in
a trust fund created by Superior Bank FSB, the depositor, consisting of, among
other things, two pools of mortgage loans evidenced by promissory notes secured
by mortgages, deeds of trust or other similar security instruments creating a
first or second lien on one- to four-family properties, units in planned unit
developments, individual condominium units, manufactured homes, multifamily
properties, commercial properties and mixed-use residential and commercial
structures and all proceeds thereof due after the cut-off date, with respect to
the initial mortgage loans, or the subsequent cut-off date with respect to the
subsequent mortgage loans other than the Depositor's Yield as described in the
prospectus. The two pools are referred to herein as "group 1" and "group 2",
each, a "group" and collectively, the mortgage pool. The initial mortgage pool
will consist of mortgage loans with an aggregate principal balance as of the
cut-off date equal to approximately $_________________.
Additional mortgage loans are intended to be purchased by the trust
fund from the depositor from time to time on or before __________________, from
funds on deposit in the related pre-funding account. The initial mortgage loans
and the subsequent mortgage loans, if available, will be originated or purchased
by the depositor, and sold by the depositor to the trust. The pooling and
servicing agreement will provide that the mortgage loans in the related groups,
following the conveyance of the related subsequent mortgage loans, must conform
to certain specified characteristics described below under "--group
1--Conveyance of group 1 subsequent mortgage loans and the group 1 Pre-Funding
Account" and "--group 2--Conveyance of group 2 subsequent mortgage loans and the
group 2 pre-funding account". Funds on deposit in the group 1 pre- funding
account will only be used to purchase group 1 subsequent mortgage loans and
funds on deposit in the group 2 pre-funding account will only be used to
purchase group 2 subsequent mortgage loans. In the sole discretion of the
certificate insurer, subsequent mortgage loans with characteristics varying from
those described herein may be purchased by the trust fund; provided, however,
that the addition of such mortgage loans will not materially affect the
aggregate characteristics of the entire mortgage pool.
Prior to the issuance of the certificates, mortgage loans may be
removed from the mortgage pool as a result of incomplete documentation or
otherwise, if the depositor deems such removal necessary or appropriate, and may
be prepaid at any time. A limited number of other mortgage loans may be included
in the mortgage pool prior to the issuance of the certificates unless including
such mortgage loans would materially alter the characteristics of the mortgage
pool as described herein. The depositor believes that the information set forth
herein will be representative of the characteristics of the mortgage pool as it
exists at the time the certificates are issued, although the range of interest
rates borne by the related mortgage notes and maturities and certain other
characteristics of the mortgage loans in the mortgage pool may vary as described
herein.
GROUP 1
The initial group 1 consists of mortgage loans with an aggregate
principal balance outstanding as of the cut-off date, after deducting all
payments of principal received or deferred on or before such date, of
$______________. The group 1 initial mortgage loans consist of conventional,
fixed-rate mortgage loans secured by first or second liens on one- to
four-family residential properties, units in planned unit developments,
individual condominium units and manufactured homes, residential properties
consisting of five or more dwelling units, commercial properties and mixed-use
residential and commercial structures, with original terms to maturity of up to
___ months. Approximately ____% of the group 1 initial mortgage loans, by group
1 statistical principal balance, were originated and underwritten by the
depositor and the
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remainder of the group 1 initial mortgage loans were purchased and
re-underwritten by the depositor. In each case the underwriting was performed in
accordance with the criteria set forth under "The Depositor--Underwriting
Criteria--group 1" herein. The predecessor of the depositor began originating
and purchasing mortgage loans pursuant to its Fixed Rate Mortgage Program in
1985. The depositor began originating and purchasing mortgage loans pursuant to
its Fixed Rate Mortgage Program-Multifamily and Mixed Use Properties in
September 1994, pursuant to its Manufactured Home Loan Program in March 1997 and
pursuant to its Commercial Property Program in August 1997. SEE "THE
DEPOSITOR--LOAN ORIGINATION HISTORY" HEREIN.
FOR PURPOSES OF THE STATISTICAL INFORMATION SET FORTH IN THE FOLLOWING
PARAGRAPHS AND THE TABLES WITH RESPECT TO GROUP 1, THE AGGREGATE PRINCIPAL
BALANCE OF THE GROUP 1 INITIAL MORTGAGE LOANS WILL BE $______________ WHICH IS
REFERRED TO IN THIS PROSPECTUS SUPPLEMENT AS THE "GROUP 1 STATISTICAL PRINCIPAL
BALANCE" AND WHICH EXCLUDES THE PERMANENT BUYDOWN COMPANION LOANS AND THE
AGGREGATE PRINCIPAL PORTION OF ANY DEFERRED PAYMENTS INCLUDED IN THE INITIAL
GROUP 1.
PAYMENTS ON THE GROUP 1 MORTGAGE LOANS
SIMPLE INTEREST LOANS. Approximately ____% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, provide for
substantially equal monthly payments (except, in the case of a balloon loan, for
the final monthly payment) that are allocated to principal and interest
according to the daily simple interest method. Each monthly payment with respect
to substantially all of the simple interest loans consists of an installment of
interest which is calculated according to the simple interest method on the
basis of the outstanding principal balance of the simple interest loan
multiplied by the stated note rate and further multiplied by a fraction, the
numerator of which is the number of days in the period elapsed since the last
day interest was satisfied and the denominator of which is 365 days, as opposed
to the customary method, on which 30 days of interest is owed each month
irrespective of the day on which the payment is received. As payments are
received, the amount received is applied first to interest accrued to the date
of payment and the balance is applied to reduce the unpaid principal balance.
Accordingly, if a mortgagor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater. However,
if the next succeeding payment is made on the due date, a greater amount will be
allocated to interest than would be the case if the previous payment had also
been on the due date.
Conversely, if a mortgagor pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment is made on or prior to its
scheduled due date, the principal balance of the simple interest loan will
amortize in the manner described in the preceding paragraph. However, if the
mortgagor consistently makes scheduled payments after the scheduled due date the
simple interest loan will amortize more slowly than scheduled. Any remaining
unpaid principal is payable on the final maturity date of the simple interest
loan.
With respect to the simple interest loans, the mortgagor is required to
pay interest only to the date of prepayment in the case of principal prepayments
and curtailments.
PERIODIC PAYMENT LOANS. Approximately ____% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, provide for
substantially equal payments to be made every 28 day period. Each periodic
payment consists of an installment of interest which is calculated according to
the customary
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method, applied on a 28/364 day basis, so that each payment is applied first to
accrued and unpaid interest as if the payment were made on its due date,
regardless of when the payment is actually received, and the remainder to the
unpaid principal balance. Although partial prepayments of principal on periodic
payment loans are applied on scheduled periodic payment dates, with no resulting
reduction in interest payable for the period in which the partial prepayment is
made, the related mortgagors are required to pay interest only to the date of
prepayment if accompanied by a prepayment of principal in full.
LOANS WITH PAYMENT VOUCHERS. Approximately ___% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, are mortgage loans the
mortgage notes of which provide that the mortgagors have the option at any time
during the term of the related mortgage loan, to use a limited number of payment
vouchers provided to them at origination in order to defer payment of the
principal portion of the corresponding payment and pay only the interest portion
due on such payment date. Any principal deferred in such a manner will be due in
full on the maturity date of the related mortgage loan.
DEFERRED PAYMENT LOANS. Approximately ___% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, are mortgage loans for
which the mortgagor has elected, pursuant to the terms of the related mortgage
note, to defer the first two or three payments due on the related payment dates
thereunder and the principal balance conveyed to the trust fund has been reduced
by the principal amount so deferred. If the mortgagor has not prepaid the loan
before a certain date and the maturity date is not otherwise accelerated by the
servicer, these deferred payments will be forgiven. On the closing date and, if
necessary, on any subsequent transfer date, the depositor will deposit into the
group 1 interest coverage account an amount to be applied by the trustee to
cover the interest that will accrue during the period of deferment on the
principal balance of a deferred payment loan as transferred to the trust fund.
To the extent the deferred payments are not forgiven, the servicer will retain
deferred payments collected for payment to the depositor as part of the
Depositor's Yield.
TEMPORARY BUYDOWN LOANS. Approximately ___% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, provide that the
mortgage rate stated in the related mortgage note will be reduced by __% during
the first twelve month period of the loan, and reduced by __% during the second
twelve month period of the loan, after which such stated mortgage rate will
apply.
PERMANENT BUYDOWN LOANS AND PERMANENT BUYDOWN COMPANION LOANS.
Approximately ___% of the group 1 initial mortgage loans, by group 1 statistical
principal balance, are permanent buydown loans made by the depositor to a
borrower together with a companion loan for the purpose of financing a buydown
of the interest rate on the permanent buydown loan. Each permanent buydown
companion loan provides for equal payments of principal only for a term not to
exceed 5 years. Although the permanent buydown loan and the permanent buydown
companion loan are evidenced by separate notes, the servicer will treat both
loans as a single obligation. The permanent buydown loan and the permanent
buydown companion loan are given a single loan number and are billed on a single
statement. Both notes are secured by either a first or second lien on the same
mortgaged property, and a default under one note will trigger a default under
the other.
CHARACTERISTICS OF THE GROUP 1 MORTGAGE LOANS
Each group 1 initial mortgage loan was originated on or after
__________. As of the cut-off date, none of the group 1 initial mortgage loans
were contractually delinquent for two or more payments. Since the origination of
the group 1 mortgage loans, _____ of the group 1 initial mortgage loans have
been contractually delinquent for two consecutive payments on any occasion prior
to the cut-off date.
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In addition, the group 1 initial mortgage loans will have the following
characteristics as of the cut-off date (expressed, where applicable, as a
percentage of the group 1 statistical principal balance):
None of the group 1 initial mortgage loans will have had a
first payment date prior to ___________ and none of the group 1 initial
mortgage loans will have a remaining term to maturity of less than
approximately ___ months. The latest maturity date of any of the group
1 initial mortgage
loans will be ____________.
Approximately ___% of the group 1 initial mortgage loans will
be mortgage loans the proceeds of which were used to purchase a
mortgaged property. The proceeds of not more than approximately ___% of
the group 1 initial mortgage loans will be used to refinance an
existing mortgage loan and not more than approximately ___% of the
group 1 initial mortgage loans will be cash-out loans.
No more than approximately ___% of the group 1 initial
mortgage loans will be secured by mortgaged properties located in any
one zip code area.
Approximately ___% of the group 1 initial mortgage loans are
balloon loans.
[None] of the group 1 initial mortgage loans provide for
negative amortization.
[None] of the group 1 initial mortgage loans will be insured
by any primary mortgage insurance policy.
Approximately ___% of the group 1 initial mortgage loans, by
group 1 statistical principal balance, are secured by second liens with
a first lien on the related underlying mortgaged property.
Approximately ___% of the group 1 initial mortgage loans secured by a
second lien have the related first liens included in group 1. With
respect to the remainder of the group 1 initial mortgage loans there
exists no other mortgage lien senior to that of such group 1 initial
mortgage loans.
Approximately ___% of the group 1 initial mortgage loans will
be secured by attached or detached one-family dwelling units.
Approximately ___% of the group 1 initial mortgage loans will be
secured by units in condominiums. Approximately ___% of the group 1
initial mortgage loans will be secured by manufactured homes.
Approximately ___% of the group 1 initial mortgage loans will be
secured by units in planned unit developments. No more than
approximately ___% of the group 1 initial mortgage loans will be
secured by units in properties consisting of two- to four-family
dwelling units. Approximately ___% of the group 1 initial mortgage
loans will be secured by multifamily properties. Approximately ___% of
the group 1 initial mortgage loans will be secured by commercial
properties and no more than approximately ___% of the group 1 initial
mortgage loans will be secured by mixed use properties.
Based on representations of mortgagors at origination,
approximately ___% of the group 1 initial mortgage loans will be
secured by investor properties and approximately ___% of the group 1
initial mortgage loans will be secured by owner-occupied properties.
The apparent discrepancy in these percentages results from there being
approximately ___% of the group 1 initial mortgage loans that are
secured by (a) units in properties consisting of two- to four-family
dwelling units, (b) multifamily properties and mixed use properties
partially occupied by the mortgagor as the mortgagor's primary
residence and partially rented out as investor property, and (c)
commercial properties partially operated by the mortgagor as the
mortgagor's primary place of business.
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<PAGE>
PERMANENT BUYDOWN LOANS AND PERMANENT BUYDOWN COMPANION LOANS. The
permanent buydown loans, all of which will be included in the initial group 1,
will have an aggregate principal balance as of the cut-off date, after deducting
all payments received on or before such date, of $_____________. The aggregate
principal balance of the corresponding permanent buydown companion loans as of
the cut-off date, after deducting all payments received on or before such date,
will be $____________. At origination, no combined loan-to-value ratio of any
permanent buydown loan and permanent buydown companion loan exceeded ______%.
As of the cut-off date, the average principal balance of the permanent
buydown loans is $_________. The lowest and highest principal balances of the
permanent buydown loans, as of the cut-off date are $_________ and $__________,
respectively.
As of the cut-off date, the average principal balance of the permanent
buydown companion loans is $________. The lowest and highest principal balances
of the permanent buydown companion loans, as of the cut-off date, are $______
and $_________, respectively.
As of the cut-off date, the weighted average remaining term to maturity
of the permanent buydown loans will be approximately ___ months. As of the
cut-off date, the weighted average remaining term to maturity of the permanent
buydown companion loans will be approximately ___ months. All of the permanent
buydown companion loans had an original term to maturity of ___ months.
TABLES
THE FOLLOWING INFORMATION SETS FORTH IN TABULAR FORMAT CERTAIN
ADDITIONAL CHARACTERISTICS OF THE GROUP 1 INITIAL MORTGAGE LOANS, OTHER THAN THE
PERMANENT BUYDOWN COMPANION LOANS, AS OF THE CUT-OFF DATE. THE PRINCIPAL
BALANCES OF THE GROUP 1 MORTGAGE LOANS AS SET FORTH IN THE FOLLOWING TABLES ARE
AS REDUCED BY THE PRINCIPAL PORTION OF ANY DEFERRED PAYMENTS.
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<PAGE>
The following table sets forth the range of principal balances of the
group 1 initial mortgage loans as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
RANGE OF PRINCIPAL BALANCE BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
$. . . . . . . . .- $. . . . . . .
. .
$. . . . . . . . .- $ . . . . . .
. . .
$. . . . . . . . .- $. . . . . . .
. .
$. . . . . . . . .- $ . . . . . .
. . .
$. . . . . . . . .- $ . . . . . .
Totals..............................
As of the cut-off date, the average principal balance is $_________ for
the group 1 initial mortgage loans. The lowest and highest principal balances of
the group 1 initial mortgage loans, as of the cut-off date, are $________ and
$__________, respectively.
The average principal balance of the group 1 initial mortgage loans at
origination was approximately $_________. No group 1 initial mortgage loans had
a principal balance at origination of less than $_______ or greater than
$__________.
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<PAGE>
The following table sets forth the geographic distribution of the group
1 initial mortgage loans as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
GEOGRAPHIC DISTRIBUTION BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North
Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Totals..............................
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<PAGE>
The following table sets forth the original combined loan-to-value
ratios (CLTV) of the group 1 initial mortgage loans as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
ORIGINAL COMBINED PRINCIPAL PRINCIPAL MORTGAGE
LOAN-TO-VALUE RATIO BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
.........% -.........%
.........% -.........%
.........% -.........%
.........% -.........%
.........% -.........%
Totals..............................
At origination, no group 1 initial mortgage loans had a combined
loan-to-value ratio exceeding ____%. The weighted average CLTV of the group 1
initial mortgage loans, as of the cut-off date and without considering the
permanent buydown companion loans, was approximately ___%. Taking into
consideration the permanent buydown companion loans, no group 1 initial mortgage
loans had a combined loan-to-value ratio exceeding ___%, at origination, and the
weighted average combined loan-to-value ratio of the group 1 initial mortgage
loans was approximately ___% as of the cut-off date.
The original CLTVs shown on the table above are equal to (i) the sum of
(a) the original principal balance of the mortgage loan at the date of
origination plus (b) the then outstanding principal balance of any related first
lien, divided by (ii) the collateral value of the related mortgaged property.
The "collateral value" of a mortgaged property is the lesser of (x) the
appraised value based on an appraisal made for the originator of the initial
mortgage loans by an independent fee appraiser (or, in certain instances, by a
licensed in-house appraiser of the depositor) at the time of the origination of
the initial mortgage loan and (y) the sales price of the mortgaged property at
the time of origination. With respect to an initial mortgage loan for which the
proceeds were used to refinance an existing mortgage loan, the collateral value
is the appraised value of the related mortgaged property based upon the
appraisal obtained at the time of refinancing.
The following table sets forth the mortgage rates borne by the mortgage
notes relating to the group 1 initial mortgage loans as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
MORTGAGE RATES BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
........ -.........%
........ -.........%
........ -.........%
........ -.........%
........ -.........%
Totals..............................
As of the cut-off date, the weighted average mortgage rate of the group
1 initial mortgage loans was approximately ___% per annum and ranged from ___%
to ___%.
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The following table sets forth the number of remaining months to
maturity of the group 1 initial mortgage loans as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
REMAINING MONTHS TO MATURITY BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
......... -.........
......... -.........
......... - ........
......... - ........
......... - ........
Totals..............................
As of the cut-off date, the weighted average remaining term to maturity
of the group 1 initial mortgage loans will be approximately ___ months.
The following table sets forth the distribution of the group 1 initial
mortgage loans by the depositor's underwriting class as of the cut-off date:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
UNDERWRITING CLASS BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Totals..............................
The following table sets forth the property types of the group 1
initial mortgage loans:
GROUP 1
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
PROPERTY TYPES BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
One Family (attached/detached)
Condominium
Two-to-Four Family
Planned Unit Development
Manufactured Homes
Multifamily
Mixed Use
Commercial Properties
Totals..............................
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<PAGE>
CONVEYANCE OF GROUP 1 SUBSEQUENT MORTGAGE LOANS AND THE GROUP 1
PRE-FUNDING ACCOUNT
Under the pooling and servicing agreement, following the initial
issuance of the certificates, the depositor has committed to sell, and the trust
fund will be obligated to purchase from the depositor, on or before ___________,
subject to the availability thereof, additional conventional, fixed-rate
residential mortgage loans secured by first or second liens on Single Family
Properties, multifamily properties, commercial properties and mixed use
properties which will be originated and underwritten or purchased and
re-underwritten by the depositor. In each case the underwriting will be
performed in accordance with the criteria set forth herein under "The
Depositor--Underwriting Criteria--Group 1". Group 1 subsequent mortgage loans
will be transferred to the trust fund pursuant to subsequent transfer
instruments between the depositor and the trustee. In connection with the
purchase of group 1 subsequent mortgage loans on the dates of transfer, the
trust fund will be required to pay to the depositor, from amounts on deposit in
the group 1 pre- funding account, a cash purchase price of (a) for each group 1
subsequent mortgage loans that is not a permanent buydown loan or a permanent
buydown companion loan, 100% of the principal balance thereof (as already
reduced by the principal portion of any deferred payments) or (b) for each group
1 subsequent mortgage loans that is a permanent buydown loan and for its
corresponding permanent buydown companion loan, an amount equal to the principal
balance of the permanent buydown loan over the sum of the principal balance of
the permanent buydown loan and the principal balance of the related permanent
buydown companion loan multiplied by the sum of the principal balances of the
permanent buydown loan and permanent buydown companion loan. The depositor will
designate the close of business on the day prior to the related group 1
subsequent transfer date as the cut-off date with respect to the related
subsequent mortgage loans purchased on that date and, as a result, the trust
fund will not be required to pay accrued interest with respect thereto.
Therefore, the aggregate principal balance of the related group after the
closing date will increase by an amount equal to the aggregate principal balance
of the related group 1 subsequent mortgage loans so purchased and the amount in
the related pre-funding account will decrease accordingly.
With respect to group 1, the trustee will establish a pre-funding
account into which it will deposit upon receipt from the depositor
$______________, to be used to purchase the group 1 subsequent mortgage loans.
The original group 1 pre-funded amount will be reduced during the funding period
by the amount thereof used to purchase group 1 subsequent mortgage loans in
accordance with the pooling and servicing agreement. During the period from the
closing date until the earlier of (a) the date on which the amount on deposit in
the group 1 pre-funding account is zero or (b) __________________, the group 1
pre-funded amount will be maintained in the group 1 pre-funding account.
Any conveyance of group 1 subsequent mortgage loans on a group 1
subsequent transfer date is subject to certain conditions including, but not
limited to, the following:
o each group 1 subsequent mortgage loans must satisfy the
representations and warranties specified in the group 1
subsequent transfer instrument and the pooling and servicing
agreement;
o the depositor will not select such subsequent mortgage loans in a
manner that it believes is adverse to the interests of the
certificateholders;
o the depositor will deliver opinions of counsel with respect to
the validity of the conveyance of such subsequent mortgage loans;
o the difference between (1) the sum of the aggregate principal
balance of the group 1 mortgage loans, excluding the permanent
buydown companion loans, and the pre-funded amount and
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<PAGE>
(2) the certificate principal balance of the Class 1A
certificates, will be the same immediately following the purchase
of each group 1 subsequent mortgage loans as it was immediately
prior to the purchase of each group 1 subsequent mortgage loans;
o each group 1 subsequent mortgage loans may not be contractually
delinquent for two or more consecutive payments as of the related
group 1 subsequent cut-off date;
o the original term to maturity of each group 1 subsequent mortgage
loan will not be less than ___ months and will not exceed ___
months;
o each group 1 subsequent mortgage loan may not provide for
negative amortization;
o each group 1 subsequent mortgage loan (other than any permanent
buydown companion loan) will have a mortgage rate not less than
___%;
o each group 1 subsequent mortgage loan will be underwritten in
accordance with the criteria set forth under "The
Depositor--Underwriting Criteria--Group 1" in this prospectus
supplement;
o each group 1 subsequent mortgage loan will have been serviced by
the servicer since origination or purchase by the depositor;
o each group 1 subsequent mortgage loan will not have a CLTV
(excluding any permanent buydown companion loan) greater than
___%; and
o each group 1 subsequent mortgage loans will have (A) as of the
end of the group 1 funding period, a weighted average number of
months since origination of not over ___ months and (B) no
subsequent mortgage loan will have a first payment date later
than ____________ and at least ___% of such subsequent mortgage
loans by aggregate principal balance will have a first payment
date on or prior to ___________.
In addition, following the purchase of any group 1 subsequent mortgage
loan by the trust fund, the group 1 mortgage loans (including the group 1
subsequent mortgage loans but excluding any permanent buydown companion loans)
as of the end of the group 1 funding period will:
o have a weighted average mortgage rate of at least _____%;
o have a weighted average remaining term to stated maturity of not
more than ___ months and not less than ___ months;
o have a weighted average CLTV of not more than ___%;
o have not in excess of ___% by aggregate principal balance of
group 1 mortgage loans that are balloon loans;
o have no group 1 mortgage loan with a principal balance in excess
of $______;
o not have in excess of __% by aggregate principal balance of group
1 mortgage loans secured by non-owner occupied mortgaged
properties;
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<PAGE>
o not have a concentration of mortgaged properties in a single zip
code in excess of ___% by aggregate principal balance of group 1
mortgage loans;
o not have in excess of __% by aggregate principal balance of group
1 mortgage loans secured by mortgaged properties that are
condominiums;
o have at least __% by aggregate principal balance of group 1
mortgage loans secured by fee simple interests in attached or
detached Single Family Properties;
o not have in excess of __% by aggregate principal balance of group
1 mortgage loans secured by multifamily properties and mixed use
properties;
o not have in excess of __% by aggregate principal balance of group
1 mortgage loans secured by manufactured homes and
o not have in excess of __% by aggregate principal balance of group
1 mortgage loans secured by commercial properties.
In the sole discretion of the certificate insurer, group 1 subsequent
mortgage loans with characteristics varying from those set forth in this
paragraph may be purchased by the trust fund; provided, however, that the
addition of these mortgage loans will not materially affect the aggregate
characteristics of group 1.
GROUP 2
The initial group 2 consists of the group 2 initial mortgage loans with
an aggregate principal balance outstanding as of the cut-off date, after
deducting all payments of principal received or deferred on or before such date,
of $______________. The group 2 initial mortgage loans consist of conventional,
adjustable-rate mortgage loans secured by first liens on Single Family
Properties with original terms to maturity of up to ___ months. Approximately
____% of the group 2 initial mortgage loans, by original group 2 principal
balance, were originated and underwritten by the depositor, and the remainder of
the group 2 initial mortgage loans were purchased and re-underwritten by the
depositor. In each case the underwriting was performed in accordance with the
criteria set forth herein under "The Depositor--Underwriting Criteria--Group 2".
The depositor began originating and purchasing mortgage loans pursuant to its
Adjustable Rate First Mortgage Program in the fourth calendar quarter of 1992.
PAYMENTS ON THE GROUP 2 MORTGAGE LOANS
The group 2 initial mortgage loans have mortgage rates subject to an
annual or semiannual adjustment after an initial six month, twenty-four month or
thirty-six month period on the day of the month specified in the related
mortgage note to equal the sum, rounded to the nearest 0.125%, of (1) a per
annum rate equal to the average of interbank offered rates for six-month U.S.
dollar-denominated deposits in the London market based on quotations of major
banks as published in THE WALL STREET JOURNAL and as most recently available as
of the date specified in the related mortgage note, (2) a fixed percentage
amount specified in the related mortgage note; provided, however, that the
mortgage rate will not increase or decrease on any adjustment date by more than
__%, or, with respect to the initial adjustment date, not increase by more than
__% with respect to group 2 initial mortgage loans that are subject to an
adjustment after an initial twenty-four month period. All of the group 2 initial
mortgage loans provide that over the life of the mortgage loan the mortgage rate
will in no event be more than the fixed percentage set forth in the
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<PAGE>
mortgage note. Approximately ___% of the group 2 initial mortgage loans provide
that the mortgage rate may be __% lower than the initial mortgage rate.
Effective with the first payment due on a group 2 initial mortgage loan after
each related adjustment date, the monthly payment will be adjusted to an amount
which will fully amortize the outstanding principal balance of the group 2
initial mortgage loan over its remaining term, and pay interest at the mortgage
rate as so adjusted. ___% of the group 2 initial mortgage loans were originated
with a mortgage rate less than the sum of (1) the six-month LIBOR index at the
time the initial mortgage rate was established and (2) the gross margin, such
sum rounded as described above.
If the six-month LIBOR index ceases to be published or is otherwise
unavailable, the servicer will select an alternative index for mortgage loans on
comparable properties, based upon comparable information, over which it has no
control and which is readily verifiable by mortgagors.
DEFERRED PAYMENT LOANS. Approximately ___% of the group 2 initial
mortgage loans, by original group 2 principal balance, are mortgage loans for
which the mortgagor has elected, pursuant to the terms of the related mortgage
note, to defer the first two payments due on the related payment dates
thereunder and the principal balance conveyed to the trust has been reduced by
the principal amount so deferred. If the mortgagor has not prepaid the loan
before a certain date and the maturity date is not otherwise accelerated by the
servicer, these deferred payments will be forgiven. On the closing date and, if
necessary, on any subsequent transfer date, the depositor will deposit into the
group 2 interest coverage account an amount to be applied by the trustee to
cover the interest that will accrue during the period of deferment on the
principal balance of the deferred payment loan as transferred to the trust fund.
To the extent the deferred payments are not forgiven, the servicer will retain
deferred payments collected for payment to the depositor as part of the
Depositor's Yield.
TEMPORARY BUYDOWN LOANS. Approximately ___% of the group 2 initial
mortgage loans, by original group 2 principal balance, provide that the mortgage
rate stated in the related mortgage note will be reduced by __% during the first
twelve month period of the loan, and reduced by __% during the second twelve
month period of the loan, after which the stated mortgage rate, as subject to
adjustment, will apply.
CHARACTERISTICS OF THE MORTGAGE LOANS
As of the cut-off date, none of the group 2 initial mortgage loans were
contractually delinquent for two or more consecutive payments. Since the
origination of the group 2 initial mortgage loans, four of the group 2 initial
mortgage loans have been contractually delinquent for two consecutive payments
on any occasion prior to the cut-off date.
Each group 2 initial mortgage loan was originated on or after
______________, and has an initial or next adjustment date on or before
________________.
In addition, the group 2 initial mortgage loans will have the following
characteristics as of the cut-off date (expressed, where applicable, as a
percentage of the original group 2 principal balance):
None of the group 2 initial mortgage loans will have had a
first payment date prior to __________ and none of the group 2 initial
mortgage loans will have a remaining term to maturity of less than
approximately ___ months. The latest maturity date of any of the group
2 initial mortgage loans will be ________________.
Approximately ___% of the group 2 initial mortgage loans will
be mortgage loans the proceeds of which were used to purchase a
mortgaged property. The proceeds of not more than
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approximately ___% of the group 2 initial mortgage loans will be used
to refinance an existing mortgage loan and the proceeds of not more
than approximately ___% of the group 2 initial mortgage loans will be
cash-out mortgage loans.
No more than approximately ___% of the group 2 initial
mortgage loans will be secured by mortgaged properties located in any
one zip code area.
[None] of the group 2 initial mortgage loans provide for
negative amortization.
[None] of the group 2 initial mortgage loans will be insured
by any primary mortgage insurance policy.
Approximately ___% of the group 2 initial mortgage loans will
be secured by attached or detached one-family dwelling units (not
including manufactured homes). Approximately ___% of the group 2
initial mortgage loans will be secured by units in condominiums.
Approximately ___% of the group 2 initial mortgage loans will be
secured by units in planned unit developments. Approximately ___% of
the group 2 initial mortgage loans will be secured by manufactured
homes. No more than approximately ____% of the group 2 initial mortgage
loans will be secured by units in properties consisting of two- to
four-family dwelling units. None of the group 2 initial mortgage loans
will be secured by multifamily properties, commercial properties or
mixed use properties.
Based on representations of mortgagors at origination,
approximately ___% of the group 2 initial mortgage loans will be
secured by investor properties and approximately ___% of the group 2
initial mortgage loans will be secured by owner-occupied properties.
The apparent discrepancy in these percentages results from there being
approximately ___% of the group 2 initial mortgage loans that are
secured by units in properties consisting of two- to four-family
dwelling units partially occupied by the mortgagor as the mortgagor's
primary residence and partially rented out as investor property.
TABLES. THE FOLLOWING INFORMATION SETS FORTH IN TABULAR FORMAT CERTAIN
ADDITIONAL CHARACTERISTICS OF THE GROUP 2 INITIAL MORTGAGE LOANS AS OF THE
CUT-OFF DATE. THE PRINCIPAL BALANCES OF THE GROUP 2 MORTGAGE LOANS AS SET FORTH
IN THE FOLLOWING TABLES ARE AS REDUCED BY THE PRINCIPAL PORTION OF ANY DEFERRED
PAYMENTS.
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<PAGE>
The following table sets forth the range of principal balances of the
group 2 initial mortgage loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
RANGE OF PRINCIPAL BALANCE BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
$. . . . . . . . . - $. . . . .
. . . .
$. . . . . . . . . . - $. . . . .
. . . .
$. . . . . . . . . . - $. . . . .
. . . .
$. . . . . . . . . . - $. . . . .
. . . .
$. . . . . . . . . . - $. . . . .
. . . .
$. . . . . . . . . . - $. . . . .
. . . .
Totals..............................
As of the cut-off date, the average principal balance is $_________ for
the group 2 initial mortgage loans. As of the cut-off date, the lowest and
highest principal balances of the group 2 initial mortgage loans are $________
and $__________, respectively.
The average principal balance of the group 2 initial mortgage loans at
origination was approximately $_________. No group 2 initial mortgage loan had a
principal balance at origination of less than $________ or greater than
$_________________.
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<PAGE>
The following table sets forth the geographic distribution of the group
2 initial mortgage loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
GEOGRAPHIC DISTRIBUTION BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North
Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Totals..............................
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<PAGE>
The following table sets forth the original loan-to-value (LTV) ratios
of the group 2 initial mortgage loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
ORIGINAL COMBINED PRINCIPAL PRINCIPAL MORTGAGE
LOAN-TO-VALUE RATIO BALANCE BALANCE LOANS
- ------------------------------------- --------- ---------- ----------
.........% -.........%
.........% -.........%
.........% -.........%
.........% -.........%
.........% -.........%
Totals..............................
The original loan-to-value ratios shown on the previous table are
equal, with respect to each group 2 initial mortgage loan, to (1) the principal
balance of such group 2 initial mortgage loan at the date of origination,
divided by (2) the collateral value of the related mortgaged property.
At origination, no group 2 initial mortgage loan had an LTV exceeding
____%. As of the cut-off date, the weighted average LTV of the group 2 initial
mortgage loans (weighted based upon the original group 2 principal balance) was
approximately _____%.
The following table sets forth the mortgage rates borne by the mortgage
notes relating to the group 2 initial mortgage loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
MORTGAGE RATES BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
........ -.........%
........ -.........%
........ -.........%
........ -.........%
........ -.........%
Totals..............................
As of the cut-off date, the weighted average mortgage rate of the group
2 initial mortgage loans was approximately ____% per annum and ranged from ___%
to ____%.
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<PAGE>
The following table sets forth the number of remaining months to
maturity of the group 2 initial mortgage loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
REMAINING MONTHS TO MATURITY BALANCE BALANCE LOANS
- ------------------------------------- -------- ---------- ----------
......... -.........
......... -.........
......... - ........
......... - ........
......... - ........
Totals..............................
As of the cut-off date, the weighted average remaining term to maturity
of the group 2 initial mortgage loans will be approximately ___ months.
The following table sets forth the distribution of the group 2 initial
mortgage loans by month of next rate adjustment as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
MONTH OF NEXT PRINCIPAL PRINCIPAL MORTGAGE
RATE ADJUSTMENT BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Totals..............................
The following table sets forth the distribution of the gross margins
set forth in the mortgage notes relating to the group 2 initial mortgage loans
as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
GROSS MARGIN BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Totals..............................
As of the cut-off date the weighted average gross margins on the group
2 initial mortgage loans was approximately ___% per annum and ranged from ____%
to ____%.
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<PAGE>
The following table sets forth the distribution of the maximum mortgage
rates set forth in the mortgage notes relating to the group 2 initial mortgage
loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
MAXIMUM MORTGAGE RATES BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Totals..............................
The following table sets forth the distribution of minimum mortgage
rates set forth in the mortgage notes relating to the group 2 initial mortgage
loans as of the cut-off date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
MINIMUM MORTGAGE RATES BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
Totals..............................
The following table sets forth the distribution of the group 2
initial mortgage loans by the depositor's underwriting class as of the cut-off
date:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
UNDERWRITING CLASS BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
Totals..............................
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<PAGE>
The following table sets forth the number of months since origination
of the group 2 initial mortgage loans:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
MONTHS SINCE ORIGINATION BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
Totals..............................
The following table sets forth the property types of the group 2
initial mortgage loans:
GROUP 2
PERCENT BY NUMBER OF
PRINCIPAL PRINCIPAL MORTGAGE
PROPERTY TYPES BALANCE BALANCE LOANS
- ------------------------------------- ------- -------- ----------
One Family (attached/detached)
Condominium
Two-to-Four Family
Planned Unit Development
Manufactured Homes
Totals..............................
CONVEYANCE OF GROUP 2 SUBSEQUENT MORTGAGE LOANS AND THE GROUP 2 PRE-FUNDING
ACCOUNT
Under the pooling and servicing agreement, following the initial
issuance of the certificates, the depositor has committed to sell, and the trust
fund will be obligated to purchase from the depositor, on or before
__________________, subject to the availability thereof, additional
conventional, adjustable-rate residential mortgage loans secured by first liens
on Single Family Properties which will be originated and underwritten or
purchased and re-underwritten by the depositor. In each case the underwriting
will be performed in accordance with the criteria set forth herein under "The
Depositor--Underwriting Criteria--Group 2". Group 2 subsequent mortgage loans
will be transferred to the trust fund pursuant to subsequent transfer
instruments between the depositor and the trustee. In connection with the
purchase of group 2 subsequent mortgage loans on the dates of transfer, the
trust fund will be required to pay to the depositor from amounts on deposit in
the group 2 pre-funding account a cash purchase price of 100% of the principal
balance thereof as already reduced by the principal portion of any deferred
payments. The depositor will designate the close of business on the day prior to
the group 2 subsequent transfer date as the cut-off date with respect to the
related group 2 subsequent mortgage loans purchased on such date and, as a
result, the trust fund will not be required to pay accrued interest with respect
thereto. Therefore, the aggregate principal balance of group 2 after the closing
date will increase by an amount equal to the aggregate principal balance of the
group 2 subsequent mortgage loans so purchased and the amount in the group 2
pre-funding account will decrease accordingly.
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<PAGE>
With respect to group 2, the trustee will establish a pre-funding
account into which it will deposit upon receipt from the depositor,
$______________ to be used to purchase group 2 subsequent mortgage loans. The
original group 2 pre-funded amount will be reduced during the funding period by
the amount thereof used to purchase group 2 subsequent mortgage loans in
accordance with the pooling and servicing agreement. During the period from the
closing date until the earlier of (a) the date on which the amount on deposit in
the group 2 pre-funding account is zero and (b) __________________, the group 2
pre-funded amount will be maintained in the group 2 pre-funding account.
Any conveyance of group 2 subsequent mortgage loans on a group 2
subsequent transfer date is subject to certain conditions including, but not
limited to, the following:
o each subsequent mortgage loan must satisfy the representations
and warranties specified in the group 2 subsequent transfer
instrument and the pooling and servicing agreement;
o the depositor will not select such subsequent mortgage loans in a
manner that it believes is adverse to the interests of the
certificateholders;
o the depositor will deliver opinions of counsel with respect to
the validity of the conveyance of such subsequent mortgage loans;
o each group 2 subsequent mortgage loan may not be ___ or more days
contractually delinquent as of the related group 2 subsequent
cut-off date;
o the original term to maturity of such group 2 subsequent mortgage
loan will not be less than ___ months and will not exceed ___
months;
o each group 2 subsequent mortgage loan may not provide for
negative amortization;
o each group 2 subsequent mortgage loan will have a gross margin
not less than ___%;
o each group 2 subsequent mortgage loan will be underwritten in
accordance with the criteria set forth under "The
Depositor--Underwriting Criteria--Group 2" herein;
o each group 2 subsequent mortgage loan will have been serviced by
the servicer since origination or purchase by the depositor;
o each group 2 subsequent mortgage loan will not have an LTV
greater than ___%;
o each group 2 subsequent mortgage loan will have a maximum
mortgage rate not less than ____%; and
o each group 2 subsequent mortgage loans will have (A) as of the
end of the group 2 funding period, a weighted average number of
months since origination of not over 4 months and (B) no
subsequent mortgage loan will have a first payment date later
than ________________ and at least __% of such subsequent
mortgage loans by aggregate principal balance will have a first
payment date on or prior to _______________.
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<PAGE>
In addition, following the purchase of any group 2 subsequent mortgage
loan by the trust fund, the group 2 mortgage loans (including the group 2
subsequent mortgage loans) as of the end of the group 2 funding period will:
o have a weighted average gross margin of at least ____% and a
weighted average coupon of at least ___%;
o have a weighted average remaining term to stated maturity of not
more than ___ months and not less than ___ months;
o have a weighted average LTV of not more than ___%;
o have no group 2 mortgage loan with a principal balance in excess
of $_______;
o not have in excess of __% by aggregate principal balance of group
2 mortgage loans secured by non-owner occupied mortgaged
properties;
o not have a concentration of mortgaged properties in a single zip
code in excess of ___% by aggregate principal balance of group 2
mortgage loans;
o not have in excess of ___% by aggregate principal balance of
group 2 mortgage loans secured by mortgaged properties that are
condominiums;
o have at least ___% by aggregate principal balance of group 2
mortgage loans secured by fee simple interests in attached or
detached Single Family Properties;
o not be secured by multifamily properties;
o not be secured by mixed use properties;
o not be secured by commercial properties;
o not have in excess of __% by aggregate principal balance of the
group 2 mortgage loans secured by manufactured homes and
o be secured by a first priority lien on the related mortgaged
property.
In the sole discretion of the certificate insurer, group 2 subsequent
mortgage loans with characteristics varying from those set forth in this
paragraph may be purchased by the trust fund; provided, however, that the
addition of these group 2 mortgage loans will not materially affect the
aggregate characteristics of group 2.
S-41
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
DELAY IN DISTRIBUTIONS
The effective yield to the Class A certificateholders will be slightly
lower than the yield otherwise produced by the related Class A pass-through rate
because the distribution of such interest will not be made until the 25th day
(or, if such day is not a business day, on the first business day thereafter) of
the month following the month in which interest accrues on the mortgage loans
(without any additional distribution of interest or earnings thereon in respect
of such delay). A "business day" is any day other than Saturday or Sunday, or a
day on which banking institutions in the States of New York, Illinois or New
Jersey are authorized or obligated by law or executive order to be closed. SEE
"DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
PREPAYMENT CONSIDERATIONS AND RISKS
A substantial majority of the mortgage loans may be prepaid by the
mortgagors at any time without a prepayment penalty. Upon prepayment of a
deferred payment loan, the deferred payments may be due and payable. Any
prepayment charges and deferred payments collected shall be retained by the
servicer and paid to the depositor.
Interest shortfalls on the mortgage loans due to principal prepayments
in full and curtailments will be covered to the extent described in this
prospectus supplement and in the prospectus by payments of compensating interest
by the servicer and any shortfalls not covered by such payments that would
otherwise be borne by the Class A certificates will be covered by distributions
of Excess Spread from the related group, Net Excess Spread and Excess Principal
from the other group (prior to the related cross-over date), and payments
pursuant to the certificate insurance policy, subject to the limitations
described herein. Because in the absence of such shortfalls the Excess Spread
will, prior to the related cross-over date, be used to accelerate payments of
principal on the related Class A certificates, and in certain circumstances, the
Class A certificates with respect to the other group, application of Excess
Spread to cover any interest shortfalls will reduce accelerated payments of
principal to the Class A certificates.
To the extent that the original pre-funded amount with respect to a
group has not been fully applied to the purchase of related subsequent mortgage
loans by the trust fund by the end of the related funding period, the holders of
the related Class A certificates will receive, pro rata, a prepayment of
principal in an amount equal to the lesser of (a) the pre-funded amount
remaining in the related pre-funding account on the first remittance date
following the termination of the funding period and (b) the related outstanding
Class A principal balance. Although no assurance can be given, it is anticipated
by the depositor that the principal amount of subsequent mortgage loans sold to
the trust fund will require the application of substantially all of the original
pre-funded amounts and that there should be no material amount of principal
prepaid to the related Class A certificateholders from the related pre-funding
account. However, it is unlikely that the depositor will be able to deliver
subsequent mortgage loans with an aggregate principal balance identical to the
related original pre-funded amounts, with the result that some prepayment of the
related Class A certificates will occur on the __________________ remittance
date.
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<PAGE>
In addition, the yield to maturity of the Class A certificates will
depend on whether, to what extent, and the timing with respect to which, Excess
Spread, Available Transfer Cashflow and Net Excess Principal is used to
accelerate payments of principal on such Class A certificates. With respect to
each group, on any remittance date on which the Overcollateralization Amount
equals the Required Overcollateralization Amount, Excess Spread, Available
Transfer Cashflow and Net Excess Principal will not be applied to accelerate
payments of principal on such Class A certificates. In addition, on any such
date, distributions in respect of principal to the related Class A certificates
may only equal that amount necessary to maintain the Required
Overcollateralization Amount with respect to a group, which amount may be zero,
therefore reducing the rate of principal payments allocated to the related Class
A certificates.
Greater than anticipated prepayments of principal will increase the
yield on Class A certificates purchased at a price less than par. Greater than
anticipated prepayments of principal will decrease the yield on Class A
certificates purchased at a price greater than par. The effect on an investor's
yield due to principal prepayments on the mortgage loans occurring at a rate
that is faster (or slower) than the rate anticipated by the investor in the
period immediately following the issuance of the Class A certificates will not
be entirely offset by a subsequent like reduction (or increase) in the rate of
principal payments. The weighted average life of the Class A certificates will
also be affected by the amount and timing of delinquencies and defaults on the
mortgage loans and the recoveries, if any, on defaulted mortgage loans and
foreclosed properties.
The rate of principal payments on the Class A certificates, the
aggregate amount of distributions on the Class A certificates and the yield to
maturity of the Class A certificates is directly related to the rate of payments
of principal on the mortgage loans in the related group, which may be in the
form of scheduled and unscheduled payments. In particular, a reduction in the
rate of principal payments will occur when interest only vouchers are used to
defer principal payments and interest only payments are made under the periodic
payment loans. In general, when the level of prevailing interest rates for
similar loans significantly declines, the rate of prepayment is likely to
increase, although the prepayment rate is influenced by a number of other
factors, including general economic conditions and homeowner mobility. The rate
of principal payments will in turn be affected by the amortization schedules
(which will change periodically to accommodate adjustments to the mortgage rates
on group 2 mortgage loans) and by the rate of principal prepayments and
Curtailments on the related mortgage loans (including, for this purpose,
prepayments resulting from (a) refinancings, (b) liquidations due to defaults,
casualties and condemnations and (c) repurchases by the depositor or the
servicer). The rate of default on second mortgage loans may be greater than that
of mortgage loans secured by first liens on comparable properties. Prepayments,
liquidations and purchases of the mortgage loans will result in distributions to
related Class A certificateholders of amounts of principal which would otherwise
be distributed over the remaining terms of the related mortgage loans. A
substantial majority of the mortgage loans may be prepaid by the mortgagors at
any time without a prepayment penalty and the mortgagor is required to pay
interest only to the date of prepayment.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
Although the servicer has no obligation to do so, the servicer may
purchase from the trust fund a mortgage loan which is delinquent in payment 90
days or more. The purchase price for such mortgage loan will be equal to 100% of
the principal balance thereof plus accrued and unpaid interest thereon.
In addition, the servicer may, at its option, with written notice to
the certificateholders and the trustee, purchase from the trust fund all of the
outstanding mortgage loans and REO Properties, and thus effect the early
retirement of the related Class A certificates, on any remittance date on which
the outstanding aggregate
S-43
<PAGE>
principal balance of the mortgage loans is less than or equal to ___% of the sum
of the original pool principal balance and the original pre-funded amounts. SEE
"POOLING AGREEMENT-- TERMINATION; PURCHASE OF MORTGAGE LOANS" HEREIN AND
"DESCRIPTION OF THE CERTIFICATES--TERMINATION" IN THE PROSPECTUS.
EFFECT OF PREPAYMENTS AND MORTGAGE LOAN YIELD ON CLASS 1A PASS-THROUGH RATE
The Class 1A pass-through rate for each remittance date will be equal
to the lesser of (1) one-month LIBOR plus ___% per annum, and (2) the weighted
average of the mortgage rates of the group 1 mortgage loans minus, with respect
to group 1, the sum of (a) the rate at which the servicing fee is calculated,
(b) the rate at which the monthly premium payable to the certificate insurer is
calculated and (c) the rate at which the annual trustee expense amount is
calculated; provided that on any remittance date on which the servicer does not
exercise its option to purchase the mortgage loans and REO Properties as
described under "Pooling Agreement-Termination; Purchase of the Mortgage Loans"
in this prospectus supplement, the rate provided in clause (1) of this sentence
will be one-month LIBOR plus ___% per annum.
Disproportionate principal payments (whether resulting from principal
prepayments or curtailments) on group 1 mortgage loans having mortgage rates
higher or lower than the then current Class 1A pass-through rate may also affect
the yield on the Class 1A certificates. The yield to maturity of the Class 1A
certificates may be lower than that otherwise produced if disproportionate
principal payments (including principal prepayments) are made on group 1
mortgage loans having mortgage rates that exceed the Class 1A pass-through rate.
The Class 1A pass-through rate is based upon, among other factors as
described above, the value of an index, one-month LIBOR which is different from
the fixed rates applicable to the group 1 mortgage loans, as described under
"The Mortgage Pool-Group 1" herein. See "Description of the Certificates-
Calculation of One-Month LIBOR" herein. Each group 1 mortgage loan bears a fixed
rate whereas the Class 1A pass-through rate adjusts monthly and may be based
upon one-month LIBOR. Because the mortgage rates on the group 1 mortgage loans
are fixed, such rates will not change in response to changes in market interest
rates. Accordingly, if mortgage market interest rates or market yields for
securities similar to the Class 1A certificates were to rise, the market value
of the Class 1A certificates may decline in cases where the Class 1A
pass-through rate did not increase accordingly. One-month LIBOR may respond to
economic and market factors, while the mortgage rates on the group 1 mortgage
loans will be fixed. One-month LIBOR may increase to a level at which the amount
of interest collected on all of the group 1 mortgage loans during the related
accrual period may be insufficient to pay interest on the Class 1A certificates
at the Class 1A pass-through rate calculated using One-month LIBOR and the rate
payable on the Class 1A certificates will be the Class 1A Cap Rate. The Class 1A
certificates do not contain any "carry-forward" or "catch-up" feature if the
amount of interest paid is so limited.
PREPAYMENT MODEL FOR CLASS 1A CERTIFICATES
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement with
respect to group 1 is based on a constant annual rate of prepayment relative to
the then outstanding principal balance of the related mortgage loans applied
monthly during the period indicated of the life of the group 1 mortgage loan.
The prepayment model 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
group 1
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<PAGE>
mortgage loans. The depositor does not make any representation about the
appropriateness of any prepayment model.
The percentages and weighted average lives in the following tables were
determined assuming that
o scheduled interest and principal payments (including balloon
payments) on the group 1 mortgage loans are received in a timely
manner and prepayments of group 1 mortgage loans in full are made
at the indicated scenario level set forth in the tables;
o the servicer exercises its right of optional termination
described above on the earliest permissible date;
o distributions are made on the 25th day of each calendar month
regardless of the day on which the remittance date actually
occurs, commencing in _________;
o the group 1 mortgage loans have been aggregated into ___
hypothetical initial mortgage loans, one of which is a permanent
buydown companion loan and two of which are temporary buydown
loans, and _______ hypothetical subsequent mortgage loans, four
of which are temporary buydown loans, with the characteristics
set forth in the first following table; and the group 1
subsequent mortgage loans are purchased by _____________
resulting in no mandatory prepayment of the Class 1A certificates
on ____________;
o no losses on the group 1 mortgage loans have occurred;
o the sum of the servicing fee and fees payable out of the trust
fund to the trustee and the certificate insurer, respectively,
equals approximately ___% per annum of the scheduled principal
balance of the group 1 mortgage loans for each remittance date;
o no interest shortfalls will arise in connection with prepayment
in full of the group 1 mortgage loans;
o the initial Class 1A pass-through rate is equal to _______% per
annum and the initial Class 1A principal balance is equal to
$______________,
o the Class A Principal Remittance Amount with respect to each of
the Class 1A certificates on each remittance date occurring prior
to the step-down date is equal to principal received from group 1
plus the related Unrecovered Class A Portion for such remittance
date and on each remittance date occurring on or after the
step-down date is equal to that amount required to reach or
maintain the Required Overcollateralization Amount;
o on each remittance date prior to the cross-over date, the Excess
Spread for group 1 is applied in an amount required to reach or
maintain the Required Overcollateralization Amount for group 1
and to reduce the principal balance of the Class 1A certificates
to the extent that the amount of such current application plus
such amounts applied on all prior remittance dates does not
exceed $_____________ for group 1 (not including the permanent
buydown companion loans);
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<PAGE>
o each remittance date is deemed to occur before the cross-over
date;
o the Class 1A certificates are purchased on _____________;
o no Available Funds Shortfall with respect to group 1 exists and
Available Transfer Cashflow and Net Excess Principal is applied
to reach or maintain the Required Overcollateralization Amount as
described in the pooling and servicing agreement; and
o the Required Overcollateralization Amount for group 1 is the
Overcollateralization Amount required by the certificate insurer
at any time as set forth in the insurance agreement with respect
to group 1 among the depositor, the servicer, the certificate
insurer and the trustee.
The first and second following tables assume that there are no
delinquencies on the group 1 mortgage loans and that the related interest
coverage account has sufficient funds on deposit to cover shortfalls in interest
of the Class 1A certificates during the funding period attributable to the
pre-funding feature. The "step-down date" will be the remittance date following
the later to occur of (1) the _______ remittance date and (2) the date on which
the then outstanding group 1 principal balance is equal to ___% of the sum of
the original group 1 pre-funded amount and the original group 1 principal
balance.
S-46
<PAGE>
GROUP 1
HYPOTHETICAL GROUP 1 MORTGAGE LOANS
<TABLE>
<CAPTION>
REMAINING
ORIGINAL REMAINING MONTHS TO
AMORTIZATION AMORTIZATION BALLOON
MORTGAGE TERM TERM PAYMENT
PRINCIPAL BALANCE INTEREST RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
- --------------------------------- ------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Initial mortgage loans:
</TABLE>
Subsequent group 1 mortgage loans (first subsequent transfer balance as of
_____________):
Subsequent group 1 mortgage loans (second subsequent transfer balance as of
_______):
- ------------------------------------
(1) Temporary buydown loan which assumes the mortgage rate increases 1% in month
twelve and an additional
1% in month twenty-four.
(2) Permanent buydown companion loan which provides for equal monthly payments
of principal only for 60 months.
S-47
<PAGE>
Since the following tables were prepared on the basis of the
assumptions in the preceding paragraph, there are discrepancies between the
characteristics of the actual group 1 mortgage loans and the characteristics of
the mortgage loans assumed in preparing such tables. Any such discrepancy may
have an effect upon the percentages of the principal balance outstanding of the
Class 1A certificates and the weighted average life of the Class 1A certificates
set forth in the tables. In addition, since the actual group 1 mortgage loans
and the trust fund have characteristics which differ from those assumed in
preparing the tables set forth below, the distributions of principal on the
Class 1A certificates may be made earlier or later than as indicated in the
tables.
It is not likely that the group 1 mortgage loans will prepay to
maturity at any of the prepayment models specified in the tables below or that
all group 1 mortgage loans will prepay at the same rate. In addition, the
diverse remaining terms to maturity of the group 1 mortgage loans (which include
recently originated group 1 mortgage loans) could produce slower or faster
distributions of principal than are indicated in the following tables at the
prepayment model specified even if the weighted average of the remaining terms
to maturity of the group 1 mortgage loans equals those assumed.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
The model used in this prospectus supplement with respect to the Class
1A certificates is the prepayment assumption which represents the assumed rate
of prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans. With respect to the
Class 1A certificates, a 100% prepayment assumption assumes a constant
prepayment rate of __% per annum of the then outstanding principal balance of
such mortgage loans in the first month of the life of the mortgage loans and an
additional ___% per annum in each month thereafter until the twenty-first month.
Beginning in the twenty-first month and in each month thereafter during the life
of the mortgage loans, a ___% prepayment assumption assumes a constant
prepayment rate of __% per annum. As used in the table entitled "Prepayment
Scenarios", 0% prepayment assumption assumes prepayment rates equal to 0% of the
prepayment assumption i.e., no prepayments. Correspondingly, 100% prepayment
assumption assumes prepayment rates equal to 100% of the prepayment assumption
and so forth. In comparison, the model used in this prospectus supplement with
respect to group 2 is based on a Constant Prepayment Rate more fully defined
herein under the caption "Certain Yield and Prepayment
Considerations--prepayment model for Class 2A certificates". A "Constant
Prepayment Rate" or "CPR" represents a constant annual rate of payment relative
to the then outstanding principal balance of the related mortgage loans applied
monthly during the indicated portion of the life of the group 2 mortgage loan.
<TABLE>
<CAPTION>
PREPAYMENT SCENARIOS
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Group 1(1) % % % % %
Group 2(2) % % % % %
</TABLE>
(1) As a percentage of the prepayment assumption.
(2) As a constant prepayment rate (CPR).
S-48
<PAGE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Class 1A certificates.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS 1A
CERTIFICATES OUTSTANDING AT THE RESPECTIVE
PREPAYMENT MODELS SET FORTH BELOW
<TABLE>
<CAPTION>
REMITTANCE DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
--------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100%
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
Weighted Average Life (1)(2) years...........
Weighted Average Life (1)(3) years...........
- --------------------------
</TABLE>
(1) The weighted average life of a Class 1A certificate is determined by (1)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of
issuance of such Class 1A certificate to the stated remittance date, (2)
adding the results, and (3) dividing the sum by the initial principal
balance of such Class 1A certificate.
(2) Assumes servicer exercises its right of optional termination at the
earliest permissible date.
(3) Assumes that the Class 1A certificates remain outstanding to their maturity
date.
S-49
<PAGE>
As with fixed-rate obligations generally, the rate of prepayment on a
pool of mortgage loans is affected by prevailing market rates for mortgage loans
of a comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments. The depositor
makes no representation as to the particular factors that will affect the
prepayment of the group 1 mortgage loans, as to the relative importance of such
factors, as to the percentage of the principal balance of the group 1 mortgage
loans that will be paid as of any date or as to the overall rate of prepayment
on the group 1 mortgage loans.
EFFECT OF PREPAYMENTS AND MORTGAGE LOAN YIELD ON CLASS 2A PASS-THROUGH RATE
The Class 2A pass-through rate for each remittance date will be equal
to the lesser of (1) One- month LIBOR plus ___% per annum and (2) the weighted
average of the mortgage rates of the group 2 mortgage loans minus, with respect
to group 2, the sum of (a) the rate at which servicing fee is calculated, (b)
the rate at which the monthly premium payable to the certificate insurer is
calculated and (c) the rate at which the annual trustee expense amount is
calculated; provided, that on any remittance date on which the servicer does not
exercise its option to purchase the mortgage loans and REO Properties as
described under "Pooling Agreement-Termination; Purchase of the mortgage loans"
herein, the rate provided in clause (1) of this sentence will be one-month LIBOR
plus ____% per annum.
Disproportionate principal payments (whether resulting from principal
prepayments or curtailments) on group 2 mortgage loans having mortgage rates
higher or lower than the then current Class 2A pass-through rate may also affect
the yield on the Class 2A certificates. The yield to maturity of the Class 2A
certificates will be lower than that otherwise produced if disproportionate
principal payments (including principal prepayments) are made on group 2
mortgage loans having mortgage rates that exceed the Class 2A pass-through rate.
The Class 2A pass-through rate is based upon, among other factors as
described above, the value of an index, one-month LIBOR, which is different from
the value of the six-month LIBOR index applicable to the group 2 mortgage loans,
as described under "The Mortgage Pool-Group 2" herein. See "Description of the
Certificates-Calculation of One-Month LIBOR" herein. Each group 2 mortgage loan,
after the initial adjustment, adjusts annually or semiannually based upon the
six-month LIBOR index whereas the Class 2A pass-through rate adjusts monthly and
may be based upon one-month LIBOR. One-month LIBOR and the six-month LIBOR index
applicable to the mortgage loans may respond differently to economic and market
factors, and there is not necessarily any correlation between them. In addition,
the mortgage loans are subject to periodic rate caps, maximum mortgage rates and
minimum mortgage rates. Thus, it is possible, for example, that one-month LIBOR
may rise during periods in which the six-month LIBOR index on the mortgage loans
is stable or are falling or that, even if both one-month LIBOR and the six-month
LIBOR index rise during the same period, one-month LIBOR may increase to a level
at which the amount of interest collected on all group 2 mortgage loans during
the related accrual period may be insufficient to pay interest on the Class 2A
certificates at the Class 2A pass-through rate calculated using one-month LIBOR
and the rate payable on the Class 2A certificates will be the Class 2A cap rate.
In such an event, the resulting interest differential amount will be paid to the
Class 2A
S-50
<PAGE>
certificateholders on future distribution dates but, on a subordinated basis
subject to the Available Funds Cap Carry Forward Amount.
In addition, a number of factors affect the performance of one-month
LIBOR and may cause one-month LIBOR to move in a different manner from other
indices. To the extent that one-month LIBOR may reflect changes in the general
level of interest rates less quickly than other indices, in a period of rising
interest rates, increases in the yield to Class 2A certificateholders due to
such rising interest rates may occur later than that which would be produced by
other indices, and in a period of declining rates, one-month LIBOR may remain
higher than other market interest rates.
All of the group 2 mortgage loans are adjustable-rate mortgage loans.
As is the case with conventional fixed-rate mortgage loans, ARM Loans may be
subject to a greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates were to fall
significantly, ARM Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain constant because the availability of
fixed-rate mortgage loans at competitive interest rates may encourage mortgagors
to refinance their ARM Loans to "lock in" lower fixed interest rates. The rate
of payments (including prepayments) on pools of mortgage loans is influenced by
a variety of economic, geographic, social and other factors, including changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. No assurances can be
given as to the rate of prepayments on the group 2 mortgage loans in stable or
changing interest rate environments and the depositor makes no representations
as to the particular factors that will affect the prepayment of the group 2
mortgage loans.
PREPAYMENT MODEL FOR CLASS 2A CERTIFICATES
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. As described above, the prepayment model with
respect to group 2 is based on a CPR. The prepayment model 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 group 2 mortgage loans. The depositor does not
make any representation about the appropriateness of any prepayment model.
The percentages and weighted average lives in the following tables were
determined assuming that:
o scheduled interest and principal payments on the group 2 mortgage
loans are received in a timely manner and prepayments of group 2
mortgage loans in full are made at the indicated CPR set forth in
the table entitled "Prepayment Scenarios";
o the servicer exercises its right of optional termination on the
earliest permissible date as described above;
o distributions are made on the 25th day of each calendar month
regardless of the day on which the remittance date actually
occurs, commencing in _____, ____;
o the group 2 mortgage loans have been aggregated into seven
hypothetical group 2 initial mortgage loans, one of which is a
temporary buydown loan, and fourteen hypothetical
S-51
<PAGE>
group 2 subsequent mortgage loans, two of which are temporary
buydown loans, with the characteristics set forth in the first
and second following table; and the group 2 subsequent mortgage
loans are purchased by __________________ resulting in no
mandatory prepayment of the Class 2A certificates on
____________;
o no losses on the group 2 mortgage loans have occurred;
o the sum of the servicing fee and the fees payable to the trustee
and the certificate insurer, respectively, equals approximately
___% per annum of the scheduled principal balance of the group 2
mortgage loans for each remittance date;
o no interest shortfalls will arise in connection with prepayment
in full of the group 2 mortgage loans;
o the initial Class 2A pass-through rate is equal to _______% per
annum and the initial Class 2A principal balance is equal to
$___________;
o the Class A Principal Remittance Amount with respect to each of
the Class 2A certificates on each remittance date occurring prior
to the step-down date is equal to principal received from group 2
plus the related Unrecovered Class A Portion for such remittance
date and on each remittance date occurring on or after the
step-down date is equal to that amount required to reach or
maintain the Required Overcollateralization Amount;
o on each remittance date prior to the cross-over date, the Excess
Spread for group 2 is applied in an amount required to reach or
maintain the Required Overcollateralization Amount and to reduce
the principal balance of the related Class 2A certificates to the
extent that the amount of such current application plus such
amounts applied on all prior remittance dates does not exceed
$___________ for group 2,
o each remittance date is deemed to occur before the cross-over
date;
o the Class 2A certificates are purchased on ________;
o the Six-Month LIBOR Index remains at a constant rate equal to
________%, with respect to any adjustment date; and
o no Available Funds Shortfall with respect to group 2 exists and
Available Transfer Cashflow and Net Excess Principal is applied
to reach or maintain the Required Overcollateralization Amount as
described in the pooling and servicing agreement.
The first through fourth following tables also assume that (1) there
are no delinquencies on the group 2 mortgage loans; (2) the group 2 interest
coverage account has sufficient funds on deposit to cover shortfalls in interest
on the Class 2A certificates during the funding period attributable to the
pre-funding feature; and (3) the Required Overcollateralization Amount for group
2 is the Overcollateralization Amount required by the certificate insurer at any
time as set forth in the insurance agreement with respect to group 2 among the
depositor, the servicer, the certificate insurer and the trustee. The "step-down
date" will be the remittance date following the later to occur of (1) the
_______ remittance date and (2) the date
S-52
<PAGE>
on which the then outstanding group 2 principal balance is equal to ___% of the
sum of the original group 2 pre-funded amount and the original group 2 principal
balance.
S-53
<PAGE>
<TABLE>
<CAPTION>
HYPOTHETICAL GROUP 2 MORTGAGE LOANS
MONTHS ORIGINAL REMAINING
TO MORTGAGE MAXIMUM MINIMUM TERM TO TERM TO
PRINCIPAL RATE INTEREST GROSS INTEREST INTEREST MATURITY MATURITY
BALANCE CHANGE RATE MARGIN RATE RATE (IN MONTHS) (IN MONTHS)
------- ------ ---- ------ ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial group 2 mortgage loans:
Subsequent group 2 mortgage loans (first subsequent transfer balance as of
_____________):
Subsequent group 2 mortgage loans (second subsequent transfer balance as of
_____________):
</TABLE>
- ------------------------------------
(1) Temporary buydown loan which assumes the mortgage rate increases 1% in month
twelve. Beginning in month twenty-four the mortgage rate adjusts every six
months based on the six month LIBOR index.
S-54
<PAGE>
Since the following tables were prepared on the basis of the
assumptions in the preceding paragraph, there are discrepancies between the
characteristics of the actual group 2 mortgage loans and the characteristics of
the mortgage loans assumed in preparing such table. Any such discrepancy may
have an effect upon the percentages of the Class 2A principal balance
outstanding and the weighted average life of the Class 2A certificates set forth
in the tables. In addition, since the actual group 2 mortgage loans and the
trust fund have characteristics which differ from those assumed in preparing the
table set forth below, the distributions of principal on the Class 2A
certificates may be made earlier or later than as indicated in the table.
It is not likely that the group 2 mortgage loans will prepay to
maturity at the prepayment model specified in the tables below or that all group
2 mortgage loans will prepay at the same rate. In addition, the diverse
remaining terms to maturity of the group 2 mortgage loans (which include
recently originated group 2 mortgage loans) could produce slower or faster
distributions of principal than are indicated in the table at the various
percentages of the prepayment model specified even if the weighted average of
the remaining terms to maturity of the group 2 mortgage loans equals those
assumed.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
The model used in this prospectus supplement with respect to the Class
2A certificates is based on a percentage of CPR as shown in the table entitled
"Prepayment Scenarios". See "Certain Yield and Prepayment
Considerations--prepayment model for Class 1A Certificates" above.
Based on the foregoing assumptions, the following table indicates the
projected weighted average life of the Class 2A certificates.
S-55
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS 2A
CERTIFICATES OUTSTANDING AT THE RESPECTIVE
PREPAYMENT MODELS SET FORTH BELOW
REMITTANCE DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
--------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100%
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
Weighted Average Life (1)(2) years...........
Weighted Average Life (1)(3) years...........
</TABLE>
- --------------------------
(1) The weighted average life of a Class 2A certificate is determined by (1)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of
issuance of such Class 2A certificate to the stated remittance date, (2)
adding the results, and (3) dividing the sum by the initial principal
balance of such Class 2A certificate.
(2) Assumes servicer exercises its right of optional termination at the
earliest permissible date.
(3) Assumes that the Class 2A certificates remain outstanding to their
maturity.
The rate of prepayment on a pool of mortgage loans is affected by
prevailing market rates for mortgage loans of a comparable term and risk level.
When the market interest rate is below the mortgage coupon, mortgagors may have
an increased incentive to refinance their mortgage loans. Depending on
prevailing market rates, the future outlook for market rates and economic
conditions generally, some mortgagors may sell or refinance mortgaged properties
in order to realize their equity in the mortgaged properties, to meet cash flow
needs or to make other investments. The depositor makes no representation as to
the particular factors that will affect the prepayment of the group 2 mortgage
loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the group 2 mortgage loans that will be paid as of any
date or as to the overall rate of prepayment on the group 2 mortgage loans.
S-56
<PAGE>
LIMITATION ON ADJUSTMENTS
Although each of the group 2 mortgage loans bears interest at an
adjustable mortgage rate, the adjustments of the mortgage rate for any group 2
mortgage loan will not exceed the periodic rate cap and the mortgage rate will
in no event exceed the maximum mortgage rate or be less than the minimum
mortgage rate for such group 2 mortgage loan, regardless of the level of
interest rates generally or the rate otherwise produced by adding the six-month
LIBOR index and the gross margin. In addition, such adjustments will be subject
to rounding to the nearest 0.125%.
THE DEPOSITOR
FOR FURTHER INFORMATION REGARDING THE DEPOSITOR, SEE "THE DEPOSITOR" IN
THE PROSPECTUS.
LOAN ORIGINATION HISTORY
The depositor originates mortgage loans on single family properties,
multifamily properties, commercial properties, mixed use and manufactured home
properties nationwide and purchases mortgage loans from lenders, mortgage
bankers, and brokers on a wholesale basis. The depositor conducts loan
origination and/or wholesale operations in all states in the United States
except Alaska and Hawaii. The dollar amounts of first and second mortgage loans
originated and purchased by the depositor, collectively, during the nine month
period ended ______________ and the twelve month periods ended _______________,
199_, 199_ and 199_ were approximately $_____________, $_____________,
$___________, $___________ and $___________, respectively.
UNDERWRITING CRITERIA
[All of the mortgage loans were or will be originated or purchased by
the depositor and are or will be serviced by the servicer. All mortgage loan
applications are underwritten, and properties appraised, prior to origination
and/or purchase by the depositor. All loans are reviewed and approved by a loan
officer of the depositor, each of whom has specific credit limits based on
experience and seniority. However, only _________ senior loan officers can
approve loan applications from $_______-$_______, only thirteen executive
officers of the depositor can approve loan applications from $_______-$_______
and only _____ senior executive officers of the depositor can approve loan
applications from $_______-$_______. All loan applications over $_______ require
the approval of two specific senior executive officers of the depositor and
ratification by the board of directors of the depositor.
Borrower loan applications are reviewed through a combination of
reviews of credit bureau reports and/or individual certifications. Income is
determined through various means, including applicant interviews, written
verifications with employers and review of pay stubs and tax returns, and a
determination is made that the borrower has a sufficient level of disposable
income to satisfy debt repayment requirements.
Substantially all properties of the depositor are appraised by
independent fee appraisers approved by the depositor in advance of funding,
although in rare instances the appraisal may be performed by a licensed in-house
appraiser of the depositor. In addition, as part of the depositor's quality
control audit procedures, approximately one of every ten properties with respect
to a loan originated by the depositor is then
S-57
<PAGE>
reappraised by a different appraiser and approximately 10% of all loans
originated or purchased are reunderwritten. With respect to manufactured homes,
standard Fannie Mae manufactured housing appraisal guidelines are used by both
staff and independent fee appraisers. Loans are closed through approved
attorneys, title insurers or agents of title insurers and escrow companies, and
the lien position is insured by major title companies. The depositor makes loans
primarily on suburban and urban single family homes in major metropolitan areas.
In addition, the depositor makes loans secured by owner-occupied and investor
properties which include a commercial unit. Loans secured by multifamily
properties and mixed residential and commercial structures are also made where
the loan proceeds may be used by the borrower for business purposes.
The maximum permitted combined loan-to-value ratio and debt-to-income
ratio guidelines for each underwriting program and class are set forth herein
under "The Depositor-Underwriting Criteria-group 1" and "The
Depositor-Underwriting Criteria-group 2". Approximately ____% of the group 1
initial mortgage loans (by group 1 statistical principal balance) were
underwritten to Classes IIB, III, III-SE, IV, IV-PI and V.
Approximately ____% of the group 2 initial mortgage loans, by original
group 2 principal balance, were underwritten to Classes IIB, III, III-SE, IV,
IV-PI and V.]
GROUP 1
[SINGLE FAMILY LOANS. Approximately ____% of the group 1 initial
mortgage loans, by group 1 statistical principal balance, were originated or
purchased by the depositor pursuant to its Fixed-Rate Mortgage Program
underwriting guidelines. The Fixed-Rate Mortgage Program Underwriting Guidelines
are primarily intended to evaluate a borrower's credit standing and ability to
repay a mortgage loan and to assess the value of the related mortgaged property
as collateral for such mortgage loan.
The group 1 mortgage loans are originated primarily for borrowers who
are refinancing existing debt, which may include mortgage loans. Therefore, the
related mortgage may be either a senior or junior lien. In general, the
borrowers, in connection with certain lower numbered and earlier alphabetically
designated underwriting classes, have a history of paying consumer and prior
mortgage debt predominantly in a timely manner or, instead, in connection with
certain higher numbered and later alphabetically designated underwriting
classes, may have payment histories that include up to three payments missed on
a prior mortgage obligation and/or, in some cases, major derogatory credit items
such as outstanding judgments or prior bankruptcies.
The Fixed-Rate Mortgage Program allows originations of mortgage loans
secured by primary residences or investment properties.
Several different underwriting classes are used to categorize
borrowers' creditworthiness. In addition to general Fixed-Rate Mortgage Program
underwriting guidelines, each class has guidelines relating to maximum permitted
combined loan-to-value ratio, maximum permitted debt-to-income ratio and
acceptable consumer credit and mortgage credit delinquencies and defaults.
Generally, higher numbered and later alphabetically designated underwriting
classes (as set forth in the table below) permit a greater number of derogatory
credit items than the lower numbered and earlier alphabetically designated
underwriting classes.
S-58
<PAGE>
Each underwriting class has guidelines and standards for the type of
income, employment and asset verification performed prior to closing the loan.
In general, the Fixed-Rate Mortgage Program does not require verification of the
source of the borrower's assets to close the loan because this is not deemed to
be a critical credit factor in the case of a refinanced mortgage loan. The
Fixed-Rate Mortgage Program Class AAA, Class AA, Class I, Class II and Class IIB
generally require the verification of employment and income that is stated on
the borrower's application. The Class ANIV, Class III and Class III-SE program
guidelines generally require verification of employment without verification of
income that must be stated on the application. The Class IV program generally
requires the verification of income that is stated on the application. The Class
IV-PI program generally requires the verification of fifty percent of income
that is stated on the application. The Class V program generally requires the
verification of all income that can be verified by independent means. Generally,
the maximum permitted combined loan-to-value ratio and debt-to- income ratio
guidelines for each Fixed-Rate Mortgage Program underwriting class are as
follows:
S-59
<PAGE>
<TABLE>
<CAPTION>
FIXED-RATE MORTGAGE PROGRAM
SINGLE FAMILY LOANS
MAXIMUM
PERMITTED MAXIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AAA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
AA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
ANIV Owner Occupied One- to Four-Family
Owner-Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
I Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
II Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IIB Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III-SE Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV-PI Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
V Non-Owner Occupied One- to Four-Family
</TABLE>
The maximum permitted combined loan-to-value ratio may be increased by
__% for Classes ______, _______ and __________on only owner occupied one- to
four-family dwellings and units in planned unit developments, if the borrowers
have exhibited an excellent mortgage payment history, verified for the most
recent twelve month period.
S-60
<PAGE>
Further adjustments to both the maximum permitted combined
loan-to-value ratio and the maximum permitted debt-to-income ratio are available
only on owner occupied one- to four-family dwellings and units in planned unit
developments, through utilization of the "rate add-on feature". This feature,
offered on all loan classes with the exception of Class V, typically allows the
loan-to-value ratio to be increased a maximum of __%. The rate add-on feature is
no longer available on any other property type but, rather, has been
incorporated into the maximum permitted combined loan-to-value ratio and the
maximum permitted debt-to-income ratio at origination.
Down payment requirements for purchase money transactions are
verifiable liquid assets of the borrower. In addition, the minimum cash down
payment required to be provided by the borrower, which may include any gift
received by the borrower, is __% of the sale price, except with respect to Class
AAA, Class AA and Class I which is __% of the sale price. For all classes with
the exception of V, if the property is an owner-occupied one- to four-family
residence, a seller financed subordinate mortgage loan is allowed. In some cases
a seller financed subordinate loan may exceed __% of the purchase price.
On a case-by-case basis, the depositor may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
class guidelines warrants an underwriting exception. Compensating factors may
include, but are not limited to, low combined loan-to-value ratio, low debt-to-
income ratio, good credit history, stable employment and duration of residence
at the applicant's current address.]
[MANUFACTURED HOME LOANS. The manufactured home loans included in the
initial group 1 (approximately ___% of the group 1 initial mortgage loans, by
group 1 statistical principal balance) were originated or purchased by the
depositor pursuant to its Manufactured Home Loan Program. The Manufactured Home
Loan Program allows origination of fixed-rate and adjustable-rate mortgage loans
on manufactured homes that have been permanently affixed to a permanent
foundation and to the real property. In addition, the Manufactured Home Loan
Program allows origination of fully amortizing loans only, with a standard
amortization term of ten (10), fifteen (15) or twenty (20) years for multi-wide
properties and fifteen (15) years for single-wide properties and balloon loans
which provide for equal monthly payments of principal and interest based on a 30
year amortization schedule, and a single payment of the remaining principal
balance of the balloon loan at the end of the 15th year following origination.
Thirty (30) year and twenty-five (25) year amortizations may also be permitted,
subject to certain limitations, for loans secured by multi-wide properties.
Subject to certain limitations, the manufactured home, if multi-wide, may be
either a second home or a vacation home.
The depositor's underwriting standards under the Manufactured Home Loan
Program are primarily intended to evaluate a borrower's credit standing and
ability to repay a mortgage loan and to assess the value of the manufactured
home and underlying real estate as collateral for such mortgage loan. In
general, the depositor's underwriting guidelines with respect to eligible
borrowers under the Manufactured Home Loan Program are the same as those under
the depositor's Fixed-Rate Mortgage Program or Adjustable-Rate Mortgage Program,
as the case may be.
The Manufactured Home Loan Program underwriting guidelines with respect
to eligible properties are, in general, the same as those for the Fixed-Rate
Mortgage Program or Adjustable-Rate Mortgage Program, as the case may be, with
necessary modifications due to the nature of the product. The Manufactured Home
must be constructed pursuant to Federal Manufactured Home Construction and
Safety Standards and the property must be zoned 1-4 family residential. The
wheels, axles and trailer hitch must
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have been removed and the home must be permanently affixed to a permanent
foundation on the real estate. The depositor requires a manufactured housing
unit (ALTA 7 or state equivalent) endorsement from each title insurer of a
Manufactured Home Loan stating that the insurer agrees that the related
manufactured housing unit is included within the term "land" when used in the
title policy. Each underwriting class, in addition to standard Fixed-Rate
Mortgage Program guidelines or Adjustable-Rate Mortgage Program guidelines, as
the case may be, has guidelines as to the maximum permitted combined
loan-to-value ratio based on the size of the manufactured home (single-wide or
multi-wide). Generally, higher numbered and later alphabetically designated
underwriting classes (as set forth in the table below) permit a greater number
of derogatory credit items than the lower numbered and earlier alphabetically
designated underwriting classes.]
<TABLE>
<CAPTION>
MANUFACTURED HOME LOAN PROGRAM
MAXIMUM
PERMITTED MAXIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AA Owner Occupied Single-wide
Owner Occupied Multi-wide
ANIV Owner Occupied Single-wide
Owner Occupied Multi-wide
I Owner Occupied Single-wide
Owner Occupied Multi-wide
II Owner Occupied Single-wide
Owner Occupied Multi-wide
IIB Owner Occupied Single-wide
Owner Occupied Multi-wide
III Owner Occupied Single-wide
Owner Occupied Multi-wide
III-SE Owner Occupied Single-wide
Owner Occupied Multi-wide
IV Owner Occupied Single-wide
Owner Occupied Multi-wide
</TABLE>
[MULTIFAMILY LOANS AND MIXED USE LOANS. The multifamily and mixed use
loans included in the initial group 1 (approximately ___% of the group 1 initial
mortgage loans, by group 1 statistical principal balance) were originated or
purchased by the depositor pursuant to its Fixed Rate Mortgage
Program--Multifamily and Mixed Use. The depositor primarily underwrites loans
for 5 or more unit apartment buildings in Arizona, California, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana, Maine,
Massachusetts, Maryland, Michigan, Minnesota, Missouri, New Hampshire, New
Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the
District of Columbia under the Fixed-Rate Mortgage Program--Multifamily and
Mixed Use.
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The depositor's underwriting standards under the Fixed Rate Mortgage
Program--Multifamily and Mixed Use are primarily intended to assess the ability
of the mortgaged property to generate adequate cash flow to support the mortgage
and to a lesser extent, the financial capabilities and managerial ability of the
mortgagor. In determining whether a loan should be granted, the depositor
considers the reliability of the income stream from investment property, the
debt service coverage ratios and the adequacy of such property as collateral for
the mortgage loan, the creditworthiness of the mortgagor and the mortgagor's
management experience. The "debt service coverage ratio" or "DSCR" with respect
to a mortgaged property means (a) the annual net operating income for the
related mortgaged property used in underwriting the related mortgage loan
divided by (b) the annual debt service (principal and interest) for such
mortgage loan. While their primary consideration in underwriting a mortgage loan
is the mortgaged property, sufficient documentation on the mortgagor is required
to establish the financial strength and ability of the borrower to successfully
operate the mortgaged property and meet the obligations of the note and the
mortgage.
Under the Fixed Rate Mortgage Program--Multifamily and Mixed Use, the
amount of the mortgage loan is not more than ___% of the appraised value. The
debt service coverage ratio ("DSCR") is not less than ______.
The Fixed Rate Mortgage Program--Multifamily and Mixed Use requires the
inspection of the property and records regarding the property are inspected to
determine that the property is in compliance with current zoning requirements,
the number of buildings on the property, the proximity of the property to
natural hazards and flood zones and whether there are any negative environmental
factors. The property must front on publicly dedicated and maintained streets
with provisions for adequate and safe ingress and egress. Also, the title is
reviewed to determine if there are any covenants, conditions and restrictions or
easements on the property. The properties are appraised by licensed and insured
independent appraisers approved by the depositor and reviewed either by the
depositor's property evaluation department and/or an outside consultant.]
Generally, the maximum permitted combined loan-to-value ratio and
minimum permitted debt service coverage ratio guidelines for each underwriting
class are as follows:
<TABLE>
<CAPTION>
FIXED-RATE MORTGAGE PROGRAM
MULTIFAMILY AND MIXED USE
MAXIMUM
PERMITTED MINIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT SERVICE
CLASS PROPERTY TYPE RATIO COVERAGE
----- ------------- ----- --------
<S> <C> <C> <C>
AA Owner Occupied..............................
Non-Owner Occupied..........................
I Owner Occupied..............................
Non-Owner Occupied..........................
II Owner Occupied..............................
Non-Owner Occupied..........................
IV Owner Occupied..............................
Non-Owner Occupied..........................
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V Owner Occupied..............................
Non-Owner Occupied..........................
</TABLE>
[COMMERCIAL LOANS. The commercial loans included in the initial group 1
(approximately ___% of the group 1 initial mortgage loans, by group 1
statistical principal balance) were originated or purchased by the depositor
pursuant to its Commercial Property Program. Under this program the depositor
primarily underwrites loans for 3 or more unit buildings with less than a 40%
residential component. The properties primarily consist of commercial and/or
office space with a minimum of three tenants.
The depositor's underwriting standards under the Commercial Property
Program are primarily intended to assess the ability of the mortgaged property
to generate adequate cash flow to support the mortgage and to a lesser extent,
the financial capabilities and managerial ability of the mortgagor. In
determining whether a loan should be granted, the depositor considers the
reliability of the income stream from investment property, the DSCRs and the
adequacy of such property as collateral for the mortgage loan, the
creditworthiness of the mortgagor and the mortgagor's management experience.
While the primary consideration in underwriting a mortgage loan under this
program is the mortgaged property, sufficient documentation on the mortgagor is
required to establish the financial strength and ability of the borrower to
successfully operate the mortgaged property and meet the obligations of the note
and the mortgage.
Under the Commercial Property Program, the amount of the mortgage loan
is not more than __% of the appraised value. The DSCR is not less than ___.
The Commercial Property Program requires the inspection of the property
and records regarding the property to determine that the property is in
compliance with current zoning requirements, the number of buildings on the
property, the proximity of the property to natural hazards and flood zones and
whether there are any negative environmental factors. The property must front on
publicly dedicated and maintained streets with provisions for adequate and safe
ingress and egress. Also, the title is reviewed to determine if there are any
covenants, conditions and restrictions or easements on the property. The
properties are appraised by licensed and insured independent appraisers approved
by the depositor and reviewed either by the depositor's property evaluation
department and/or an outside consultant.]
Generally, the maximum permitted CLTV and minimum permitted DSCR
guidelines for each underwriting class are as follows:
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<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL PROPERTY PROGRAM
MAXIMUM
PERMITTED MINIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT SERVICE
CLASS PROPERTY TYPE RATIO COVERAGE RATIO
----- ------------- ----- --------------
<S> <C> <C> <C>
A Owner Occupied..............................
Non-Owner Occupied..........................
I Owner Occupied..............................
Non-Owner Occupied..........................
II Owner Occupied..............................
Non-Owner Occupied..........................
IV Owner Occupied..............................
Non-Owner Occupied..........................
V Owner Occupied..............................
Non-Owner Occupied..........................
</TABLE>
GROUP 2
[SINGLE FAMILY LOANS. Approximately ___% of the group 2 initial
mortgage loans, by original group 2 principal balance, were originated or
purchased by the depositor pursuant to its Adjustable-Rate First Mortgage
Program underwriting guidelines. The Adjustable-Rate First Mortgage Program
guidelines are primarily intended to evaluate a borrower's credit standing and
ability to repay a mortgage loan and to assess the value of the related
mortgaged property as collateral for such mortgage loan.
The group 2 mortgage loans are originated primarily for borrowers who
are refinancing existing debt. In general, the borrowers, in connection with
certain lower numbered and earlier alphabetically designated underwriting
classes, have a history of paying consumer and prior mortgage debt predominantly
in a timely manner or, instead, in connection with certain higher numbered and
later alphabetically designated underwriting classes, may have payment histories
that include up to three payments missed on a prior mortgage obligation and/or,
in some cases, major derogatory credit items such as outstanding judgments or
prior bankruptcies.
Several different underwriting classes are used to categorize the
creditworthiness of borrowers. In addition to general Adjustable-Rate First
Mortgage Program guidelines, each class has guidelines relating to maximum
permitted loan-to-value ratio, maximum permitted debt-to-income ratio and
acceptable consumer credit and mortgage credit delinquencies and defaults.
Generally, higher numbered and later alphabetically designated underwriting
classes (as set forth in the table below) permit a greater number of derogatory
credit items than the lower numbered and earlier alphabetically designated
underwriting classes.
Each underwriting class has guidelines and standards for the type of
income, employment and asset verification performed prior to closing the loan.
In general, the Adjustable-Rate First Mortgage Program does not require
verification of the source of the borrower's assets to close the loan because
this is not deemed to be a critical credit factor in the case of a refinanced
mortgage loan. The Adjustable-Rate First Mortgage
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<PAGE>
Program Class AA, Class I, Class II and Class IIB generally require the
verification of employment and income that is stated on the borrower's
application. The Class ANIV, Class III and Class III-SE program guidelines
generally require verification of employment without verification of income that
must be stated on the application. The Class III-SE program, although originally
intended for self-employed borrowers only, is now used as a credit class for all
borrowers. The Class IV program generally requires the verification of income
that is stated on the application and the Class V program generally requires the
verification of all income that can be verified by independent means.]
Generally, the maximum permitted loan-to-value ratio and maximum
permitted debt-to-income ratio guidelines for each underwriting class are as
follows:
<TABLE>
<CAPTION>
ADJUSTABLE-RATE FIRST MORTGAGE PROGRAM
MAXIMUM MAXIMUM
PERMITTED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
ANIV Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
I Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
II Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IIB Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III-SE Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
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<PAGE>
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV-PI Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
V Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
</TABLE>
The maximum permitted loan-to-value ratio may be increased 5% for Class
AA, ANIV, I, II, IIB, III-SE, III, IV and IV-PI on owner-occupied one- to
four-family dwellings only, if the borrowers have exhibited an excellent
mortgage payment history, verified for the most recent twelve month period.
Further adjustments to both maximum permitted loan-to-value ratio and
maximum permitted debt-to-income ratio are available only on owner-occupied one-
to four-family dwellings, through utilization of the rate add-on feature. This
feature, offered on all loan classes with the exception of Class V, typically
allows the loan-to-value ratio to be increased a maximum of __%. The rate add-on
feature is no longer available on any other property type but, rather, has been
incorporated into the maximum permitted combined loan-to-value ratio and the
maximum permitted debt-to-income ratio at origination.
Down payment requirements for purchase money transactions are
verifiable liquid assets of the borrower. In addition, the minimum cash down
payment required to be provided by the borrower, which may include any gift
received by the borrower, is __% of the sale price, except with respect to Class
AA and Class I which is __% of the sale price. For all classes with the
exception of V, if the property is an owner-occupied one- to four-family
residence, a seller financed subordinate mortgage loan is allowed. In some cases
a seller financed subordinate loan may exceed __% of the purchase price.
On a case-by-case basis, the depositor may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
guidelines of a particular class warrants an underwriting exception.
Compensating factors may include, but are not limited to, low loan-to-value
ratio, low debt-to-income ratio, good credit history, stable employment and time
in residence at the applicant's current address.]
[MANUFACTURED HOME LOANS. All of the manufactured home loans included
in the initial group 2 (approximately ___% of the group 2 initial mortgage
loans, by original group 2 principal balance) were originated or purchased by
the depositor pursuant to its Manufactured Home Loan Program as described above
under the caption "The Depositor-Underwriting Criteria-group 1".]
DESCRIPTION OF THE CERTIFICATES
The Series ______-_ AFC Mortgage Loan Asset Backed certificates will
consist of three Classes of certificates, Class 1A, Class 2A and Class R. Only
the Class 1A and Class 2A certificates are offered hereby.
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The Class 1A certificates will have an initial Class 1A principal
balance of $___________ and the Class 2A certificates will have an initial Class
2A principal balance of $___________. The Class R certificates will have no
principal balance. In certain circumstances, the Class R certificates may
receive distributions in respect of principal on the mortgage loans. The rights
of the Class R certificateholders to receive distributions with respect to the
mortgage loans will be subordinate to the rights of the Class A
certificateholders to the extent described herein.
On each remittance date, with respect to the Class A certificates,
interest will be paid at the related Class A pass-through rate in an amount
equal to interest accrued during the related accrual period on the related Class
A principal balance prior to giving effect to principal distributions to be made
on that date.
Interest payable with respect to each remittance date on the Class A
certificates will accrue during the period commencing on the remittance date of
the immediately preceding month and ending on the day immediately preceding the
related remittance date, except that with respect to the first remittance date
interest payable on the Class A certificates will accrue during the period
commencing on the closing date and ending on the day immediately preceding the
first remittance date. All calculations of interest on the Class A certificates
will be computed on the basis of the actual number of days elapsed in the
accrual period and a 360-day year.
Each of the Class A certificates represents fractional undivided
ownership interests in a trust fund consisting of group 1 and group 2, created
and held pursuant to the pooling and servicing agreement. Each group includes:
o the related mortgage loans (including the related initial
mortgage loans and any related subsequent mortgage loans) and
all proceeds thereof due after the cut-off date with respect
to the initial mortgage loans and after the related subsequent
cut-off date with respect to the subsequent mortgage loans,
o the related certificate account, the related principal and
interest account, the related trustee expense account, the
related pre-funding account and subject to certain
limitations, the related interest coverage account and related
reserve account, and those assets as from time to time are
deposited in these accounts, including amounts on deposit
therein and invested in permitted instruments,
o any related REO Property,
o the trustee's rights under all insurance policies with respect
to the related mortgage loans required to be maintained
pursuant to the pooling and servicing agreement and any
insurance proceeds and
o the certificate insurance policy.
Distributions on the Class A certificates will be made by the trustee
on the 25th day of each month, or if that day is not a business day, on the
first business day thereafter commencing on _______, to the persons in whose
names such certificates are registered (which, initially, will be CEDE & Co.,
the nominee of DTC) as of the Record Date which will be the business day
immediately preceding each
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remittance date except that the final distribution on the certificates will be
made only upon presentment and surrender of the certificates at the office or
agency of the trustee in Chicago, Illinois.
Distributions on each remittance date will be made by check mailed to
the address of the person entitled thereto as it appears on the certificate
register or, in the case of Class A certificates if the Holder of record owns
Class A certificates with an initial Class A principal balance in excess of
$_________, and who has so notified the trustee in writing in accordance with
the pooling and servicing agreement, by wire transfer in immediately available
funds to the account of that certificateholder at a bank or other depository
institution having appropriate wire transfer facilities; provided, however, the
final distribution in retirement of the Class A certificates will be made only
upon presentment and surrender of the certificate at the corporate trust office
of the trustee. On each remittance date, a holder of a Class A certificate will
receive such holder's percentage interest of the amounts required to be
distributed with respect to such Class A certificates. The "percentage interest"
evidenced by a certificate will equal the percentage derived by dividing the
denomination of the certificate by the aggregate denominations of all
certificates of the same class.
REGISTRATION OF CERTIFICATES
The Class A certificates will be issued in book-entry form. The Class A
certificates will be issued in minimum dollar denominations of $______ and
integral multiples of $_______ in excess thereof (except that a single
certificate of each of the Class 1A and Class 2A certificates may be issued in a
different amount which is less than the related minimum dollar denomination).
The assumed final maturity date of the Class A certificates is ________, which
is thirty years after the closing date.
Holders of certificates may hold their certificates through DTC (in the
United States) or Cedelbank or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations which are participants in such
systems.
The certificates will initially be registered in the name of CEDE &
Co., the nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A. will act as depositary
for Cedelbank and The Chase Manhattan Bank will act as depositary for Euroclear.
Certificateholders that are not participants or indirect participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the book-entry notes may do so only through participants and
indirect participants. In addition, certificateholders will receive all
distributions of principal of and interest on the book-entry notes from the
trustee through DTC and DTC participants. The trustee will forward payments to
DTC in same day funds and DTC will forward these payments to participants in
next day funds settled through the New York Clearing House. Each participant
will be responsible for disbursing these payments to indirect participants or to
certificateholders. Unless and until definitive notes are issued, it is
anticipated that the only certificateholders of the book-entry certificates will
be CEDE & Co., as nominee of DTC. Certificateholders will not be recognized by
the trustee as certificateholders, as the term is used in the pooling and
servicing agreement and
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<PAGE>
certificateholders will be permitted to exercise the rights of
certificateholders only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of the
book-entry notes among participants and to receive and transmit distributions of
principal of, and interest on, the book-entry certificates. Participants and
indirect participants with which certificateholders have accounts with respect
to the book-entry certificates similarly are required to make book-entry
transfers and receive and transmit payments on behalf of their respective
certificateholders. Accordingly, although certificateholders will not possess
definitive certificates, the rules, regulations and procedures creating and
affecting DTC and its operations provide a mechanism by which certificateholders
through their participants and indirect participants will receive payments and
will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of banks, the ability of a note
owner to pledge book-entry certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to these
certificates, may be limited due to the absence of physical certificates for the
book-entry certificates. In addition, under a book-entry format,
certificateholders may experience delays in their receipt of payments since
distributions will be made by the trustee to CEDE & Co., as nominee for DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations , DTC will take action permitted to be taken by a
certificateholder under the pooling and servicing agreement only at the
direction of one or more participants to whose DTC account the book-entry
certificates are credited. Additionally, under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC will take actions
with respect to specified voting rights only at the direction of and on behalf
of participants whose holdings of book-entry certificates evidence these
specified voting rights. DTC may take conflicting actions with respect to voting
rights, to the extent that participants whose holdings of book-entry
certificates evidencing these voting rights, authorize divergent action.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedelbank participants and Euroclear participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedelbank participants and
Euroclear participants may not deliver instructions directly to the
depositaries.
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<PAGE>
Because of time-zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedelbank participants on such business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedelbank or Euroclear cash account only as of the business day following
settlement in DTC. FOR INFORMATION WITH RESPECT TO TAX DOCUMENTATION PROCEDURES
RELATING TO THE CERTIFICATES, SEE "U.S. FEDERAL INCOME TAX DOCUMENTATION
REQUIREMENTS" AND "GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES" IN ANNEX I HERETO.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
1934 Act. DTC accepts securities for deposit from its participating
organizations and facilitates the clearance and settlement of securities
transactions between participants in such securities through electronic
book-entry changes in accounts of participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Cedelbank is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Cedelbank participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 32 currencies, including United States dollars. Euroclear
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. All operations are conducted by
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the Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
cooperative. The cooperative established policy for Euroclear on behalf of
Euroclear participants. Euroclear participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law. These terms and conditions govern transfers of securities and cash with
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific clearance accounts. The Euroclear operator acts under the terms and
conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Distributions with respect to certificates held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank participants or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. SEE "FEDERAL INCOME TAX CONSEQUENCES IN THE PROSPECTUS". Cedelbank
or the Euroclear operator, as the case may be, will take any other action
permitted to be taken by a certificateholder under the pooling and servicing
agreement on behalf of a Cedelbank participant or Euroclear participant only in
accordance with its relevant rules and procedures and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
DTC management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its Systems, as the
same relate to the timely payment of distributions (including principal and
income payments) to securityholders, book-entry deliveries, and settlement of
trades within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
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provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the financial community that
it is contacting (and will continue to contact) third party vendors from whom
DTC acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
The depositor, the servicer, the trustee and their respective
affiliates will have no liability for any actions taken by DTC or its nominee or
Cedel or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the certificates held by CEDE & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
GLOSSARY OF TERMS
The following terms are given the meaning shown below to help describe
the cash flows on the certificates:
The ADDITIONAL PRINCIPAL for any Class 1A or Class 2A certificate and
any remittance date will equal the amount necessary to reduce the related Class
A principal balance so that the Overcollateralization Amount for the related
group equals the related Required Overcollateralization Amount for that group.
The AMOUNT AVAILABLE for a group on a remittance date will equal the
sum of:
(1) the Available Remittance Amount for that group (reduced by
any monthly premium payable to the certificate insurer);
(2) the Excess Spread for that group with respect to such
remittance date;
(3) if an Available Funds Shortfall exists in that group,
(a) first, the Net Excess Spread from the other
group, to the extent of the Available Funds Shortfall; and
(b) second, the Excess Principal from the other
group, to the extent of any remaining Available Funds
Shortfall;
(4) if the remittance date is prior to the cross-over date,
the Available Transfer Cashflow, to the extent necessary to reach the
Required Overcollateralization Amount for that group;
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(5) any amounts required to be deposited in the certificate
account for that group from the reserve account for that group; and
(6) any payments made by the certificate insurer with respect
to the related class of certificates.
The AVAILABLE FUNDS CAP CARRY FORWARD AMOUNT with respect to group 2
and on any remittance date up to and including (but not after) the remittance
date on which the Class 2A principal balance is reduced to zero, will be an
amount equal to the sum of (1) the excess, if any, of (x) the Class A Interest
Remittance Amount with respect to the Class 2A certificates for the immediately
preceding remittance date calculated pursuant to clause (1) of the definition of
Class 2A pass-through rate, but in no event greater than the Available Funds Cap
Rate, over (y) the Class A Interest Remittance Amount with respect to the Class
2A certificates for the immediately preceding remittance date calculated
pursuant to clause (2) of the definition of Class 2A pass-through rate, (2) the
amount of any Available Funds Cap Carry Forward Amount for the preceding
remittance date to the extent not distributed to the Class 2A certificateholders
on such preceding remittance date and (3) interest accrued on the amounts
described in clauses (1) and (2) above during the accrual period for the current
remittance date at the Class 2A pass-through rate for that remittance date.
The AVAILABLE FUNDS CAP RATE with respect to group 2 and any remittance
date, will be the rate equal to the weighted average of the maximum mortgage
rates for group 2 mortgage loans minus, with respect to group 2, the sum of (a)
the rate at which servicing fee is calculated, (b) the rate at which the monthly
premium payable to the certificate insurer is calculated and (c) the rate at
which the annual trustee expense amount is calculated.
An AVAILABLE FUNDS SHORTFALL with respect to any group and remittance
date means the amount by which the Available Remittance Amount plus Excess
Spread for that group is less than the Required Payments (other than in respect
of the Class A Principal Remittance Amount after the related cross-over date)
for that group.
The AVAILABLE PRINCIPAL AMOUNT for any group and remittance date will
equal the excess, if any, of the amount described in the related definition of
"Class A Principal Remittance Amount" without giving effect to clause (a)
thereof over the amount described in the related definition of "Class A
Principal Remittance Amount" after giving effect to clause (a) thereof.
The AVAILABLE REMITTANCE AMOUNT with respect to any group and
remittance date will be the sum of the following:
(1) the sum of all amounts received or required to be paid by
the servicer, the depositor or any Sub-servicer in respect of the
related mortgage loans (exclusive of (a) the Depositor's Yield, (b) the
Excess Spread, (c) amounts withdrawn by the servicer from the related
principal and interest accounts as set forth in clauses (2), (3), (4),
(5) and (6) above under the caption "--The Principal and Interest
Accounts" and any amounts not required to be deposited therein and (d)
scheduled payments received in advance of their due date for
application on such due date at the request of the related mortgagor)
during the related Due Period (or, in the case of amounts paid by the
depositor in connection with the purchase or substitution of a mortgage
loan as to which there is defective loan documentation or a breach of
representation or warranty, as of
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the related determination date) and deposited into the related
principal and interest accounts as of the related determination date;
(2) the amount of any advances and compensating interest
payments with respect to the related group remitted by the servicer for
such remittance date;
(3) any amount applied by the trustee from funds on deposit in
the related interest coverage accounts to cover shortfalls in interest
on the related Class of Class A certificates attributable to the
pre-funding feature and to cover the interest portion of deferred
payments; and
(4) with respect to the final remittance date in connection
with the purchase of all the mortgage loans and REO Properties, the
termination price remitted by the servicer.
The AVAILABLE TRANSFER CASHFLOW for each group and remittance date will
equal the Remaining Net Excess Spread and Net Excess Principal for the other
group remaining after the payment, if any, of Additional Principal on the class
of Class A certificates related to that other group.
The CLASS 1A PASS-THROUGH RATE for any remittance date will be a rate
equal to the lesser of (1) one-month LIBOR plus ___% per annum, and (2) the
weighted average of the mortgage rates of the group 1 mortgage loans minus, with
respect to group 1, the sum of (a) the rate at which the servicing fee is
calculated, (b) the rate at which the monthly premium payable to the certificate
insurer is calculated and (c) the rate at which the annual trustee expense
amount is calculated, the rate described in this clause (2), the "Class 1A Cap
Rate". However, on any remittance date on which the servicer does not exercise
its option to purchase the mortgage loans and REO Properties as described under
"pooling and servicing agreement--Termination; Purchase of the mortgage loans"
herein, the rate provided in clause (1) will be one-month LIBOR plus __% per
annum. One-month LIBOR will be determined on the second business day preceding
the beginning of each accrual period with respect to the Class 1A certificates.
The CLASS 2A PASS-THROUGH RATE for any particular remittance date will
be equal to the lesser of (1) one-month LIBOR plus ___% per annum and (2) the
weighted average of the mortgage rates of the group 2 mortgage loans minus, with
respect to group 2, the sum of (a) the rate at which is servicing fee is
calculated, (b) the rate at which the monthly premium payable to the certificate
insurer is calculated and (c) the rate at which the annual trustee expense
amount is calculated, the rate described in clause (1), the "Class 2A LIBOR
Rate" and the rate described in this clause (2), the "Class 2A Cap Rate".
However, on any remittance date on which the servicer does not exercise its
option to purchase the mortgage loans and REO Properties as described under
"Pooling Agreement-Termination; Purchase of the mortgage loans" herein, the rate
described in clause (1) will be one-month LIBOR plus ___% per annum. One-month
LIBOR will be determined on the second business day preceding the beginning of
each accrual period with respect to the Class 2A certificates.
The CLASS A CARRY-FORWARD AMOUNT with respect to each class of Class A
certificates and for any remittance date, is the sum of (1) the amount, if any,
by which (A) the related Class A remittance amount with respect to each such
class of Class A certificates as of the immediately preceding remittance date
exceeded (B) the amount of the actual distribution, exclusive of any related
Insured Payment, to the related class of Class A certificateholders made on such
immediately preceding remittance date and (2) interest on the amount, if any,
described in clause (1) above (to the extent that the amount in clause (1)
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above represents Insured Payments), at the Class 1A pass-through rate with
respect to group 1, and the Class 2A pass-through rate with respect to group 2
from such immediately preceding remittance date.
The CLASS A INTEREST REMITTANCE AMOUNT with respect to each class of
Class A certificates for any remittance date will be the interest accrued at the
related Class A pass-through rate for the related accrual period on the related
Class A principal balance immediately prior to such remittance date. All
calculations of interest on the Class A certificates will be computed on the
basis of the actual number of days elapsed in the related accrual period and in
a year of 360 days.
The CLASS A PRINCIPAL BALANCE for any class of Class A certificates as
of any date of determination is equal to the related initial Class A principal
balance reduced by the sum of (A) all amounts (including that portion of Insured
Payments, if any, made in respect of principal) distributed to such Class A
certificateholders in respect of principal on all previous remittance dates on
account of amounts described in clauses (1), (2), (3) (to the extent the amount
in clause (3) represents a right to receive principal not previously covered by
Insured Payments), (5) and (6) of the definition of Class A Principal Remittance
Amount, (B) all other amounts previously distributed to the related Class A
certificateholders constituting Additional Principal in reduction of the related
Class A principal balance and (C) all amounts previously distributed to the
related Class A certificateholders as a mandatory prepayment as described below
under "--Mandatory Prepayments on Class A certificates" (only on the remittance
date occurring on __________________).
The CLASS A PRINCIPAL REMITTANCE AMOUNT with respect to any class of
Class A certificates and the related group and remittance date will be equal to
the least of (a) if such remittance date is prior to the cross-over date, that
amount required to reach the Required Overcollateralization Amount with respect
to that group or thereafter, to maintain that Required Overcollateralization
Amount on the remittance date, (b) the sum of the related Class A principal
balance with respect to the related class of Class A certificates and the
amounts described in clauses (3) (to the extent the amount in clause (3)
represents prior insured payments with respect to the related group or interest
thereon) and (5) below and (c) the sum of the following amounts relating to that
group:
(1) the principal portion of all scheduled and unscheduled
payments received on the related mortgage loans during the Due Period
including all principal prepayments, curtailments, other excess
payments of principal in respect of the related mortgage loans,
Insurance Proceeds, Released Mortgaged Property Proceeds and net
liquidation proceeds, but exclusive of the principal portions of any
deferred payments subsequently paid by the related mortgagor;
(2) an amount equal to the Unrecovered Class A Portion with
respect to the related Class A certificate;
(3) the Class A Carry-Forward Amount with respect to the
related Class A certificate;
(4) the principal portion of all proceeds deposited in the
principal and interest account with respect to the related group as of
the related determination date in connection with the purchase or
substitution of a mortgage loan as to which there is defective loan
documentation or a breach of a representation or warranty;
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(5) any amounts recovered from the related Class A
certificateholders during the related Due Period that constituted a
mortgagor payment on a related mortgage loan or an advance with respect
to the related group that was recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having
competent jurisdiction; and
(6) the amount, if any, by which (A) the related Class A
principal balance with respect to the related class of Class A
certificates immediately prior to such remittance date minus the
amounts to be distributed on such remittance date pursuant to clauses
(1) and (2) above and pursuant to clause (X)(2) above under
"--Allocation of Amount Available--group 1" and clause (X)(2) above
under "--Allocation of Amount Available--group 2" and applied to reduce
the related Class A principal balance with respect to the related Class
of Class A certificates, exceeds (B) the related Scheduled Class A
principal balance for such remittance date as set forth in the related
principal payment table attached as an exhibit to the pooling and
servicing agreement and provided by the certificate insurer.
As to the final remittance date in connection with the purchase by the
servicer of all the related mortgage loans and REO Properties pursuant to the
pooling and servicing agreement, the related Class A Principal Remittance Amount
shall be that amount described in clause (b) of the definition of Class A
Principal Remittance Amount above with respect to the related group and that
remittance date.
The CLASS A REMITTANCE AMOUNT for any class of Class A certificates and
any remittance date is equal to the sum of the related Class A Interest
Remittance Amount and the related Class A Principal Remittance Amount for that
remittance date.
The CROSS-OVER DATE with respect to a group is the date on and after
which the aggregate amount of Excess Spread for that group distributed to the
Class A certificateholders since the closing date on account of Realized Losses
for such group (excluding, in the case of group 1, Excess Spread distributed in
respect of Realized Losses on the permanent buydown companion loans for group 1)
equals the subordinated amount specified by the certificate insurer for that
group and set forth in the insurance agreement, among the depositor, the
servicer, the certificate insurer and the trustee.
The EXCESS PRINCIPAL for any group and remittance date will equal the
lesser of (1) the Available Principal Amount for such group and (2) the
Available Principal Amount after the application of the related Available
Remittance Amount to cover the Required Payments for such group.
The EXCESS SPREAD WITH RESPECT TO GROUP 1 for any remittance date, is
an amount equal to the sum of (a) the excess of (x) all payments received or
advanced on account of interest on the group 1 mortgage loans during the related
Due Period and amounts withdrawn from the related reserve account for that
remittance date over (y) the sum of (1) the Class A Interest Remittance Amount
for the Class 1A certificates for that remittance date, (2) one-twelfth of the
annual trustee expense amount with respect to group 1, (3) the monthly premium
payable to the certificate insurer with respect to group 1, and (4) the
servicing fee with respect to group 1 for that remittance date and (b) with
respect to the __________, _______________ and __________________ remittance
dates only, an amount with respect to the group 1 pre-funded amount determined
by the certificate insurer and deposited into the group 1 interest coverage
account by the depositor on the closing date.
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The EXCESS SPREAD WITH RESPECT TO GROUP 2 for any remittance date, is
an amount equal to the sum of (a) the excess of (x) all payments received or
advanced on account of interest on the group 2 mortgage loans during the related
Due Period and amounts withdrawn from the related reserve account for that
remittance date over (y) the sum of (1) the Class A Interest Remittance Amount
for the Class 2A certificates for that remittance date, (2) one-twelfth of the
annual trustee expense amount with respect to group 2, (3) the monthly premium
payable to the certificate insurer with respect to group 2, and (4) the
servicing fee with respect to group 2 for that remittance date and (b) with
respect to the __________, _______________ and __________________ remittance
dates only, an amount with respect to the group 2 pre-funded amount determined
by the certificate insurer and deposited into the group 2 interest coverage
account by the depositor on the closing date.
The NET EXCESS AMOUNT AVAILABLE is the sum of the amounts described in
clauses (1) and (6) of the definition of Amount Available.
The NET EXCESS PRINCIPAL for any group and remittance date will equal
the Excess Principal for that group remaining after the application thereof to
cover an Available Funds Shortfall with respect to the other group.
The NET EXCESS SPREAD for any group and remittance date will equal the
Excess Spread for that group remaining after the application thereof to cover
Required Payments with respect to that group (other than in respect of the
related Class A Principal Remittance Amount after the related cross-over date).
The OVERCOLLATERALIZATION AMOUNT for any group and remittance date will
equal the excess, if any, of (1) the sum of (a) the aggregate principal balances
of the mortgage loans related to that group, (b) the related pre-funded amount
and (c) the amount, if any, on deposit in the related reserve account over (2)
the related Class A principal balance after giving effect to the distributions
of the related Class A Principal Remittance Amount on that remittance date.
A REALIZED LOSS with respect to any remittance date is for each
mortgage loan which was liquidated during the related Due Period, an amount (not
less than zero or greater than the related principal balance) equal to the
excess of (1) the principal balance of the liquidated mortgage loans over (2)
the principal portion of the Liquidation Proceeds to be distributed to the Class
A Certificateholders on that remittance date net of amounts reimbursable to the
servicer and trustee.
The REMAINING NET EXCESS SPREAD for any group and remittance date will
equal the Net Excess Spread for such group remaining after the application
thereof to cover an Available Funds Shortfall with respect to the other group.
The REQUIRED OVERCOLLATERALIZATION AMOUNT for any group is the
overcollateralization amount required by the certificate insurer at any time and
set forth in the insurance agreement.
The REQUIRED PAYMENTS for any group and remittance date will equal the
amount required to pay the Class A Interest Remittance Amount with respect to
the related class of Class A certificates, the Class A Principal Remittance
Amount with respect to the related class of Class A certificates, one-twelfth of
the annual trustee expense amount and the monthly premium payable to the
certificate insurer in respect
of that group.
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The SCHEDULED CLASS A PRINCIPAL BALANCE with respect to each Class of
Class A certificates specified in the principal payment table for the remittance
date in each of the months commencing with __________ ending with _________,
inclusive, is equal to the related initial Class A principal balance; and the
related Scheduled Class A principal balance specified in the related principal
payment table for the remittance date in each of the months commencing after
_________ is computed based upon the assumed Class 1A or Class 2A principal
balance on such date based upon (1) a 0% prepayment assumption, (2) a weighted
average coupon (A) with respect to the group 1 mortgage loans of ____% for
balloon loans and ____% for non-balloon loans and (B) with respect to group 2
mortgage loans of _____% for non-balloon loans, (ii) a weighted average
remaining amortization term (A) with respect to the group 1 mortgage loans of __
months for balloon loans and __ months for non-balloon loans, and in the case of
balloon loans, a balloon payment of principal due in ____ months and an
otherwise normal amortization of the group 1 mortgage loans since the cut-off
date, (B) with respect to group 2 mortgage loans of ___ months for non-balloon
loans and an otherwise normal amortization of the group 2 mortgage loans since
the cut-off date.
The UNRECOVERED CLASS A PORTION with respect to each Class of Class A
certificates and any remittance date is an amount equal to the excess, if any,
of
(A) the related Class A principal balance minus the sum of (1) all
amounts (excluding that portion of Insured Payments with respect to the related
group, if any, to be made in respect of principal) to be distributed to the
related Class A certificateholders in respect of principal on that remittance
date on account of amounts described in clauses (1), (3) (to the extent the
amount in clause (3) represents a right to receive principal not previously
covered by an Insured Payment), (4) and (6) of the definition of Class A
Principal Remittance Amount, and (2) all amounts distributed to the related
Class A certificateholders as a mandatory prepayment on the remittance date
occurring on ________________, over
(B) the sum of (1) the principal balance of the related group plus (2)
the related pre-funded Amount minus the sum of (x) the principal portion of the
monthly payments received during the related Due Period and deposited in the
related principal and interest account and all principal prepayments,
curtailments, other excess payments of principal, Insurance Proceeds, Net
Liquidation Proceeds, Released Mortgaged Property Proceeds and net income from
any REO Property with respect to the related group to the extent applied by the
servicer as recoveries of principal in respect of the related mortgage loans,
which will be distributed to the related Class A certificateholders on that
remittance date, plus (y) the aggregate Realized Losses for that remittance
date.
THE PRINCIPAL AND INTEREST ACCOUNTS
The servicer shall establish and maintain an account for each group,
which shall be an eligible account, on behalf of the certificateholders. The
servicer shall deposit therein payments and collections received or made by it
in connection with the related mortgage loans, net of the servicing fee,
subsequent to the cut-off date or related subsequent cut-off date, as the case
may be, to the extent not applied in computing the aggregate principal balance
of the related mortgage loans as of such date. The servicer may withdraw funds
from a principal and interest account only for the purposes set forth in the
pooling and servicing agreement, including but not limited to the following:
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(1) to effect the remittance to the trustee on the
twenty-second day of each month, or if such day is not a business day,
on the immediately following business day, of the Excess Spread and the
amounts set forth in clause (1) of the definition of the Available
Remittance Amount;
(2) subject to the limitations set forth in the pooling and
servicing agreement, to pay the servicer for any accrued and unpaid
servicing fees with respect to related mortgage loans and to reimburse
itself for related unreimbursed advances and servicing advances and any
amount used to cover shortfalls in interest on newly originated
mortgage loans as described below under "--Advances." The servicer's
right to pay itself unpaid servicing fees, and to reimburse itself for
unreimbursed servicing advances and amounts used to cover any such
interest shortfalls, is limited to late collections on the related
mortgage loan, and such other amounts as may be collected by the
servicer from the related mortgagor or otherwise with respect to the
related mortgage loan in respect of which such unreimbursed amounts are
owed. The servicer's right to reimbursement for unreimbursed advances
is limited to late collections of interest on any mortgage loan;
provided that the servicer shall not be entitled to reimbursement from
Liquidation Proceeds for advances made as described in subsection (3)
of the paragraph under the caption "Advances" in this prospectus
supplement. The servicer's right to such reimbursements is senior to
the rights of holders of certificates;
(3) to withdraw any amount received from a mortgagor on a
related mortgage loan that is recoverable and sought to be recovered as
a preference amount;
(4) to make investments in permitted instruments and to pay
itself interest earned in respect of permitted instruments or on funds
deposited in the related principal and interest account;
(5) to pay itself the servicing fee and any other permitted
servicing compensation to the extent not previously retained or paid;
and
(6) to withdraw funds necessary for the conservation and
disposition of any REO Property.
THE CERTIFICATE ACCOUNTS
The trustee shall establish and maintain an account for each group,
which shall be an eligible account, on behalf of the certificateholders. The
trustee shall, promptly upon receipt, deposit in the related certificate account
and retain therein the following:
(1) the related Available Remittance Amount for a remittance
date;
(2) the related Excess Spread for a remittance date; and
(3) any amount required to be deposited by the servicer in
connection with any losses on permitted instruments.
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The trustee shall withdraw funds from the certificate account for
distribution to certificateholders as described below under "--Allocation of
Amount Available" and as otherwise provided in the pooling and servicing
agreement.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding the beginning of each accrual
period, the trustee will determine one-month LIBOR for such accrual period with
respect to the Class A certificates. One-month LIBOR will be the rate for
deposits in United States dollars for a term equal to the relevant accrual
period which appears in the Telerate Page 3750 as of 11:00 a.m., London time, on
such date. The first accrual period shall begin on the closing date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 a.m., London time, on
that day to banks in the London interbank market for a term equal to the
relevant accrual period. The trustee will request the principal London office of
each of the Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates quoted by major banks
in New York City, selected by the servicer, at approximately 11:00 a.m., New
York City time, on that day for loans in United States dollars to leading
European banks for a term equal to the relevant accrual period. If on any
interest determination date, the trustee is unable to determine one-month LIBOR
for an accrual period, one-month LIBOR for such accrual period shall be
one-month LIBOR as determined on the previous interest determination date;
provided, however, that one-month LIBOR for an accrual period shall not be based
on one-month LIBOR for the previous accrual period for three consecutive accrual
periods. If one-month LIBOR for an accrual period would be based on one-month
LIBOR for the previous accrual period for the second consecutive accrual period,
the trustee will select a comparable alternative Index (over which the trustee
has no control) used for determining one-month Eurodollar lending rates that is
calculated and published (or otherwise made available) by an independent third
party.
Telerate Page 3750 means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace the page on
that service for the purpose of displaying comparable rates or prices) and
Reference Banks means leading banks selected by the trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market.
The establishment of one-month LIBOR on each interest determination
date by the trustee and the trustee's calculation of the rate of interest
applicable to the Class 1A and Class 2A certificates for the related accrual
period shall (in the absence of manifest error) be final and binding.
ALLOCATION OF AMOUNT AVAILABLE
On or before each remittance date, the servicer will determine the
Overcollateralization Amount for each group after giving effect to the
distribution of the related Class A Principal Remittance Amount to the related
Class A certificates on that remittance date and the amount of the related Net
Excess Spread.
On each remittance date, the trustee will withdraw from each
certificate account the related Amount Available, and make distributions thereof
in the following order of priority and to the extent of
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available funds. Notwithstanding the foregoing, on any remittance date, in the
event that the Amount Available with respect to a particular group is
insufficient to distribute the entire amount of the related Class A Interest
Remittance Amount, such Amount Available shall be distributed by the trustee
among the related Class A certificateholders in proportion to the total
respective distributions of such amounts on each such Class of certificates that
would otherwise be payable on such remittance date.
GROUP 1
With respect to the Class 1A certificates and group 1:
If the remittance date is prior to the cross-over date, the trustee
shall distribute the indicated amounts in the following order of priority:
(X)(1) to the Class 1A certificateholders (subject to the
second and last paragraphs under "--Allocation of Amount Available"),
an amount equal to the lesser of:
(A) the Amount Available with respect to group 1; and
(B) the Class A Interest Remittance Amount with
respect to the Class 1A certificates;
(2) to the Class 1A certificateholders (subject to the last
paragraph under "--Allocation of Amount Available"), to be applied to
reduce the Class 1A principal balance until the Class 1A principal
balance has been reduced to zero and to make payments in respect of the
amounts described in clauses (3) (to the extent the amount in clause
(3) represents prior Insured Payments or interest thereon) and (5) of
the definition of Class A Principal Remittance Amount below, the lesser
of:
(A) the balance of the Amount Available with respect
to group 1 after payments described in clause (X)(1) above;
and
(B) the Class A Principal Remittance Amount with
respect to the Class 1A certificates;
(3) to the group 1 trustee expense account, an amount equal to
the lesser of (A) the balance of the Amount Available with respect to
group 1 after payments described in clauses (X)(1) and (2) above and
(B) any accrued and unpaid annual trustee expense amount with respect
to group 1;
(4) to the Class 1A certificateholders to be applied to reduce
the Class 1A principal balance until the Class 1A principal balance has
been reduced to zero, an amount equal to the lesser of:
(A) the balance of the Amount Available with respect
to group 1 after payments described in clauses (X)(1) through
(3) above and, to the extent applicable, after payments to the
Class 2A certificateholders as described under "Excess Spread,
Overcollateralization and Cross-Collateralization Provisions"
below; and
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(B) the Additional Principal with respect to the
Class 1A certificates;
(5) to the servicer and/or the depositor, an amount equal to
the lesser of (A) the balance of the Amount Available with respect to
group 1 after payments described in clauses (X)(1) through (4) above
and, to the extent applicable, after payments to the Class 2A
certificateholders as described under "Excess Spread,
Overcollateralization and Cross- Collateralization Provisions" below
and (B) any expenses paid by the servicer and/or depositor that were
incurred in connection with any third party claims that remain
unreimbursed;
(6) to the servicer, an amount equal to the lesser of (A) the
balance of the Amount Available with respect to group 1 after payments
described in clauses (X)(1) through (5) above and, to the extent
applicable, after payments to the Class 2A certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below and (B) the aggregate of any
nonrecoverable servicing advances and nonrecoverable monthly advances
with respect to group 1 previously made by the servicer and not
previously reimbursed; and
(7) to the Class R certificateholders, the balance of the
Amount Available with respect to group 1, if any, after payments
described in clauses (X)(1) through (6) above and, to the extent
applicable, after payments to the Class 2A certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below.
If the remittance date is on or after the cross-over date, the trustee
shall distribute the indicated amounts in the following order of priority:
(Y)(1) to the Class 1A certificateholders (subject to the
second and last paragraphs under "--Allocation of Amount Available"),
an amount equal to the lesser of:
(A) the Amount Available with respect to group 1; and
(B) the Class A Interest Remittance Amount with
respect to the Class 1A certificates;
(2) to the Class 1A certificateholders (subject to the last
paragraph under "--Allocation of Amount Available"), to be applied to
reduce the Class 1A principal balance until the Class 1A principal
balance has been reduced to zero and to make payments in respect of the
amounts described in clauses (3) (to the extent the amounts described
in clause (3) represent prior Insured Payments or interest thereon) and
(5) of the definition of Class A Principal Remittance Amount with
respect to the Class 1A certificates below, the lesser of:
(A) the balance of the Net Excess Amount Available
with respect to group 1 after payments described in clause
(Y)(1) above; and
(B) the Class A Principal Remittance Amount with
respect to the Class 1A certificates;
(3) to the group 1 trustee expense account, an amount equal to
the lesser of the balance of the Amount Available with respect to group
1 after payments described in clauses
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(Y)(1) and (2) above and any accrued and unpaid annual trustee expense
amount with respect to group 1;
(4) to the servicer and/or the depositor, an amount equal to
the lesser of (A) the balance of the Amount Available with respect to
group 1 after payments described in clauses (Y)(1) through (3) above
and, to the extent applicable, after payments to the Class 2A
certificateholders as described under "Excess Spread,
Overcollateralization and Cross- Collateralization Provisions" below
and (B) any expenses paid by the servicer and/or depositor that were
incurred in connection with any third party claims that remain
unreimbursed;
(5) to the servicer, an amount equal to the lesser of (A) the
balance of the Amount Available with respect to group 1 after payments
described in clauses (Y)(i) through (iv) above and, to the extent
applicable, after payments to the Class 2A certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below and (B) the aggregate of any
nonrecoverable servicing advances and nonrecoverable monthly advances
with respect to group 1 previously made by the servicer and not
previously reimbursed; and
(6) to the Class R certificateholders, the balance of the
Amount Available with respect to group 1 after payments described in
clauses (Y)(1) through (5) above and, to the extent applicable, after
payments to the Class 2A certificateholders as described under "Excess
Spread, Overcollateralization and Cross-Collateralization Provisions"
below, if any.
GROUP 2
With respect to the Class 2A certificates and group 2:
If the remittance date is prior to the cross-over date, the
trustee shall distribute the indicated amounts in the following order of
priority:
(X)(1) to the Class 2A certificateholders (subject to the
second and last paragraphs under "--Allocation of Amount Available"),
an amount equal to the lesser of:
(A) the Amount Available with respect to group 2; and
(B) the related Class A Interest Remittance Amount
with respect to the Class 2A certificates;
(2) to the Class 2A certificateholders (subject to the last
paragraph under "--Allocation of Amount Available"), to be applied to
reduce the Class 2A principal balance until the Class 2A principal
balance has been reduced to zero and to make payments in respect of the
amounts described in clauses (3) (to the extent the amount in clause
(3) represents prior Insured Payments or interest thereon) and (v) of
the definition of Class A Principal Remittance Amount with respect to
the Class 2A certificates below, the lesser of:
(A) the balance of the Amount Available with respect
to group 2 after payments described in clause (X)(i) above;
and
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(B) the Class A Principal Remittance Amount with
respect to the Class 2A certificates;
(3) to the group 2 trustee expense account, an amount equal to
the lesser of the balance of the Amount Available with respect to group
2 after payments described in clauses (X)(1) and (2) above and any
accrued and unpaid annual trustee expense amount with respect to group
2;
(4) to the Class 2A certificateholders to be applied to reduce
the Class 2A principal balance until the Class 2A principal balance has
been reduced to zero, an amount equal to the lesser of:
(A) the balance of the Amount Available with respect
to group 2 after payments described in clauses (X)(1) through
(3) above and, to the extent applicable, after payments to the
Class 1A certificateholders as described under "Excess Spread,
Overcollateralization and Cross-Collateralization Provisions"
below; and
(B) the Additional Principal with respect to the
Class 2A certificates;
(5) to the servicer and/or the depositor, an amount equal to
the lesser of (A) the balance of the Amount Available with respect to
group 2 after payments described in clauses (X)(1) through (4) above
and, to the extent applicable, after payments to the Class 1A
certificateholders as described under "Excess Spread,
Overcollateralization and Cross- Collateralization Provisions" below
and (B) any expenses paid by the servicer and/or depositor that were
incurred in connection with any third party claims that remain
unreimbursed;
(6) to the servicer, an amount equal to the lesser of (A) the
balance of the Amount Available with respect to group 2 after payments
described in clauses (X)(1) through (5) above and, to the extent
applicable, after payments to the Class 1A Certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below and (B) the aggregate of any
nonrecoverable servicing advances and nonrecoverable monthly advances
with respect to group 2 previously made by the servicer and not
previously reimbursed;
(7) to the Class 2A certificateholders until the Class 2A
principal balance has been reduced to zero, an amount equal to the
lesser of:
(A) the balance of the Remaining Net Excess Spread
with respect to group 2, if any, after payments described in
clauses (X)(1) through (6) above and payments of Additional
Principal, if any, to the Class 1A certificateholders; and
(B) the Available Funds Cap Carry Forward Amount with
respect to the Class 2A certificates, if any; and
(8) to the Class R certificateholders, the balance of the
Amount Available with respect to group 2, if any, after payments
described in clauses (X)(1) through (7) above and, to the extent
applicable, after payments to the Class 1A Certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below.
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If the remittance date is on or after the cross-over date, the trustee
shall distribute the indicated amounts in the following order of priority:
(Y)(1) to the Class 2A certificateholders (subject to the
second and last paragraphs under "--Allocation of Amount Available"),
an amount equal to the lesser of:
(A) the Amount Available with respect to group 2; and
(B) the Class A Interest Remittance Amount with
respect to the Class 2A certificates;
(2) to the Class 2A Certificateholders (subject to the last
paragraph under "--Allocation of Amount Available"), to be applied to
reduce the Class 2A principal balance until the Class 2A principal
balance has been reduced to zero and to make payments in respect of the
amounts described in clauses (3) (to the extent the amounts described
in clause (3) represent prior Insured Payments or interest thereon) and
(5) of the definition of Class A Principal Remittance Amount with
respect to the Class 2A certificates below, the lesser of:
(A) the balance of the Net Excess Amount Available
with respect to group 2 after payments described in clause
(Y)(1) above; and
(B) the related Class A Principal Remittance Amount
with respect to the Class 2A certificates;
(3) to the group 2 trustee expense account, an amount equal to
the lesser of the balance of the Amount Available with respect to group
2 after payments described in clauses (Y)(1) and (2) above and any
accrued and unpaid annual trustee expense amount with respect to group
2;
(4) to the servicer and/or the depositor, an amount equal to
the lesser of (A) the balance of the Amount Available with respect to
group 2 after payments described in clauses (Y)(1) through (3) above
and, to the extent applicable, after payments to the Class 1A
certificateholders as described under "Excess Spread,
Overcollateralization and Cross- Collateralization Provisions" below
and (B) any expenses paid by the servicer and/or depositor that were
incurred in connection with any third party claims that remain
unreimbursed;
(5) to the servicer, an amount equal to the lesser of (A) the
balance of the Amount Available with respect to group 2 after payments
described in clauses (Y)(1) through (4) above and, to the extent
applicable, after payments to the Class 1A certificateholders as
described under "Excess Spread, Overcollateralization and
Cross-Collateralization Provisions" below and (B) the aggregate of any
nonrecoverable servicing advances and nonrecoverable monthly advances
with respect to group 2 previously made by the servicer and not
previously reimbursed;
(6) to the Class 2A certificateholders until the Class 2A
principal balance has been reduced to zero, the lesser of:
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(A) the balance of the Remaining Net Excess Spread
with respect to group 2 after payments described in clauses
(Y)(1) through (5) above and payments of Additional Principal,
if any, to the Class 1A certificateholders; and
(B) the Available Funds Cap Carry Forward Amount with
respect to the Class 2A certificates, if any; and
(7) to the Class R certificateholders, the balance of the
Amount Available with respect to group 2 after payments described in
clauses (Y)(i) through (vi) above and, to the extent applicable, after
payments to the Class 1A certificateholders as described under "Excess
Spread, Overcollateralization and Cross-Collateralization Provisions"
below, if any.
The pooling and servicing agreement provides that to the extent the
certificate insurer makes insured payments with respect to a class of Class A
certificates, the certificate insurer (a) will be subrogated to the rights of
the holders of the Class A certificates with respect to those insured payments,
(b) shall be deemed, to the extent of the payments so made, to be a registered
holder of Class A certificates and (c) shall be entitled to reimbursement for
those insured payments, with interest accrued thereon at the weighted average of
the related Class A pass-through rates, on each remittance date after the
related Class A certificateholders have received the related Class A Remittance
Amount (exclusive of any related Class A Carry-Forward Amount representing
amounts previously paid to certificateholders as insured payments or interest
accrued in respect of those insured payments) for that remittance date.
INTEREST COVERAGE ACCOUNT AND RESERVE ACCOUNT
The depositor will establish for the benefit of each class of the Class
A certificateholders an interest coverage trust account for each group. On the
closing date and, if necessary, on each subsequent transfer date, the depositor
will deposit in each interest coverage account a cash amount as required by the
certificate insurer and specified in the pooling and servicing agreement. Funds
on deposit in the related interest coverage account will be applied by the
trustee to cover shortfalls in the related Class A Interest Remittance Amount
attributable to (1) the pre-funding feature during the funding period and (2)
the deferment of interest feature with respect to certain of the mortgage loans.
During the funding period, an interest shortfall initially will exist because
while the related Class A certificateholders are entitled to receive interest
accruing on the related Class A principal balance, the related Class A principal
balance during the funding period will be greater than the aggregate principal
balance of the initial mortgage loans with respect to each group on the closing
date. Upon conveyance of related subsequent mortgage loans to the trust fund,
funds on deposit in the related interest coverage account related to the
pre-funding feature will be released by the trustee to the depositor to the
extent not necessary to cover these interest shortfalls.
Approximately ___% of the initial mortgage loans, by original principal
balance (excluding the permanent buydown companion loans), are deferred payment
loans and the principal balance conveyed to the trust fund has been reduced by
the principal amount so deferred. If the mortgagor has not prepaid the loan
before a certain date and the maturity date is not otherwise accelerated by the
servicer, these deferred payments will be forgiven. During the funding period,
funds on deposit in the related interest coverage account will be available to
cover the interest portion of deferred payments. In addition, it is possible
that some of the subsequent mortgage loans transferred to the trust fund will
contain this deferment of payments feature. With respect to any subsequent
mortgage loan that is a deferred payment
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loan, that amount necessary to cover the interest that will accrue during the
period of deferment on the principal balance of the deferred payment loan as
transferred to the trust fund will be transferred by the trustee, upon
termination of the funding period, from the related interest coverage account
into a related reserve account which will be a part of the trust fund REMIC.
Upon termination of the funding period, any other amounts remaining in the
interest coverage accounts will be released by the trustee to the depositor. To
the extent deferred payments are not forgiven, the servicer will retain deferred
payments collected for payment to the depositor as part of the Depositor's
Yield.
ADVANCES
Not later than the close of business on the twenty-second day of each
month (or if such day is not a business day, on the following business day), the
servicer shall remit to the trustee for deposit in the certificate account with
respect to the related group an amount, to be distributed on the related
remittance date, equal to the sum of (1) the interest portions of the aggregate
amount of monthly payments on the mortgage loans with respect to the related
group, net of the servicing fee, the annual trustee expense amount and, after
the cross-over date, the excess spread) due during the related Due Period, but
delinquent as of the close of business on the first day of the month in which
such remittance date occurs, (2) with respect to each REO Property that was
acquired during or prior to the related Due Period and which was not disposed of
during such Due Period, an amount equal to the excess, if any, of interest on
the principal balance deemed to apply to such REO Property for the most recently
ended calendar month at the related mortgage rate, net of the servicing fee, the
annual trustee expense amount and, after the cross-over date, the excess spread,
over the net income from such property for such Due Period, (3) with respect to
each remittance date, the amount necessary on the first, second, third and
fourth remittance dates to pay 30 days' interest with respect to each
non-delinquent newly originated mortgage loan in the related group that has not
had a first payment date as of the closing date, net of the servicing fee and
the annual trustee expense amount, and (4) with respect to each remittance date,
if pursuant to the pooling and servicing agreement the servicer has previously
reimbursed itself for an advance described in clause (3) above, then an amount
equal to such amount previously reimbursed.
The servicer is required to make an advance out of its own funds or out
of funds in the principal and interest account with respect to the related group
that do not constitute the related Amount Available with respect to the related
group for such remittance date.
EXCESS SPREAD, OVERCOLLATERALIZATION AND CROSS-COLLATERALIZATION PROVISIONS
On any remittance date prior to the cross-over date, holders of the
Class 1A and Class 2A certificates will have a first priority right to 100% of
the related Excess Spread to fund the amount by which the related Class A
Remittance Amount with respect to the related class of Class A certificates,
exceeds the related Available Remittance Amount for such remittance date. To the
extent available, the Net Excess Spread and Excess Principal with respect to a
group will then be applied to cover any Available Funds Shortfall with respect
to the other group.
In addition, on any remittance date prior to the cross-over date on
which the Overcollateralization Amount for a group is less than the Required
Overcollateralization Amount for that group, the Remaining Net Excess Spread,
the Available Transfer Cashflow, and the Net Excess Principal, if any, will be
used to make additional distributions of principal on the related class of Class
A certificates until the Overcollateralization Amount equals the related
Required Overcollateralization Amount for that group.
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Credit enhancement with respect to the Class A certificates will be
provided in part by the initial Overcollateralization Amount for the related
group resulting from the sum of the original principal balance of the related
group and the original group 1 pre-funded amount or the original group 2 pre-
funded amount, as applicable, exceeding the related initial Class A principal
balance as of the closing date. On the closing date, the initial
Overcollateralization Amount with respect to group 1 is expected to be
$____________, equal to ____% of the sum of the original group 1 principal
balance and the original group 1 pre-funded amount; the initial
Overcollateralization Amount with respect to group 2 is expected to be
$____________ equal to ___% of the sum of the original group 2 principal balance
and the original group 2 pre-funded amount.
Prior to the related cross-over date, Excess Spread with respect to a
group will be applied first, to cover any Available Funds Shortfall with respect
to that group, second, to cover any Available Funds Shortfall with respect to
the other group, third, to pay the amount of any related accrued and unpaid
annual trustee expense amount, fourth, to reach and maintain the Required
Overcollateralization Amounts for that group, if necessary, fifth, to reach and
maintain the Required Overcollateralization Amount for the other group, if
applicable, sixth, with respect to the related group, to reimburse the servicer
for amounts to which it is entitled, and seventh, with respect to group 2, to
pay the related Available Funds Cap Carry Forward Amount, if any, to the holders
of Class 2A certificates on a pro rata basis among such certificateholders, and
to distribute any remaining amounts to the Class R certificateholders. After the
cross-over date, Excess Spread with respect to a group, will be applied, first,
to cover any Available Funds Shortfall with respect to that group, second, to
cover any Available Funds Shortfall with respect to the other group, third, to
pay the amount of any related accrued and unpaid annual trustee expense amount,
fourth, to reach and maintain the Required Overcollateralization Amount for the
other group, if necessary, fifth, with respect to the related group, to
reimburse the servicer for amounts to which it is entitled, and sixth, with
respect to group 2, to pay the Available Funds Cap Carry Forward Amount, if any,
to the Holders of Class 2A certificates on a pro rata basis among such
certificateholders and to distribute any remaining amounts to the Class R
certificateholders.
Application of the Additional Principal will have the effect of
accelerating the rate of payment of principal of the Class A certificates until
the cross-over date. Application of funds in accordance with the foregoing is
intended to create and maintain a positive Overcollateralization Amount equal to
the Required Overcollateralization Amount and thereby provide a cushion against
ultimate losses rather than to maintain a regular cash flow to holders of Class
A certificates or to guarantee against current losses. There can be no assurance
that the Required Overcollateralization Amount will be attained or maintained.
In addition, the Required Overcollateralization Amount may be reduced at the
discretion of the certificate insurer.
POOLING AND SERVICING AGREEMENT
GENERAL
The certificates will be issued pursuant to a pooling and servicing
agreement dated as of ____________, among the depositor, the servicer and
_________________________________, as trustee, a form of which agreement is
filed as an exhibit to the registration statement of which this prospectus
supplement is a part. A copy of the pooling and servicing agreement as executed
will be included in the Current Report on Form 8-K relating to the Class A
certificates, which will be filed by the
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depositor with the Securities and Exchange Commission within fifteen days after
the initial issuance of the certificates. Reference is made to the prospectus
for important information in addition to that set forth herein regarding the
trust fund, the terms and conditions of the pooling and servicing agreement and
the certificates. The depositor will provide to a prospective or actual
certificateholder without charge, on written request, a copy (without exhibits)
of the pooling and servicing agreement. Requests should be addressed to Superior
Bank FSB, 135 Chestnut Ridge Road, Montvale, New Jersey 07645, Attention:
President.
THE SERVICER
The servicer will be responsible for the servicing of the mortgage
loans and will be entitled to a fee equal to ___% per annum of the principal
balance of each mortgage loan, calculated and payable monthly from interest
actually received by the servicer on the mortgage loans, as described herein.
[The servicer, as of ______________, serviced approximately
$_____________ of mortgage loans (including the mortgage loans and mortgage
loans not originated or purchased by the depositor).
Statements are provided for all mortgage loans serviced. Mortgagors are
instructed to forward all payments, along with a coupon detachable from the
statement, to a lockbox account. Available funds are then transferred from the
lockbox account to the related principal and interest account. Ten days after a
missed payment, phone calls to the borrower are initiated by the servicer and on
the sixteenth day, an automated mailgram is sent. Follow-up calls by experienced
collection personnel are made as required to promote prompt payment and to
counsel the borrower. At the second missed payment, generally, an on-site
interview is scheduled with the borrower and the mortgaged property is
inspected. If foreclosure is necessary, the servicer's litigation department
supervises and monitors all litigation procedures (including bankruptcy
proceedings) conducted by the foreclosing attorneys. If title passes to the
mortgagee, the servicer's real estate division will immediately insure that the
mortgaged property is preserved and protected. Upon extensive review and
analysis, a disposition strategy is developed and the property is aggressively
marketed.
The following table and discussion set forth certain information
concerning the delinquency and loss experience on mortgage loans secured by
single family properties, multifamily properties, commercial properties and
mixed use properties (including the mortgage loans originated or purchased by
the depositor and serviced by the servicer).
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<TABLE>
<CAPTION>
DELINQUENCY AND LOSS EXPERIENCE(1)
($ IN THOUSANDS)
FISCAL YEAR ENDING ,
FISCAL YEAR ENDING ,
--------------------------------------------- [NINE MONTHS
ENDED
199 199 199 , 1999 ]
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Total Outstanding Principal Balance...............
Number of Loans...................................
Period of Delinquency(2):
30-59 Days(3)
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
60-89 Days
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
90 Days or More
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
Total Delinquency
Principal Balance.......................
Number of Loans.........................
Percent by Delinquency by Dollar........
Average Outstanding Principal Balance.............
Net Gains/(Losses) on Liquidated Loans............
Net Gains/(Losses) as a Percent of Average
Outstanding Principal Balance................
Net Gains/(Losses) on Liquidated Loans
including advances(4)........................
Net Gains/(Losses) as a Percent of Average
Outstanding Principal Balance(4).............
</TABLE>
- ------------------
(1) This table includes fixed-rate and adjustable-rate mortgage loans.
(2) Includes mortgage loans in the process of foreclosure and mortgaged
properties acquired through foreclosure or deed in lieu of foreclosure.
(3) Represents two payments missed.
(4) Includes all net recorded servicer advances through date of liquidation
less recoveries of such advances.
(5) Percentages for the nine month period ending ______, 199_ are
annualized.
The number of outstanding mortgage loans originated pursuant to the
Adjustable-Rate First Mortgage Program in the servicer's loan portfolio, and the
total principal balance of such loans, as of ______________ were approximately
______ and $____________ , respectively, as of __________ were approximately
_______ and $_____________, respectively, as of _______, ____ were approximately
_____ and $___________, respectively, and as of _____________ were approximately
_____ and $___________, respectively. As of ______________, only _____ of such
adjustable-rate mortgage loans were delinquent.
At ______________ with respect to the mortgage loans set forth in the
preceding table, ___ properties (representing $__________ in principal balance
of such loans) were acquired through
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foreclosure of the related mortgage loans or through deed in lieu of foreclosure
and were not liquidated. The average length of ownership of foreclosed
properties has historically been __ months with an average loss (including
accrued and unpaid interest) per property of $______.
The delinquency and loss experience percentages in the preceding table
are calculated on the basis of all conventional mortgage loans serviced for the
depositor as of the end of the periods indicated. However, because the total
amount of loans serviced by the servicer has rapidly increased over these
periods as a result of new originations, the total amount of loans serviced as
of the end of any indicated period will include many loans that will not have
been outstanding long enough to give rise to some or all of the indicated
periods of delinquency. In the absence of such substantial continuous additions
of newly originated loans to the total amount of loans serviced, the delinquency
percentages indicated in the preceding table would be higher and could be
substantially higher.]
YEAR 2000 COMPLIANCE
[_________________ is a federally chartered and insured savings
association, regulated by the Office of Thrift Supervision. Pursuant to OTS and
Federal Financial Institutions Examination Counsel guidelines, ________
initiated a comprehensive program to study the impact on its computer systems in
order to be year 2000 compliant. This study involved identifying affected
systems and/or applications and implementing appropriate modifications or
replacements of hardware and software maintained by ________. The study also
involved receiving assurance that similar actions have or are being taken by
third party service providers that are relied upon by ________. In addition,
________ took necessary steps to receive assurance that its borrowers on income
producing properties are taking necessary steps to address their year 2000
issues so that income to cover debt service will not be interrupted.
Under this program, ________ identified computer systems that will
require either modification, upgrade or replacement. ________ utilized primarily
in-house personnel to perform these tasks, and also contracted with outside
consultants, to a lesser degree, for some specific programming functions. As
such, ________'s planned modifications, upgrades and replacement of existing
systems, along with third party confirmations, have been completed and
________'s computer systems and software are year 2000 compliant, and any
related costs did not have a material adverse impact on the results of
operations, cash flows or financial condition of ________.]
THE TRUSTEE
_________________________________, a nationally chartered commercial
bank located in _________________, will be named trustee pursuant to the pooling
and servicing agreement. _______ has accepted appointment as the certificate
registrar and paying agent pursuant to the pooling and servicing agreement. The
trustee may resign at any time in the manner set forth in the pooling and
servicing agreement, in which event the servicer will be obligated to appoint a
successor trustee. The trustee may be removed if it ceases to be eligible to
continue as such under the pooling and servicing agreement, if it becomes
insolvent or if it fails to perform in accordance with the pooling and servicing
agreement. The trustee may also be removed by the depositor without cause, as
long as the certificate insurer consents to such removal. Any resignation or
removal of the trustee and appointment of a successor trustee will not become
effective until the acceptance of appointment by a successor trustee. The
trustee may appoint a custodian to hold the mortgage loans and has
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initially appointed itself to act in such capacity. The depositor may maintain
other banking relationships in the ordinary course of business with the trustee
and any custodian.
YEAR 2000 COMPLIANCE
[The trustee will represent in the pooling and servicing agreement that
it will use reasonable commercial efforts to cure (by ___________) any
deficiencies with regard to the manipulation or calculation of dates beyond
December 31, 1999 in the internally maintained computer software systems used by
the trustee in the conduct of its trust business which would materially and
adversely affect its ability to perform its obligations under the pooling and
servicing agreement. The trustee will further represent in the pooling and
servicing agreement that it will use reasonable commercial best efforts to
obtain reasonable assurances from each third party vendor of licensed computer
software systems used by the trustee in the conduct of its trust business that
such vendors shall use reasonable commercial efforts to cure any deficiencies
with regards to the manipulation or calculation of dates beyond December 31,
1999 in such systems which would materially and adversely affect the ability of
the trustee to perform its obligation under the pooling and servicing
agreement.]
PAYMENT OF EXPENSES
In order to provide for the payment of the fees and expenses of the
trustee, the trustee will establish and maintain a trust expense account for
each group into which the trustee will deposit on each remittance date,
one-twelfth of the annual trustee expense amount. The annual trustee expense
amount with respect to each mortgage loan is equal to ___% per annum times the
related principal balance. Amounts on deposit in the related trustee expense
account will be withdrawn pursuant to the terms of the pooling and servicing
agreement to pay the fees and expenses of the trustee with respect to the
related group. On each remittance date, the trustee will pay from amounts on
deposit in the related certificate account, prior to making any required
distributions to the certificateholders, an amount that is sufficient to pay the
monthly premium due the certificate insurer.
TERMINATION; PURCHASE OF MORTGAGE LOANS
On any remittance date on which the aggregate outstanding principal
balance of the mortgage loans in the trust fund is less than or equal to __% of
the sum of the original pool principal balance and the original pre-funded
amount, the servicer may determine to purchase and may purchase from the trust
fund all of the mortgage loans and all REO Property at a termination price equal
to the sum of (1) 100% of the principal balance of each mortgage loan remaining
plus one month's accrued interest thereon at the related mortgage rate net of
the rate at which the servicer's fee is calculated and (2) the appraised value
of any such REO Property remaining determined in accordance with the terms of
the pooling and servicing agreement. SEE "DESCRIPTION OF THE
CERTIFICATES--TERMINATION" IN THE PROSPECTUS.
In connection with any such purchase by the servicer, the servicer
shall remit to the trustee for remittance to the related certificateholders on
the final remittance date with respect to such terminated group all other
amounts then on deposit in the related principal and interest account that
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would have constituted part of the related Available Remittance Amount for
subsequent remittance dates absent such purchase.
REMOVAL AND RESIGNATION OF SERVICER
The certificate insurer may, pursuant to the pooling and servicing
agreement, remove the servicer as servicer with respect to the mortgage loans of
a group upon the occurrence and continuation beyond the applicable cure period
of any of the following events, other than the event described in clause (1)(C)
below, and the holders of the majority Class 1A or the Class 2A certificates
evidencing in excess of 51% of the related Class A principal balance, with the
consent of the certificate insurer, which consent may not be unreasonably
withheld, may remove the servicer as servicer of the mortgage loans of the
related group upon the occurrence and continuation beyond the applicable cure
period of (a) an event described in clause (2) below or (b) upon the failure of
the certificate insurer to exercise its rights to remove the servicer upon the
occurrence of any event described in clauses (1)(A), (1)(B), (1)(D), (3), (4) or
(5) below:
(1)(A) an event of nonpayment, unless in the case of an
event of nonpayment described in clauses (1) or (2) of the definition
thereof, the insufficiency described in such clauses (1) or (2) results
from a failure of the certificate insurer or the trustee to perform in
accordance with its respective obligations with respect to such group;
(B) the failure by the servicer to make any required servicing advance
with respect to such group, to the extent such failure materially and
adversely affects the interests of the certificate insurer or the
related certificateholders; (C) the failure by the servicer to make any
required monthly advance with respect to such group; or (D) any other
failure by the servicer to remit to related certificateholders, or to
the trustee for the benefit of the related certificateholders, any
payment required to be made under the terms of the pooling and
servicing agreement with respect to the related certificates, to the
extent such failure materially and adversely affects the interests of
the certificate insurer or the related certificateholders and which
continues unremedied after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given to
the servicer by the certificate insurer or the trustee or to the
servicer and the trustee with the consent of the certificate insurer;
or
(2) failure by the servicer duly to observe or perform,
in any material respect, any other covenants, obligations or agreements
of the servicer with respect to a group as set forth in the pooling and
servicing agreement with respect to the related certificates, which
failure continues unremedied for a period of 60 days after the date on
which written notice of that failure, requiring the same to be
remedied, shall have been given to the servicer by the trustee or to
the servicer and the trustee by the certificate insurer or any related
certificateholder with the consent of the certificate insurer; or
(3) a decree or order of a court or agency or
supervisory authority having jurisdiction for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 60 days; or
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(4) the servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the servicer or of or relating to all or
substantially all of the servicer's property and such appointment shall
continue unremedied for a period of 30 days after the servicer has
received notice of such default; or
(5) the servicer shall admit in writing its inability
to pay its debts as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations, any of which shall continue unremedied for
a period of 30 days after the servicer has received notice of such
default; or
(6) certain other events if required by the certificate
insurer in the pooling and servicing agreement.
Upon the occurrence of the event described in clause (1)(C), and the
servicer's failure to remedy such by twelve o'clock noon, New York City time, on
the next succeeding business day, the trustee or a successor servicer will
immediately assume the duties of the servicer with respect to the related group.
An event of nonpayment is defined in the pooling and servicing
agreement as (1) with respect to any remittance date, the insufficiency of
amounts remitted to the trustee by the servicer and available to the trustee to
pay the full amount of the related Class A Remittance Amounts for a group,
exclusive of the related Class A Carry-Forward Amounts that represent insured
payments or interest accrued in respect of insured payments, and the monthly
premium payable to the certificate insurer and (2) the sum of all Realized
Losses with respect to such group exceeds an amount specified in the pooling and
servicing agreement. In certain instances of the occurrence of an event of
nonpayment the trustee and the certificate insurer may prohibit the termination
of the servicer with respect to a group if such event of nonpayment does not
result from the action or omission of the servicer.
Under the pooling and servicing agreement, if Realized Losses and
delinquencies with respect to a group reach certain specified levels, the
certificate insurer has the option to direct the trustee to remove the servicer
with respect to that group.
Upon removal or resignation of the servicer as servicer of the mortgage
loans, the trustee will be the successor servicer of the mortgage loans of the
related group. The trustee and any other successor servicer in such capacity is
entitled to the same reimbursement for advances and servicing compensation with
respect to the mortgage loans of the related group as the servicer. SEE
"DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS--SERVICING AND OTHER
COMPENSATION AND PAYMENT OF EXPENSES" AND "--RIGHTS UPON EVENT OF DEFAULT" IN
THE PROSPECTUS.
RECORDATION OF ASSIGNMENTS OF MORTGAGES
Assignments of the mortgage loans to the trustee (or its nominee) will
be recorded in the appropriate public office for real property records, except
in states such as New York where, in the
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opinion of counsel, such recording is not required to protect the trustee's
interest in the mortgage loan against the claim of any subsequent transferee or
creditor of the depositor.
AMENDMENT
In addition to the provisions for amendment of the pooling and
servicing agreement described in the Prospectus, with respect to the
certificates, the Required Overcollateralization Amounts and the subordinated
amounts may be reduced at the discretion of the certificate insurer and,
consequently, without the consent of, or notice to, the holders of Class A
certificates.
THE CERTIFICATE INSURER AND THE CERTIFICATE INSURANCE POLICY
The information set forth in this section and in the financial
statements of ______________ set forth in Appendix A and Appendix B hereto, has
been provided by the certificate insurer. No representation is made by the
depositor or any of its affiliates as to the accuracy or completeness of any
such information.
[DESCRIPTION OF THE CERTIFICATE INSURER]
CAPITALIZATION
[CAPITALIZATION OF THE CERTIFICATE INSURER]
[DESCRIPTION OF CERTIFICATE INSURANCE POLICY AND CALCULATION OF INSURED
PAYMENTS]
CERTIFICATE INSURANCE POLICY
In the absence of payments under the certificate insurance policy,
certificateholders will directly bear the credit and other risks associated with
their undivided interest in the trust fund.
FEDERAL INCOME TAX CONSEQUENCES
A real estate mortgage investment conduit election will be made in
connection with the trust fund for federal income tax purposes, exclusive of the
pre-funding accounts and the interest coverage accounts. Upon the issuance of
the Class A certificates, Thacher Proffitt & Wood, counsel to the depositor,
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the pooling and servicing agreement, for federal income tax
purposes, the trust fund REMIC will qualify as a REMIC within the meaning of the
Code.
For federal income tax purposes, the Class R certificates will be the
sole class of "residual interests" and the Class A certificates will be the
"regular interests" in the trust fund REMIC and will generally be treated as
debt instruments of the trust fund REMIC. SEE "FEDERAL INCOME TAX CONSEQUENCES"
IN THE PROSPECTUS.
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For federal income tax information reporting purposes, the Class A
certificates will not be treated as having been issued with original issue
discount. With respect to group 1, the prepayment assumptions that will be used
in determining the rate of accrual of market discount and premium, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination, the group 1 mortgage loans will prepay at a rate
of __% per annum of the then outstanding principal balance of such group 1
mortgage loans in the first month of the life of the group 1 mortgage loans and
an additional __% per annum in each month thereafter until the twenty- first
month, then, beginning in the twenty-first month and in each month thereafter
during the life of the group 1 mortgage loans, __% per annum each month. With
respect to group 2, the prepayment assumptions that will be used in determining
the rate of accrual of market discount and premium, if any, for federal income
tax purposes for the REMIC will be based on the assumption that subsequent to
the date of any determination, the group 2 mortgage loans will prepay at a rate
of ___% CPR. No representation is made that the mortgage loans will prepay at
these rates or at any other rate. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES--ORIGINAL
ISSUE DISCOUNT", "--MARKET DISCOUNT" AND "--PREMIUM" IN THE PROSPECTUS.
The Internal Revenue Service has issued OID Regulations under Sections
1271 to 1275 of the Code generally addressing the treatment of debt instruments
issued with original issue discount. Purchasers of the Class A certificates
should be aware that the OID Regulations do not adequately address certain
issues relevant to, or are not applicable to prepayable securities, such as the
Class A certificates. In addition, there is considerable uncertainty concerning
the application of Section 1272(a)(6) of the Code and the OID Regulations to
REMIC Regular Certificates that provide for payments based on an adjustable
rate, such as the Class A certificates. Because of the uncertainties concerning
the application of Section 1272(a)(6) of the Code to the Class 1A certificates
and the Class 2A certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to the Class
A certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Class A certificates should be treated as having been
issued with original issue discount or should be governed by some other method
not yet set forth in regulations. Prospective purchasers of the Class A
certificates are advised to consult their tax advisors concerning the tax
treatment of such certificates.
If the Class A certificates are required to be treated as having been
issued with original issue discount it appears that a reasonable method of
reporting original issue discount with respect to the Class 1A certificates and
the Class 2A certificates, generally would be to report all income with respect
to such certificates as original issue discount for each period, computing such
original issue discount (1) by assuming that the value of the applicable index
will remain constant for purposes of determining the original yield to maturity
of, and projecting future distributions on, such certificates, thereby treating
such certificates as fixed rate instruments to which the original issue discount
computation rules described in the prospectus can be applied, and (2) by
accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES--ORIGINAL
ISSUE DISCOUNT" IN THE PROSPECTUS.
In general the Class A certificates will be treated as assets described
in Section 7701(a)(19)(C) of the Code and as "real estate assets" under Section
856(c)(4)(A) of the Code
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generally in the same proportion that the assets of the trust fund REMIC would
be so treated. Moreover, if 95% or more of such assets qualify for any of the
foregoing treatments at all times during a calendar year, the Class A
certificates will qualify for the corresponding status in their entirety for
that calendar year. In addition, the Class A certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code. Furthermore,
interest on the Class A certificates will be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code
generally to the extent that such Class A certificates are treated as "real
estate assets" under Section 856(c)(4)(A) of the Code. Amounts held in the
trustee expense accounts and the reserve accounts may not be treated as assets
described in the foregoing sections of the Code. In addition, to the extent that
the mortgage loans represent loans secured by mixed residential and commercial
structures, such loans will be treated as assets described in Section
7701(a)(19)(C) of the Code only if the residential use of the property securing
such loans exceeds 80% of the property's entire use. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS-- CHARACTERIZATION OF INVESTMENT IN REMIC CERTIFICATES" IN
THE PROSPECTUS.
To the extent permitted by then applicable law, any "prohibited
transactions tax", "contributions tax", tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
trust fund REMIC will be borne by the servicer or trustee in either case out of
its own funds, provided that the servicer or the trustee, as the case may be,
has sufficient assets to do so, and provided further that such tax arises out of
a breach of the servicer's or the trustee's obligations, as the case may be,
under the pooling and servicing agreement and in respect of compliance with then
applicable law. Any such tax not borne by the servicer or the trustee will be
payable out of the trust fund REMIC which may reduce the amounts otherwise
payable to holders of Class A certificates. SEE "FEDERAL INCOME TAX
CONSEQUENCES--TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES--PROHIBITED
TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES" IN THE PROSPECTUS.
A certificateholder that is not a "United States Person" and is not
subject to federal income tax as a result of any direct or indirect connection
to the United States in addition to its ownership of a certificate will not be
subject to United States federal income or withholding tax in respect of a
distribution on a certificate, provided that the holder complies to the extent
necessary with certain identification requirements (including delivery of a
statement, signed by the certificateholder under penalties of perjury,
certifying that such certificateholder is not a United States person and
providing the name and address of such certificateholder). If the holder does
not qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty. SEE
"FEDERAL INCOME TAX CONSEQUENCES --FOREIGN INVESTORS IN REMIC CERTIFICATES" IN
THE PROSPECTUS.
The servicer will be designated as the "tax matters person" (as defined
in Treasury regulation Section 301.6231(a)(7)-(1)(a)) with respect to the trust
fund REMIC, and in connection therewith will be required to hold not less than
0.01% of the percentage interests of the Class R certificates.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES
OF INVESTING IN THE CLASS A CERTIFICATES, SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES" IN THE
PROSPECTUS.
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ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan and certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans, collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, and any other entity that may be
deemed to be investing plan assets, including insurance companies, as
applicable, that are subject to the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974, as amended and Section 4975 of
the Code should carefully review with its legal advisors whether the purchase or
holding of Class A certificates could give rise to a transaction prohibited or
not otherwise permissible under ERISA or the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase Class A
certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
the exemptions (discussed below) or any other prohibited transaction exemption
in connection therewith. A purchaser of a Class A certificate should also be
aware that even if the conditions specified in one or more exemptions are met,
the scope of the relief provided by an exemption might not cover all acts which
might be construed as prohibited transactions. With respect to the applicability
of ERISA, each group will be deemed to be a separate sub-trust within the trust
fund.
[The DOL issued individual exemptions, Prohibited Transaction Exemption
90-29 to ________________________ and Prohibited Transaction Exemption 90-23 to
_____________________, which generally exempt from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the excise taxes
and penalties imposed on such prohibited transactions pursuant to Section
4975(a) and (b) of the Code and Section 502(i) of ERISA, certain transactions,
among others, relating to the servicing and operation of mortgage pools and the
purchase, sale and holding of mortgage pass-through certificates underwritten or
placed by an underwriter, provided that certain conditions set forth in the
Exemptions are satisfied. For purposes of this section "ERISA Considerations",
the term "underwriter" shall include (a) _____________, (b) ___________, (c) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with either _____________ or ___________
and (d) any member of the underwriting syndicate or selling group of which a
person described in (a), (b) or (c) is a manager or co-manager with respect to a
class of certificates.
The exemptions set forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Class A
certificates to be eligible for exemptive relief thereunder. First, the
acquisition of Class A certificates by a Plan must be on terms that are at least
as favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the exemptions only apply to Class A certificates
evidencing rights and interests not subordinated to the rights and interests
evidenced by the other certificates of the same trust fund. Third, the Class A
certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's, Ratings Services,
a Division of the McGraw-Hill Companies, Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch IBCA, Inc. Fourth, the trustee cannot be an
affiliate of any other member of the "restricted group", which consists of any
underwriter, the depositor, the trustee, the servicer, any sub-servicer, the
certificate insurer and any mortgagor with respect to mortgage loans
constituting more than 5% of the aggregate unamortized principal balance of the
mortgage loans in the related group as of the date of initial issuance of the
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certificates. Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation for
underwriting the Class A certificates; the sum of all payments made to and
retained by the depositor pursuant to the assignment of the mortgage loans to
the trust fund must represent not more than the fair market value of the
mortgage loans; and the sum of all payments made to and retained by the servicer
and any sub-servicer must represent not more than reasonable compensation for
such person's services under the pooling and servicing agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
If the general conditions of the exemptions are satisfied, the
exemptions may provide an exemption from the restrictions imposed by Sections
406(a) and 407 of ERISA (as well as the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code)
in connection with the direct or indirect sale, exchange, transfer, holding or
the direct or indirect acquisition or disposition in the secondary market of
Class A certificates by Plans. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the
acquisition or holding of a Class A certificate on behalf of an "excluded plan"
by any person who has discretionary authority or renders investment advice with
respect to the assets of such excluded plan. For purposes of the certificates,
an excluded plan is a plan sponsored by any member of the restricted group.
If certain specific conditions of the exemptions are also satisfied,
the exemptions may provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section
4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A certificates in the initial issuance of Class A
certificates between the depositor or an underwriter and a Plan when the person
who has discretionary authority or renders investment advice with respect to the
investment of Plan assets in the Class A certificates is (a) a mortgagor with
respect to 5% or less of the fair market value of the mortgage loans or (b) an
affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A certificates by a Plan and (3)
the holding of Class A certificates by a Plan.
Further, if certain specific conditions of the exemptions are
satisfied, the exemptions may provide an exemption from the restrictions imposed
by Sections 406(a), 406(b) and 407 of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
mortgage pool.
The exemptions also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan by virtue of providing
services to the Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of the Plan's ownership of certificates.
On July 21, 1997, the DOL issued (62 Fed. Reg. 39021) amendments to the
exemptions, and similar exemptions issued to other underwriters under which the
exemptions would apply, subject to
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the satisfaction of certain conditions, to transactions involving a trust the
assets of which include a pre-funding account to be used subsequent to the
closing of the transaction to purchase additional assets for the trust. In its
prefatory comments to the amendments as proposed by the DOL (62 Fed. Reg.
28502), the DOL stated its interpretive position that a transaction which
satisfied the conditions of the exemptions, but did not satisfy the conditions
of the amendments as proposed could nevertheless qualify for exemptive relief if
it included a pre-funding account that was used only to acquire assets that are
specifically identified by the sponsor or originator as of the closing date, but
transferred to the trust after the closing date for administrative or other
reasons. Although the pre- funding accounts will not satisfy the conditions of
the amendments, they will be used by the trustee solely to pay for the
acquisition of subsequent mortgage loans in accordance with the pooling and
servicing agreement from a fixed pool of loans that will have been specifically
identified prior to the closing date. It is expected that all of the loans in
such fixed pool, except for those which are determined not to meet the criteria
for purchase set forth in the pooling and servicing agreement, will be acquired
using the related pre-funded amount. Accordingly, the depositor believes that
the existence of the pre-funding accounts should not cause the exemptions to be
inapplicable.
Before purchasing a Class A certificate, a fiduciary of a Plan should
itself confirm (a) that the Class A certificates constitute "certificates" for
purposes of the exemptions and (b) that the specific and general conditions set
forth in the exemptions and the other requirements set forth in the exemptions
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in the exemptions, the Plan
fiduciary should consider its general fiduciary obligations under ERISA in
determining whether to purchase any Class A certificates on behalf of a Plan.]
Any Plan fiduciary considering whether to purchase a Class A
certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. SEE "ERISA CONSIDERATIONS"
IN THE PROSPECTUS.
LEGAL INVESTMENT
[Although at their initial issuance the Class 1A certificates will be
rated Aaa by ________ and "AAA" by _________________, the Class 1A certificates
will NOT constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 because group 1 includes mortgage loans
which are secured by second liens.
The Class 2A certificates will not constitute "mortgage related
securities" for purposes of SMMEA until such time as the balance of the group 2
pre-funding account is reduced to zero. At such time the Class 2A certificates
will constitute "mortgage related securities" for purposes of SMMEA so long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization, and, as such, they will
constitute legal investments for certain entities to the extent provided for in
SMMEA.]
The depositor makes no representations as to the proper
characterization of any class of offered certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class offered certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of offered
certificates.
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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 legal advisors in determining
whether and to what extent any class of offered certificates constitutes a legal
investment or is subject to investment, capital or other restrictions. SEE
"LEGAL INVESTMENT" IN THE PROSPECTUS.
METHOD OF DISTRIBUTION
[Subject to the terms and conditions set forth in an underwriting
agreement, the depositor has agreed to sell to _______________________ and
_______________ , and each of the underwriters has agreed to purchase from the
depositor, the principal amount of the Class A certificates set forth opposite
its name below:
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Class 1A Class 2A
Underwriters Certificates Certificates
------------ ------------ ------------
<S> <C> <C>
Total.......................................................
</TABLE>
In the underwriting agreement, each of the underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase all of its
respective allocation of the Class A certificates if any of the Class A
certificates are purchased.
The underwriters have advised the depositor that they propose initially
to offer the Class A certificates to the public at the price set forth on the
cover page hereof, and to certain dealers at such price less a concession not in
excess of ___% of the certificate denominations for the Class 1A certificates
and not in excess of ___% of the certificate denominations for the Class 2A
certificates. The underwriters may allow and such dealers may reallow a
concession not in excess of ___% of the certificate denominations to certain
other dealers. After the initial public offering, the public offering price and
such concessions may be changed.
Until the distribution of the Class A certificates is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase the Class
A certificates. As an exception to these rules, the underwriters are permitted
to engage in certain transactions that stabilize the price of the Class A
certificates. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A certificates.
In general, purchases of a security for the purpose of stabilization
could cause the price of the security to be higher than it might be in the
absence of such purchases.
Neither the depositor or any of its affiliates nor any of the
underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Class A certificates. In addition, neither the depositor
S-102
<PAGE>
or any of its affiliates nor any of the underwriters makes any representation
that the underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides that the depositor will indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
There can be no assurance that a secondary market for the Class A
certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Class A
certificates will be the monthly statements discussed in the prospectus under
"Description of the Certificates--Reports to Certificateholders", which will
include information as to the outstanding principal balance of the Class A
certificates and the status of any existing credit enhancement. There can be no
assurance that any additional information regarding the Class A certificates
will be available through any other source. In addition, the depositor is not
aware of any source through which price information about the Class A
certificates will be generally available on an ongoing basis. The limited nature
of such information regarding the Class A certificates may adversely affect the
liquidity of the Class A certificates, even if a secondary market for the Class
A certificates becomes available.
EXPERTS
The financial statements of __________________, as of _____________ and
_____ and for each of the years in the three-year period ended ___________, have
been included in this prospectus supplement in Appendix A in reliance upon the
report of _________, independent certified public accountants, appearing in
Appendix A, upon the authority of said firm as experts in accounting and
auditing.
RATINGS
As a condition of issuance, the Class 1A and Class 2A certificates will
be rated [Aaa] by [_______________________________] and ["AAA"] by
[_________________________]. The security ratings of the Class A certificates
should be evaluated independently from similar ratings on other types of
securities. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
rating agencies. In general, ratings address credit risk and do not address the
likelihood or rate of prepayment. See "Rating" and "Risk Factors--Limited Nature
of Ratings" in the prospectus.
The ratings of [__________] on mortgage pass-through certificates
address the likelihood of the receipt by the holders thereof of all
distributions on the underlying mortgage loans to which they are entitled.
[_________] ratings on pass-through certificates do not represent any assessment
of the likelihood that principal prepayments will be made by mortgagors or the
degree to which such prepayments might differ from that originally anticipated.
The rating assigned by [_______] to the Class A certificates does not address
the possibility that the Class A certificateholders might suffer a lower than
anticipated yield, nor does it address the likelihood that the Available Funds
Cap Carry Forward Amount will be paid to the Class 2A certificateholders.
S-103
<PAGE>
[_____________] ratings on mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of payments required
thereon. [____________] ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream on the mortgage pool is
adequate to make payments required under the certificates. [___________] rating
on the Class A certificates does not, however, constitute a statement regarding
frequency of prepayments on the mortgage loans nor the likelihood that the
Available Funds Cap Carry Forward Amount will be paid to the Class 2A
certificateholders.
The ratings assigned to the Class A certificates will depend primarily
on the creditworthiness of the certificate insurer. Any reduction in a rating
assigned to the claims-paying ability of the certificate insurer below the
ratings initially assigned to the Class A certificates may result in a reduction
of the ratings assigned to the Class A certificates.
The depositor does not expect a rating on the Class A certificates by
any rating agency other than as set forth above. However, there can be no
assurance as to whether any other rating agency will rate the Class A
certificates, or, if it does, what rating would be assigned by such other rating
agency. A rating on the Class A certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Class A
certificates as set forth above.
LEGAL MATTERS
Certain legal matters relating to the Class A certificates will be
passed upon for the depositor by Thacher Proffitt & Wood and Lawrence S. Rigie,
Esq. and for the underwriters by __________.
S-104
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered AFC
Mortgage Loan Asset Backed Certificates, Series _____-_ (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company ("DTC"), Cedelbank ("Cedelbank"), or the Euroclear System ("Euroclear").
The Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. initial settlement and all secondary trades
will settle in same- day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset Back
Certificates issues.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of CEDE & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as Direct and Indirect Participants in DTC. As a result, Cedelbank and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan Asset
Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
I-1
<PAGE>
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that the settlement
can be made on the desired value date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset Backed Certificates issues in same-day funds.
TRADING BETWEEN CEDELBANK AND/OR EUROCLEAR PARTICIPANTS. Secondary
market trading between Cedelbank participants or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND CEDELBANK OR EUROCLEAR PURCHASER. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective Depositary, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedelbank
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from the value date (which
would be the preceding day when settlement occurred in New York). If settlement
is not completed on the intended value date (i.e., the trade fails), the
Cedelbank or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedelbank participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank participants or Euroclear participants can elect not
to proposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank participants or Euroclear
participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset
I-2
<PAGE>
the amount of such overdraft charges, although this result will depend on each
Cedelbank Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedelbank participants or
Euroclear participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participant a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDELBANK OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Cedelbank participants and Euroclear
participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to the settlement. In
these cases, Cedelbank or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedelbank Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedelbank Participant's or Euroclear Participant's
account would be backed-value to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedelbank Participant or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the Cedelbank Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank participants
or Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedelbank or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedelbank participants or
Euroclear participants.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
I-3
<PAGE>
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear (or through DTC if the holder has an address outside of
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W- 8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W- 8. Form 1001 may be filed by the Certificate
Owners or their agents.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owners of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are currently effective for
three calendar years and Form 4224 is currently effective for one calendar year.
SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--REMIC'S-- BACKUP WITHHOLDING WITH
RESPECT TO REMIC CERTIFICATES" IN THE PROSPECTUS.
The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized, in, or
under the laws of, the United States or any political subdivision thereof, or an
estate whose income is subject to United States federal income tax regardless of
its source, or a trust if a court within the United States is able to exercise
supervision over the administration of the trust and one or more United States
fiduciaries have authority to control all substantial decisions of the trust.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
I-4
<PAGE>
You should rely on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with any other information or to make any
representations not contained in this prospectus supplement and the prospectus.
This prospectus supplement and the prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the securities offered hereby by
anyone in any jurisdiction in which the person making such offer or solicitation
is not qualified to do so or to anyone to whom it is unlawful to make any such
offer or solicitation. We represent the accuracy of this information in this
prospectus supplement and the accompanying prospectus only as of the dates on
their respective covers.
$-------------
AFC MORTGAGE LOAN ASSET BACKED CERTIFICATES
SERIES ______-_
SUPERIOR BANK FSB
DEPOSITOR
$___________ CLASS 1A CERTIFICATES
VARIABLE PASS-THROUGH RATE
$___________ CLASS 2A CERTIFICATES
VARIABLE PASS-THROUGH RATE
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
[UNDERWRITERS]
_______, 199_
Dealers will be required to deliver a prospectus supplement and
prospectus when acting as underwriters of the certificates offered hereby and
with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until ninety days after the date of this prospectus supplement.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, Dated July 23, 1999
[Version 2]
Prospectus Supplement (to Prospectus dated , ____)
$_______________ (APPROXIMATE)
AFC MORTGAGE LOAN ASSET BACKED NOTES, SERIES ____-
AFC TRUST SERIES ____-__
SUPERIOR BANK FSB
DEPOSITOR
SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
This prospectus supplement, together with the accompanying prospectus will
constitute the complete prospectus.
- --------------------------------------------------------------------------------
The trust will issue the following notes offered hereby:
INITIAL NOTE NOTE INTEREST
CLASS BALANCE RATE
- ----- ------- ----
A $____________ Variable
M-1 $____________ Variable
M-2 $____________ Variable
M-3 $____________ Variable
OFFERED NOTES
The trust created for the Series _____-__ notes will hold a pool of fixed rate
and adjustable rate mortgage loans. Credit enhancement for the offered notes
will be provided by ______ classes of subordinated Class M Notes. Each class of
Class M Notes is subordinated to the senior notes and any Class M Notes with a
higher payment priority.
_________________, as underwriter, will offer to the public the Class M-2 Notes
and the Class M-3 Notes at varying prices to be determined at the time of sale.
The proceeds to the depositor from the sale of the underwritten notes will be
approximately ___% of the principal balance of the underwritten notes plus
accrued interest, before deducting expenses. See "Method of Distribution".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED NOTES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered notes in two separate documents
that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of notes; and
o this prospectus supplement, which describes the specific terms of this
series of notes.
Superior Bank FSB's principal offices are located at One Lincoln Centre,
Oakbrook, Illinois 60181 and its phone number is (630) 916-4000.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............................................S-__
Risk Factors................................................................S-__
Use of Proceeds.............................................................S-__
The Mortgage Pool...........................................................S-__
Yield on the Notes..........................................................S-__
Description of the Notes....................................................S-__
The Issuer..................................................................S-__
The Seller..................................................................S-__
The [_______ SPE]...........................................................S-__
The Owner Trustee...........................................................S-__
The Indenture Trustee.......................................................S-__
The Servicing Agreement.....................................................S-__
The Indenture and Owner Trust Agreement.....................................S-__
Federal Income Tax Consequences.............................................S-__
Method of Distribution......................................................S-__
Secondary Market............................................................S-__
Legal Opinions..............................................................S-__
Ratings.....................................................................S-__
Legal Investment............................................................S-__
ERISA Considerations........................................................S-__
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE NOTES OFFERED BY
THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE
TERMS OF THE OFFERED NOTES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series........................AFC Mortgage Loan, Asset-Backed Notes,
Series ____-_.
Cut-off Date...........................__________ __, ____.
Closing Date...........................On or about __________ __, ____.
Issuer.................................AFC Trust Series ____-__.
Depositor..............................Superior Bank FSB. The depositor will
deposit the mortgage loans into the
trust. SEE "THE DEPOSITOR" IN THE
PROSPECTUS.
Servicer...............................__________________. SEE "THE SERVICING
AGREEMENT-- SERVICER" IN THIS PROSPECTUS
SUPPLEMENT.
Owner Trustee..........................________________. SEE "THE OWNER TRUSTEE"
IN THIS PROSPECTUS SUPPLEMENT.
Indenture Trustee......................__________________. SEE "THE INDENTURE
TRUSTEE" IN THIS PROSPECTUS SUPPLEMENT.
Payment Dates..........................Payments on the offered notes will be
made on the __th day of each month, or,
if that day is not a business day, on the
next succeeding business day, beginning
in ______ ____.
Offered Notes..........................Only the notes set forth in the table
below are being offered by this
prospectus supplement. The classes of
offered notes and their interest rates,
note balances and final maturity date are
set forth in the immediately following
table.
<TABLE>
<CAPTION>
CLASS INITIAL NOTE NOTE INTEREST FINAL MATURITY DATE
BALANCE RATE
- -------------------------- ------------------ ------------------------------ ----------------------------------
<S> <C> <C> <C>
A......................... $_________ Variable ________ ____
M-1....................... $_________ Variable ________ ____
M-2....................... $_________ Variable _________ ____
S-3
<PAGE>
M-3....................... $_________ Variable _______ ____
</TABLE>
The initial note balances of each class of offered notes listed in the table
above is approximate. The note interest rate on each class of offered notes is
variable and will be calculated as described in this prospectus supplement under
"Description of the Notes--Note Interest Rates."
THE ISSUER
The notes will be issued by the issuer, a Delaware business trust established
under a trust agreement between the depositor and the owner trustee. The issuer
will issue _____ classes of notes representing non-recourse debt obligations of
the issuer secured by the trust estate. SEE "DESCRIPTION OF THE NOTES" IN THIS
PROSPECTUS SUPPLEMENT.
Distributions of interest and principal on the offered notes will be made only
from payments received in connection with the mortgage loans described in this
summary under the heading "The Mortgage Pools."
EQUITY CERTIFICATES
AFC Trust Certificates, Series ____-__, will be issued under the owner trust
agreement and will represent the beneficial ownership interest in the issuer.
The equity certificates are not offered by this prospectus supplement.
THE MORTGAGE LOANS
The trust will contain approximately _____ [conventional] [sub-prime]
[nonconforming], fixed-rate and adjustable-rate mortgage loans secured by first
liens on real properties. The mortgage loans have an aggregate principal balance
of approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Range of mortgage rates _____% to
(approximate): _____%.
Weighted average ______%.
mortgage rate
(approximate):
Weighted average ___ years
remaining term to stated and ___
maturity (approximate): months.
Range of principal $______ to
balances (approximate): $_______.
Average principal balance: $_______.
Range of loan-to-value _____% to
ratios (approximate): _____%.
Weighted average loan-to-
value ratio (approximate): ______%.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
THE NOTES
OFFERED NOTES. The offered notes will have the characteristics shown in the
table appearing on pages S-__ in this prospectus supplement. The interest rates
on each class of offered notes are variable and are
S-4
<PAGE>
calculated for each distribution date as described in this prospectus supplement
under "Description of the Notes--Note Interest Rates."
The offered notes will be sold by the depositor to the underwriter on the
closing date.
The offered notes will initially be represented by one or more global notes
registered in the name of CEDE & Co., as nominee of DTC in minimum denominations
of $[10,000] and integral multiples of $[1.00] in excess of the minimum
denominations. SEE "DESCRIPTION OF THE NOTES --REGISTRATION" IN THIS PROSPECTUS
SUPPLEMENT.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
notes consists of subordination as described below and under "Description of the
Notes--Allocation of Losses; Subordination" in this prospectus supplement.
SUBORDINATION. The rights of the holders of the Class M-1 Notes, the Class M-2
Notes and the Class M-3 Notes to receive distributions will be subordinated, to
the extent described in this prospectus supplement, to the rights of the holders
of the Class A Notes. The Class M-1 Notes, the Class M-2 Notes and the Class M-3
Notes are referred to in the prospectus supplement as subordinate notes.
In addition, the rights of the holders of subordinate notes with higher
numerical class designations will be subordinated to the rights of holders of
subordinate notes with lower numerical class designations, to the extent
described in this prospectus supplement.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior notes in respect of interest and principal and to afford the
more senior notes protection against realized losses on the mortgage loans as
described in the next section.
ALLOCATION OF LOSSES. If subordinate notes remain outstanding, losses on the
mortgage loans will be allocated first to the class of subordinate notes with
the lowest payment priority, and the other classes of notes will not bear any
portion of these losses. If none of the subordinate notes remain outstanding,
losses on mortgage loans will be allocated to the Class A Notes.
MONTHLY ADVANCES
The servicer is required to advance delinquent payments of interest on the
mortgage loans, subject to the limitations described under "Monthly Advances" in
this prospectus supplement. These advances shall be referred to in this
prospectus supplement as monthly advances. Each servicer is entitled to be
reimbursed for these advances, and therefore these advances are not a form of
credit enhancement. SEE "DESCRIPTION OF THE NOTES--MONTHLY ADVANCES" IN THIS
PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--ADVANCES IN RESPECT OF
DELINQUENCIES" IN THE PROSPECTUS.
OPTIONAL REDEMPTION
At its option, the majority holder of the equity certificates may redeem the
notes and thereby effect termination and early retirement of the notes, after
the aggregate note balance has been reduced to less than [20%] of the aggregate
initial note balance. SEE "THE
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INDENTURE AND OWNER TRUST AGREEMENT-- OPTIONAL REDEMPTION" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES-- TERMINATION" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion to the effect that the notes will be
characterized as indebtedness and the issuer will not be classified as an
association taxable as a corporation or a publicly traded partnership. FOR
FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF INVESTING
IN THE OFFERED NOTES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the notes that the offered notes receive
the following ratings from ______________ and ___________:
OFFERED [RATING [RATING
NOTES AGENCY] AGENCY]
- ----- ------- -------
Class A AAA AAA
Class M-1 AA AA
Class M-2 A A
Class M-3 BBB BBB
A security rating does not address the frequency of prepayments on the mortgage
loans, the corresponding effect on yield to investors. SEE "YIELD ON THE NOTES"
AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
LEGAL INVESTMENT
The offered notes, other than the Class ___ and Class ___ Notes, will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, or SMMEA, for so long as they are rated not lower than
the second highest rating category by one or more nationally recognized
statistical rating organizations and, as such, will be legal investments for
certain entities to the extent provided in SMMEA and applicable state laws. The
Class ___ Notes and the Class ___ Notes will not constitute "mortgage related
securities" for purposes of SMMEA. SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
Subject to important considerations, the notes may be eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. Plans should consult with their legal advisors before investing. SEE
"ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
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RISK FACTORS
The offered notes are not suitable investments for all investors. In
particular, you should not purchase the offered notes unless you understand and
are able to bear the prepayment, credit, liquidity and market risks associated
with these securities.
The offered notes are complex securities. You should possess, either
alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
accompanying prospectus in the context of your financial situation.
You should carefully consider, among other things, the following
factors in connection with the purchase of the offered notes:
[APPROPRIATE RISK FACTORS AS NECESSARY]
[THE MORTGAGE LOANS WERE UNDERWRITTEN TO STANDARDS WHICH DO NOT CONFORM TO THE
STANDARDS OF FANNIE MAE OR FREDDIE MAC WHICH MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS ALLOCATED TO YOUR NOTES.
The originator's underwriting standards are primarily intended to
assess the value of the mortgaged property and to evaluate the adequacy of the
property as collateral for the mortgage loan. The originator provides loans
primarily to borrowers who do not qualify for loans conforming to Fannie Mae and
Freddie Mac guidelines but who do have equity in their property. While the
originator's primary consideration in underwriting a mortgage loan is the value
of the mortgaged property, the originator also considers, among other things, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the mortgaged property. The originator's
underwriting standards do not prohibit a mortgagor from obtaining secondary
financing at the time of origination of the originator's first lien, which
secondary financing would reduce the equity the mortgagor would otherwise have
in the related mortgaged property as indicated in the originator's loan-to-value
ratio determination.
As a result of the underwriting standards described above, the mortgage
loans in the mortgage pool are likely to experience rates of delinquency,
foreclosure and bankruptcy that are higher, and that may be substantially
higher, than those experienced by mortgage loans underwritten in a more
traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITING STANDARDS OF ___________ AND REPRESENTATIONS
CONCERNING THE MORTGAGE LOANS" IN THIS PROSPECTUS SUPPLEMENT].
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[THE PAYMENT PERFORMANCE OF YOUR NOTES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE TRUST FUND; SOME OF THE MORTGAGE LOANS
IN THE TRUST FUND MAY EXPOSE YOUR NOTES TO GREATER LOSSES.
The notes represent an interest in mortgage loans. In the event that
the mortgaged properties fail to provide adequate security for the mortgage
loans included in the trust fund, any resulting losses, to the extent not
covered by the credit enhancement, will be allocated to the notes as described
in this prospectus supplement, and consequently may adversely affect the yield
to maturity on your notes. The depositor cannot assure you that the values of
the mortgaged properties have remained or will remain at the appraised values on
the dates of origination of the mortgage loans. Some types of mortgage loans may
have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss in the event thereof. You should consider the following risks
associated with the mortgage loans included in the trust fund: [AS APPLICABLE]
[SOME OF THE MORTGAGE LOANS MAY RESULT IN OUTSTANDING PRINCIPAL BALANCES IN
EXCESS OF THE VALUE OF THE UNDERLYING MORTGAGED PROPERTY WHICH COULD RESULT IN
LOSSES ON YOUR NOTES.
Approximately ___% of the mortgage loans by aggregate principal balance
as of _______________, are subject to negative amortization. In the case of
mortgage loans that are subject to negative amortization, the principal balances
of these mortgage loans could be increased to an amount equal to or in excess of
the value of the underlying mortgaged properties, thereby increasing the
likelihood of default. To the extent that these losses are not covered the
credit enhancement in the trust fund, holders of the notes 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 on the defaulted mortgage loans.
[THE INABILITY OF A MORTGAGOR TO MAKE A BALLOON PAYMENT AT MATURITY, MAY EXPOSE
YOUR NOTES TO LOSSES.
Approximately ___% of the mortgage loans by aggregate principal balance
as of ________________ may not be fully amortizing, or may not amortize at all,
over their terms to maturity and, thus, will require substantial payments of
principal and interest, that is, balloon payments, at their stated maturity.
Mortgage loans of this type involve a greater degree of risk than
self-amortizing loans because the ability of a mortgagor to make a balloon
payment typically will depend upon its ability either to fully refinance the
loan or to sell the related mortgaged property at a price sufficient to permit
the mortgagor to make the balloon payment. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related mortgaged property, the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in the
related mortgaged property, prevailing economic conditions and the availability
of credit for loans secured by comparable real properties.
[SOME OF THE MORTGAGE LOANS WERE ORIGINATED OUTSIDE THE UNITED STATES, WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS.
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Approximately ___% of the mortgage loans by aggregate principal balance
as of ________________, are mortgage loans secured by properties located in
Puerto Rico and Guam. The risk of loss on mortgage loans secured by properties
located in Puerto Rico and Guam may be greater than on mortgage loans that are
made to mortgagors who are United States residents and citizens or that are
secured by properties located in the United States. In particular, the procedure
for the foreclosure of a real estate mortgage under the laws of the Commonwealth
of Puerto Rico varies from the procedures applicable in each of the fifty states
of the United States which may affect the satisfaction of the related mortgage
loan. In addition, the depositor is not aware of any historical prepayment
experience with respect to mortgage loans secured by properties located in
Puerto Rico or Guam and, accordingly, prepayments on these loans may not occur
at the same rate or be affected by the same factors as other mortgage loans.
[SOME MORTGAGE LOANS ARE DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY RESULT IN
LOSSES WITH RESPECT TO THESE MORTGAGE LOANS.
Approximately ____% of the mortgage loans, by aggregate principal
balance as of _______ __, ____, were thirty days or more but less than sixty
days delinquent in their monthly payments as of ______ __, ____. Approximately
____% of the mortgage loans, by aggregate principal balance as of _______ __,
____, were sixty days or more but less than ninety days delinquent in their
monthly payments as of the _______ __, ____. However, investors in the mortgage
loans should realize that approximately _____% of the mortgage loans, by
aggregate principal balance as of _______ __, ____, have a first payment date
occurring on or after _______ __, ____ and, therefore, these mortgage loans
could not have been delinquent as of _______ __ _____].
[SOME OF THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF [NAME OF STATE],
WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS.
Approximately ___% of the mortgage loans are in the state of [Name of
State.] Investors should note that some geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets causing a decline in property values in those areas, and
consequently, will experience higher rates of loss and delinquency than will be
experienced on mortgage loans generally. A region's economic condition and
housing market may be directly, or indirectly, adversely affected by a number of
factors including natural disasters or civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots. The economic impact of any of these
types of events may also be felt in areas beyond the region immediately affected
by the disaster or disturbance. A concentration of mortgage loans in the trust
fund in a region experiencing a deterioration in economic conditions or a
decline in real estate values may expose your notes to losses in addition to
those generally present for similar mortgage-backed securities without this
concentration. The depositor cannot assure you that the values of the mortgaged
properties have remained or will remain at the appraised values on the dates of
origination of the mortgage loans. Any deterioration of economic conditions in
[name of state] which adversely affects the ability of borrowers to make
payments on the mortgage loans may increase the likelihood of delinquency and
foreclosure of the mortgage loans that may result in losses that, to the extent
not covered by the [credit enhancement] will be allocated to your notes.
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[THE CLASS M-1 NOTES, THE CLASS M-2 NOTES AND THE CLASS M-3 NOTES WILL BE
PARTICULARLY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS.
The weighted average lives of, and the yields to maturity on, the Class
M-1 Notes, the Class M-2 Nots and the Class M-3 Notes will be progressively more
sensitive, in increasing order of their numerical class designations, to the
rate and timing of mortgagor defaults and the severity of ensuing losses on the
mortgage loans. If the actual rate and severity of losses on the mortgage loans
is higher than those assumed by an investor in one of the Class M-1 Notes, the
Class M-2 Notes or the Class M-3 Notes, the actual yield to maturity of that
note may be lower than the yield anticipated by the holder based on that
assumption. The timing of losses on the mortgage loans will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses over the life of the mortgage pool are consistent with an investor's
expectations. In general, the earlier a loss occurs, the greater the effect on
an investor's yield to maturity. Losses on the mortgage loans in any due period,
to the extent they exceed the overcollateralized amount following payments of
principal on the related payment date, will reduce the note balance of the class
of notes then outstanding with the highest numerical class designation. As a
result of these reductions, less interest will accrue on the class of
subordinate notes than would otherwise be the case].
[THE CLASS M-1 NOTES, THE CLASS M-2 NOTES AND THE CLASS M-3 NOTES WILL GENERALLY
NOT BE ENTITLED TO RECEIVE PRINCIPAL PAYMENTS UNTIL ALL PRINCIPAL PAYMENTS HAVE
BEEN MADE ON THE CLASS A NOTES WHICH MAY LEAD TO LOSSES WITH RESPECT TO THESE
NOTES
Unless the note balance of the Class A Notes has been reduced to zero,
the Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes will not be
entitled to any principal payments until _____________ or a later period as
described in this prospectus supplement. As a result, the weighted average lives
of these notes will be longer than would otherwise be the case if payments of
principal were allocated among all of the notes at the same time. As a result of
the longer weighted average lives of these notes, the holders of these notes
have a greater risk of suffering a loss on their investments. Further, because
these notes might not receive any principal if certain delinquency levels occur,
it is possible for these notes to receive no principal payments even if no
losses have occurred on the mortgage pool].
[YOUR NOTES WILL BE LIMITED OBLIGATIONS SOLELY OF THE TRUST FUND AND NOT OF ANY
OTHER PARTY.
The notes will not represent an interest in or obligation of the
depositor, the servicer, the indenture trustee, the owner trustee or any of
their respective affiliates. Neither the notes nor the underlying mortgage loans
will be guaranteed or insured by any governmental agency or instrumentality, or
by the depositor, the servicer, the indenture trustee, the owner trustee or any
of their respective affiliates. Proceeds of the assets included in the trust
will be the sole source of payments on the offered notes, and there will be no
recourse to the depositor, the servicer, the indenture trustee, the owner
trustee or any other entity in the event that these proceeds are insufficient or
otherwise unavailable to make all payments provided for under the offered
notes].
[THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE NOTES AND THE MORTGAGE LOANS
MAY RESULT IN INTEREST SHORTFALLS ALLOCATED TO YOUR NOTES.
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The note interest rate for each class of notes adjusts monthly based on
a particular index, subject to limitations as described in this prospectus
supplement. However, the mortgage rates on the fixed rate mortgage loans are
fixed and will not vary with any index, and the mortgage rates on the adjustable
rate mortgage loans adjust semi-annually, after an initial fixed rate period in
the case of certain adjustable rate mortgage loans, based on a separate index
which may not move in tandem with the index for the notes and which is subject
to periodic and lifetime limitations. As a result of the foregoing as well as
other factors such as the prepayment behavior of the mortgage pool, relative
increases in the index or relative decreases in the weighted average of the
mortgage rates on the mortgage loans could:
o cause the amount of interest generated by the
mortgage pool to be less than the aggregate of the
amount of interest that would otherwise be payable on
the notes, leading one or more classes of notes to
accept payments of interest at a later date, or
o cause the maximum note interest rate to apply to one
or more classes of notes.
Because the mortgage rate for each adjustable rate mortgage loan will
be adjusted, subject to periodic and lifetime limitations, to equal the sum of
the index and the related gross margin, these rates could be higher than
prevailing market interest rates, possibly resulting in an increase in the rate
of prepayments on the adjustable rate mortgage loans after their adjustments. In
particular, investors should note that approximately _____% of the adjustable
rate mortgage loans have their interest rates fixed for two years following
origination and approximately _____% of the adjustable rate mortgage loans have
their interest rates fixed for three years following origination, in each case
by aggregate principal balance as of _________ __, ___. The weighted average
next adjustment date for the adjustable rate mortgage loans whose interest rates
are fixed for two years is _______ ____, and the weighted average next
adjustment date for the adjustable rate mortgage loans whose interest rates are
fixed for three years is _______ ____].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON YOUR NOTES WILL BE AFFECTED
BY THE RATE OF PREPAYMENTS.
The rate and timing of distributions allocable to principal on the
offered notes will depend, in general, on the rate and timing of principal
payments, including prepayments and collections upon defaults, liquidations and
repurchases, on the mortgage loans and the allocation of these payments to pay
principal on the offered notes. As is the case with mortgage-backed securities,
the offered notes are subject to substantial inherent cash-flow uncertainties
because the mortgage loans may be prepaid at any time. However, with respect to
approximately ____% of the mortgage loans, by aggregate principal balance as of
_______ __, ____, a prepayment may subject the related mortgagor to a prepayment
charge, which may act as a deterrent to prepayment of these mortgage loans. See
"The Mortgage Pool" in this prospectus supplement.]
[THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS WILL VARY DEPENDING ON FUTURE
MARKET CONDITIONS AND OTHER FACTORS.
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Generally, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. This decrease in the prepayment rates
on the mortgage loans will result in a reduced rate of return of principal to
investors in the offered notes at a time when reinvestment at higher prevailing
rates would be desirable. Conversely, when prevailing interest rates are
declining, prepayment rates on mortgage loans tend to increase. This increase in
the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the offered notes at a time when
reinvestment at comparable yields may not be possible.
Distributions of principal will be made to the subordinate notes
according to the priorities described in this prospectus supplement. The timing
of commencement of principal distributions and the weighted average life of each
class of notes will be affected by the rates of prepayment on the mortgage loans
experienced both before and after the commencement of principal distributions on
each class. For further information regarding the effect of principal
prepayments on the weighted average lives of the offered notes, see "Yield on
the Notes" in this prospectus supplement and the table entitled "Percent of
initial note balance outstanding at the following percentages of the prepayment
assumption" in that section].
[THE YIELD ON YOUR NOTES WILL VARY DEPENDING ON THE RATE OF PREPAYMENTS AND A
VARIETY OF OTHER FACTORS.
The yield to maturity on the offered notes will depend, in general, on:
o the applicable note interest rate and note accrual rate on
that interest rate from time to time;
o the applicable purchase price; and
o the rate and timing of principal payments, including
prepayments and collections upon defaults, liquidations and
repurchases, on the mortgage loans and the allocation of these
payments to reduce the note balance of the notes, as well as
other factors.
The yield to investors on any class of offered notes will be adversely
affected by any allocation to the class of interest shortfalls on the mortgage
loans.
In general, if the offered notes are purchased at a premium and
principal distributions on the offered notes occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if the
offered notes are purchased at a discount and principal distributions on the
offered notes occur at a rate slower than that anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
originally assumed.
The proceeds to the depositor from the sale of the offered notes were
determined based on a number of assumptions, including a prepayment assumption
of __% CPR and weighted average lives corresponding to that prepayment
assumption. No representation is made that the mortgage
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loans will prepay at that rate or at any other rate. The yield assumptions for
the offered notes will vary as determined at the time of sale].
[VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS.
Applicable state laws generally regulate interest rates and other
charges, require disclosure, and require licensing of the originators. In
addition, other state laws, public policy and principles of equity relating to
the protection of consumers, unfair and deceptive practices and debt collection
practices may apply to the origination, servicing and collection of the mortgage
loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z
promulgated thereunder, which require disclosures to
the borrowers regarding the terms of the mortgage
loans;
o 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
o the Fair Credit Reporting Act, which regulates the
use and reporting of information related to the
borrower's credit experience.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these federal or state laws,
policies and principles may limit the ability of the trust to collect all or
part of the principal of or interest on the mortgage loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Originators to damages and administrative enforcement.
The seller will represent that as of the closing date, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of this representation, the seller will be obligated to
cure the breach or repurchase or replace the affected mortgage loan in the
manner described in the prospectus].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE SERVICERS TO PERFORM
THEIR DUTIES.
As is the case with most companies using computers in their operations,
the servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. The servicers' computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any occurrence of this kind could result in major computer
system failure or miscalculations. The servicer is presently engaged in various
procedures to ensure that its
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computer systems and software will be year 2000 compliant. However, in the event
that the related servicer or any of its suppliers, customers, brokers or agents
do not successfully and timely achieve year 2000 compliance, the performance of
obligations of that servicer under the indenture could be materially adversely
affected].
Some capitalized terms used in this prospectus supplement will have the
meanings assigned to them under "Description of the Notes--Glossary of Terms" or
in the prospectus under "Glossary."
THE MORTGAGE POOL
GENERAL DESCRIPTION OF THE MORTGAGE LOANS
The mortgage pool will consist of approximately _____ fixed-rate
mortgage loans and approximately _____ adjustable-rate mortgage loans, in each
case secured by first liens on real properties and having an aggregate principal
balance as of ________ __, ____, which date will also be referred to in this
prospectus supplement as the cut-off date, of approximately $___________ after
application of scheduled payments due on or before the cut-off date whether or
not received, subject to a permitted variance of plus or minus 5%. The mortgage
loans have original terms to maturity of not greater than [30] years. References
to percentages of the mortgage loans, unless otherwise noted, are calculated
based on the aggregate principal balance of the mortgage loans as of the cut-off
date. The mortgage loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on residential
properties consisting of attached, detached or semi-detached, one- to
four-family dwelling units, townhouses, individual condominium units, individual
units in planned unit developments and manufactured housing, multifamily
properties, commercial properties or mixed used residential and commercial real
properties.
Each adjustable rate mortgage loan provides for semi-annual adjustment
to its mortgage rate and for corresponding adjustments to the monthly payment
amount due on the mortgage loan, in each case on each adjustment date applicable
to the mortgage loan. However, in the case of approximately _____% and
approximately _____% of the adjustable rate mortgage loans by aggregate
principal balance as of the cut-off date which are referred to in this
prospectus supplement as delayed first adjustment mortgage loans, the first
adjustment date will occur after an initial period of approximately ____ years
and approximately __ years, respectively from the date of origination of those
mortgage loans. The weighted average month of origination of the ____ year
delayed first adjustment mortgage loans is _________ _____, and the weighted
average month of origination of the ____ year delayed first adjustment mortgage
loans is _________ _____.
On each adjustment date, the mortgage rate on each adjustable rate
mortgage loan will be adjusted to equal the sum, rounded as provided in the
related mortgage note, of the index applicable to the adjustable rate mortgage
loans and a fixed percentage amount, or gross margin. However, the mortgage rate
on each adjustable rate mortgage loan, including each delayed first adjustment
mortgage loan, will generally not increase or decrease by more than a specified
periodic adjustment limitation, or periodic rate cap, on any related adjustment
date and will not
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exceed a specified maximum mortgage rate over the life of the adjustable rate
mortgage loan, or be less than a specified minimum mortgage rate over the life
of the adjustable rate mortgage loan. For adjustment dates other than the first
adjustment date after origination, the periodic rate cap for the majority of the
adjustable rate mortgage loans is ____% per annum, and with respect to
substantially all of the adjustable rate mortgage loans, for adjustment dates
other than the first adjustment date after origination, the periodic rate cap
will not exceed ____% per annum.
Effective with the first monthly payment due on each adjustable rate
mortgage loan after each related adjustment date, the monthly payment amount
will be adjusted to an amount that will amortize fully the outstanding principal
balance of the related adjustable rate mortgage loan over its remaining term and
pay interest at the mortgage rate as so adjusted. Due to the application of the
periodic rate caps and the maximum mortgage rates, the mortgage rate on each
mortgage loan, as adjusted on any related adjustment date, may be less than the
sum of the index applicable to the adjustable rate mortgage loans and gross
margin, calculated as described under "--The Index Applicable to the Adjustable
Rate Mortgage Loans" in this prospectus supplement. None of the adjustable rate
mortgage loans permits the related mortgagor to convert the adjustable mortgage
rate on the adjustable rate mortgage loan to a fixed mortgage rate.
In most cases, the mortgage loans have scheduled monthly payments due
on the first day of the month. Each mortgage loan will contain a customary
"due-on-sale" clause or will be assumable by a creditworthy purchaser of the
related mortgaged property.
Approximately ______% of the mortgage loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on voluntary
prepayments in full made within one to five years from the date of origination
of these mortgage loans. The amount of the prepayment charge is as provided in
the related mortgage note. In most cases, prepayment charge obligations expire
by their terms after a limited period specified in the related mortgage note.
The weighted average month of origination of the mortgage loans with prepayment
charges is _________ ____. The holders of the equity certificates will be
entitled to all prepayment charges received on the mortgage loans, and this
amount will not be available for distribution on the notes. Under certain
instances, as described in the related servicing agreement, the related servicer
may waive the payment of any otherwise applicable prepayment charge, and
accordingly, there can be no assurance that the prepayment charges will have any
effect on the prepayment performance of the mortgage loans.
None of the mortgage loans are buydown mortgage loans.
Approximately ____% of the mortgage loans are balloon loans. Each
balloon loan is a fixed rate mortgage loan that amortizes over ___ months, but
the final payment, or balloon payment, on each balloon loan is due and payable
on the ___th month. The amount of the balloon payment on each balloon loan is
substantially in excess of the amount of the scheduled monthly payment on the
balloon loan for the period prior to the due date of the balloon payment.
The weighted average remaining term to maturity of the mortgage loans
will be approximately __ years and __ months as of the cut-off date. None of the
mortgage loans will have a first due date prior to _______ ____ or after
___________ ____, or will have a remaining
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term to maturity of less than __ years or greater than __ years as of the
cut-off date. The latest maturity date of any mortgage loan is __________ ____.
The latest first adjustment date following the cut-off date on any
adjustable rate mortgage loan occurs in _______ ____ and the weighted average
next adjustment date for all of the mortgage loans following the cut-off date is
_______ ____.
The mortgage loans are expected to have the following characteristics
as of the cut-off date (the sum in any column may not equal the total indicated
due to rounding):
S-16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- -------- ---------------- ----------------
<S> <C> <C> <C>
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
Total. . . . . . . . . . . . . . . . .
</TABLE>
The average principal balance of the mortgage loans at origination was
approximately $_______. No mortgage loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the mortgage loans as of the cut-off date was
approximately $_______.
S-17
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
The mortgage loans had mortgage rates as of the cut-off date ranging
from approximately ____% per annum to approximately _____% per annum, and the
weighted average mortgage rate was approximately ______% per annum.
<TABLE>
<CAPTION>
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MAXIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
As of the cut-off date, the adjustable rate mortgage loans had maximum
mortgage rates ranging from ___% to ___%. As of the cut-off date, the weighted
average maximum mortgage rate was approximately ___%.
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MINIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
</TABLE>
Total..........................................
As of the cut-off date, the adjustable rate mortgage loans had minimum
mortgage rates ranging from ___% to ___%. As of the cut-off date, the weighted
average minimum mortgage rate was approximately ___%.
S-18
<PAGE>
<TABLE>
<CAPTION>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
GROSS MARGIN (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
As of the cut-off date, the adjustable rate mortgage loans had gross
margins ranging from approximately ____% to approximately ____%. As of the
cut-off date, the weighted average gross margin was approximately ______%.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
The weighted average loan-to-value ratio of the mortgage loans at
origination was approximately _____%. At origination, no mortgage loan will have
a loan-to-value ratio greater than approximately _____% or less than
approximately ____%.
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING CLASS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..........................................
</TABLE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MONTH OF NEXT ADJUSTMENT DATE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total...................................................
</TABLE>
THE INDEX APPLICABLE TO THE ADJUSTABLE RATE MORTGAGE LOANS
As of any adjustment date, the index applicable to the determination of
the mortgage rate on each adjustable rate mortgage loan will be the average of
the interbank offered rates for six-month United States dollar deposits in the
London market as published in THE WALL STREET JOURNAL and as of a date as
specified in the related mortgage note. In the event that this index becomes
unavailable or otherwise unpublished, the servicer will select a comparable
alternative index over which it has no direct control and which is readily
verifiable.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL PREPAYMENT CONSIDERATIONS
S-20
<PAGE>
The rate of principal payments on the notes, the aggregate amount of
payments on the notes and the yield to maturity of the notes will be related to
the rate and timing of payments of principal on the mortgage loans. The rate of
principal payments on the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans and by the rate of principal
prepayments on the mortgage loans, including for this purpose, payments
resulting from refinancings, liquidations of the mortgage loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
depositor, the seller or the majority holder of the equity certificates, as the
case may be. The mortgage loans generally may be prepaid by the mortgagors at
any time; however, as described under "The Mortgage Pool" in this prospectus
supplement, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of the cut-off date, a prepayment may subject the
related mortgagor to a prepayment charge. In most cases, prepayment charge
obligations expire by their terms after a limited period specified in the
related mortgage note.
Prepayments, liquidations and repurchases of the mortgage loans will
result in payments in respect of principal to the holders of the class or
classes of notes then entitled to receive these payments that otherwise would be
distributed over the remaining terms of the mortgage loans. Since the rates of
payment of principal on the mortgage loans will depend on future events and a
variety of factors, no assurance can be given as to that rate or the rate of
principal prepayments. The extent to which the yield to maturity of any class of
notes may vary from the anticipated yield will depend upon the degree to which
the notes are purchased at a discount or premium and the degree to which the
timing of payments on the notes is sensitive to prepayments on the mortgage
loans. Further, an investor should consider, in the case of any note purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the mortgage loans could result in an actual yield to that investor
that is lower than the anticipated yield and, in the case of any note purchased
at a premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to that investor that is lower than the
anticipated yield. In most cases, the earlier a prepayment of principal is made
on the mortgage loans, the greater the effect on the yield to maturity of the
notes. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher, or lower, than the rate anticipated by the investor
during the period immediately following the issuance of the notes would not be
fully offset by a subsequent like reduction, or increase, in the rate of
principal payments. See "Maturity and Prepayment Considerations" in the
prospectus.
It is highly unlikely that the mortgage loans will prepay at any
constant rate until maturity or that all of the mortgage loans will prepay at
the same rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation. The rate of payments, including prepayments, on pools of
mortgage loans is influenced by a variety of economic, geographic, social and
other factors. If prevailing mortgage rates fall significantly below the
mortgage rates on the mortgage loans, the rate of prepayment and refinancing
would be expected to increase. Conversely, if prevailing mortgage rates rise
significantly above the mortgage rates on the mortgage loans, the rate of
prepayment on the mortgage loans would be expected to decrease. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. In addition, in the
S-21
<PAGE>
case of the adjustable rate mortgage loans in the mortgage pool, the existence
of the applicable periodic rate cap, maximum mortgage rate and minimum mortgage
rate may affect the likelihood of prepayments resulting from refinancings. There
can be no certainty as to the rate of prepayments on the mortgage loans during
any period or over the life of the notes. See "Yield Considerations" and
"Maturity and Prepayment Considerations" in the prospectus.
Because principal payments are paid to some classes of notes before
other classes, holders of classes of notes having a later priority of payment
bear a greater risk of losses, because these notes will represent an increasing
percentage of the trust estate during the period prior to the commencement of
payments of principal on these notes, than holders of classes having earlier
priorities for payment of principal. As described in this prospectus supplement
under "Description of the Notes--Principal Payments on the Notes," prior to the
Stepdown Date, all principal payments on the mortgage loans will be allocated to
the Class A Notes. After that date, subject to certain delinquency triggers
described in this prospectus supplement, all principal payments on the mortgage
loans will be allocated among all classes of the notes then outstanding as
described under "Description of the Notes--Principal Payments on the Notes" in
this prospectus supplement.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates may be higher
for mortgage loans used to refinance an existing mortgage loan. In the event of
a mortgagor's default on a mortgage loan, there can be no assurance that
recourse will be available beyond the specific mortgaged property pledged as
security for repayment. See "The Mortgage Pool--Underwriting Standards of
___________ and Representations Concerning the Mortgage Loans" in this
prospectus supplement.
SPECIAL YIELD CONSIDERATIONS
The note interest rate for each class of notes adjusts monthly based on
one-month LIBOR as described under "Description of the Notes--Calculation of
One-Month LIBOR" in this prospectus supplement, subject to the maximum Note
Interest Rate and the Available Interest Rate. However, the mortgage rates on
the fixed rate mortgage loans are fixed and will not vary with any index, and
the mortgage rates on the adjustable rate mortgage loans adjust semi-annually,
after an initial fixed rate period in the case of delayed first adjustment
mortgage loans, based on the index applicable to the adjustable rate mortgage
loans, which may not move in tandem with one-month LIBOR, subject to periodic
and lifetime limitations. Investors should note that approximately _____% of the
mortgage loans are ____ year delayed first adjustment mortgage loans,
approximately ____% of the mortgage loans are _____ year delayed first
adjustment loans and approximately _____% of the mortgage loans are fixed rate
mortgage loans, in each case by aggregate principal balance as of the cut-off
date. The weighted average month of origination of the ____ year delayed first
adjustment mortgage loans is _____ ____, and the weighted average month of
origination of the ______ year delayed first adjustment mortgage loans is ______
____.
Because of the application of the maximum Note Interest Rate and the
Available Interest Rate, increases in the Note Interest Rate on the notes may be
limited for extended periods or indefinitely in a rising interest rate
environment. The interest due on the mortgage loans during
S-22
<PAGE>
any due period may not equal the amount of interest that would accrue at
one-month LIBOR plus the applicable spread on the notes during the related
Interest Accrual Period. In addition, the index applicable to the adjustable
rate mortgage loans and one-month LIBOR may respond differently to economic and
market factors. Thus, it is possible, for example, that if both one-month LIBOR
and the index applicable to the adjustable rate mortgage loans rise during the
same period, one-month LIBOR may rise more rapidly than the index applicable to
the adjustable rate mortgage loans or may rise higher than the index applicable
to the adjustable rate mortgage loans, potentially resulting in Interest Carry
Forward Amounts with respect to one or more classes of notes. As a result of the
foregoing as well as other factors such as the prepayment behavior of the
mortgage pool, relative increases in one-month LIBOR or relative decreases in
the weighted average of the mortgage rates on the mortgage loans could:
o cause the Current Interest Payment Amount generated
by the mortgage pool to be less than the aggregate of
the Interest Payment Amounts that would otherwise be
payable on the notes, leading one or more classes of
notes to incur Interest Carry Forward Amounts, or
o could cause the maximum Note Interest Rate to apply
to one or more classes of notes.
Because the mortgage rate for each adjustable rate mortgage loan will
be adjusted, subject to periodic and lifetime limitations, to equal the sum of
the index applicable to the adjustable rate mortgage loans and the related gross
margin, the mortgage rates could be higher than prevailing market interest
rates, possibly resulting in an increase in the rate of prepayments on the
adjustable rate mortgage loans after their adjustments.
As described under "Description of the Notes--Allocation of Losses;
Subordination," amounts otherwise distributable to holders of the subordinate
notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to certain mortgagor delinquencies, to the extent
not covered by monthly advances. These delinquencies may affect the yield to
investors on classes of subordinate notes and, even if subsequently cured, will
affect the timing of the receipt of payments by the holders of classes of
subordinate notes. In addition, a larger than expected rate of delinquencies or
losses will affect the rate of principal payments on each class of subordinate
notes. See "Description of the Notes--Principal Payments on the Notes" in this
prospectus supplement.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse
from the date of issuance of a security until each dollar of principal of that
security will be repaid to the investor. The weighted average life of each class
of notes will be influenced by the rate at which principal on the mortgage loans
is paid, which may be in the form of scheduled payments or prepayments,
including repurchases and prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the mortgage loans, and the timing of these payments.
S-23
<PAGE>
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a prepayment rate for the mortgage loans of __% CPR. CPR assumes that
the outstanding principal balance of a pool of mortgage loans prepays at a
specified constant annual rate or CPR. In generating monthly cash flows, this
rate is converted to an equivalent constant monthly rate. To assume __% CPR or
any other CPR percentage is to assume that the stated percentage of the
outstanding principal balance of the pool is prepaid over the course of a year.
No representation is made that the mortgage loans will prepay at __% CPR or any
other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the notes that would be outstanding after each of the
dates shown at various percentages of the prepayment assumption and the
corresponding weighted average lives of the notes. The tables are based on the
following assumptions:
o the mortgage pool consists of __ mortgage loans with
the characteristics set forth in the table below
entitled "Assumed Mortgage Loan Characteristics,"
o payments on the notes are received, in cash, on the
25th day of each month, commencing in _______ ____,
o the mortgage loans prepay at the percentages of the
prepayment assumption indicated,
o no defaults or delinquencies occur in the payment by
mortgagors of principal and interest on the mortgage
loans,
o none of the majority holder of the equity
certificates, the seller, the master servicer, the
servicers or any other person purchases from the
trust estate any mortgage loan or redeems the notes
under any obligation or option under the indenture,
the servicing agreements or any other agreement
except as otherwise indicated in the second sentence
following table below entitled "Percent of initial
Note Balance outstanding at the specified percentages
of the prepayment assumption," and no partial early
redemption of the notes occurs with respect to the
mortgage loans,
o scheduled monthly payments on the mortgage loans are
received on the first day of each month commencing in
_______ ____, and are computed prior to giving effect
to any prepayments received in the prior month,
o prepayments representing payment in full of
individual mortgage loans are received on the last
day of each month commencing in ________ ____, and
include 30 days' interest on the mortgage loan,
o the scheduled monthly payment for each mortgage loan
is calculated based on its principal balance,
mortgage rate, original term to stated maturity and
S-24
<PAGE>
remaining term to stated maturity so that the
mortgage loan will amortize in amounts sufficient to
repay the remaining principal balance of the mortgage
loan by its remaining term to stated maturity,
o the notes are purchased on ________ __, ____,
o the index applicable to the adjustable rate mortgage
loans remains constant at _____% per annum and the
mortgage rate on each adjustable rate mortgage loan
is adjusted on the next adjustment date, and on
subsequent adjustment dates, if necessary, to equal
the index applicable to the adjustable rate mortgage
loans plus the applicable gross margin, subject to
the applicable periodic rate cap,
o one-month LIBOR remains constant at _____% per annum,
o the monthly payment on each adjustable rate mortgage
loan is adjusted on the due date immediately
following the next adjustment date, and on subsequent
adjustment dates, if necessary, to equal a fully
amortizing monthly payment and
o the master servicing fee rate is as set forth in the
table below entitled "Assumed Mortgage Loan
Characteristics" and the master servicing fee is
payable monthly, the servicing fee rate for each
servicer is equal to ____% per annum and the
servicing fees are payable monthly, and the indenture
trustee fee rate is equal to ______% per annum and
the indenture trustee fee is paid monthly.
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
REMAINING
PRINCIPAL ORIGINAL TERM MAXIMUM MINIMUM PERIODIC MASTER
BALANCE TERM TO TO NEXT MORTGAGE MORTGAGE RATE SERVICING PREPAY
AS OF THE MORTGAGE MATURITY MATURITY ADJUSTMENT GROSS RATE RATE CAP FEE RATE PENALTY
CUT-OFF DATE RATE (%) (MONTHS) (MONTHS) DATE MARGIN (%) (%) (%) (%) (%) (YES/NO)
------------ -------- -------- -------- ---- ---------- --- --- --- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the tables in this
prospectus supplement. Any discrepancy of this kind may have an effect upon the
percentages of the initial Note Balance outstanding and the weighted average
lives of the notes set forth in the tables in this prospectus
S-25
<PAGE>
supplement. In addition, since the actual mortgage loans included in the
mortgage pool will have characteristics that differ from those assumed in
preparing the tables set forth immediately following the next paragraph and
since it is not likely the level of the index applicable to the adjustable rate
mortgage loans or one-month LIBOR will remain constant as assumed, the notes may
mature earlier or later than indicated by the tables. In addition, as described
under "Description of the Notes--Principal Payments on the Notes" in this
prospectus supplement, the occurrence of the Stepdown Date or a Trigger Event
will have the effect of accelerating or decelerating the amortization of the
notes, affecting the weighted average lives of the notes.
Based on the foregoing assumptions, the tables following this paragraph
indicate the weighted average lives of the notes and set forth the percentages
of the initial Note Balance of the notes that would be outstanding after each of
the payment dates shown, at various percentages of the prepayment assumption.
Neither the prepayment model used in this prospectus supplement 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 pool. Variations in the prepayment experience and the balance of the
mortgage loans that prepay may increase or decrease the percentages of initial
Note Balances and weighted average lives shown in the following tables. These
variations may occur even if the average prepayment experience of all the
mortgage loans equals any of the specified percentages of the prepayment
assumption.
S-26
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A NOTES CLASS M-1 NOTES
---------------------------------- ----------------------------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average Life
in Years............
Weighted Average Life
in Years............
</TABLE>
<TABLE>
<CAPTION>
CLASS M-2 NOTES CLASS M-3 NOTES
------------------------------------- -----------------------------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average Life
in Years............
Weighted Average Life
in Years............
</TABLE>
The weighted average life of a note is determined by (a) multiplying the amount
of each payment of principal by the number of years from the date of issuance of
the note to the related payment date, (b) adding the results and (c) dividing
the sum by the initial Note Balance of the notes. The weighted average lives set
forth in the bottom row of the table are calculated according to the previous
sentence but assumes the majority holder of the equity certificates exercises
its option to redeem the notes when the aggregate Note Balance has been reduced
to less than 20% of the initial aggregate Note Balance. See "The Indenture and
Owner Trust Agreement--Redemption" in this prospectus supplement.
S-27
<PAGE>
There is no assurance that prepayments of the mortgage loans will
conform to any of the levels of the prepayment assumption indicated in the
tables above, or to any other level, or that the actual weighted average lives
of the notes will conform to any of the weighted average lives set forth in the
tables above. Furthermore, the information contained in the tables with respect
to the weighted average lives of the notes is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or index level assumptions.
The characteristics of the mortgage loans will differ from those
assumed in preparing the tables above. In addition, it is unlikely that any
mortgage loan will prepay at any constant percentage until maturity, that all of
the mortgage loans will prepay at the same rate or that the level of the index
applicable to the adjustable rate mortgage loans will remain constant or at any
level for any period of time. The timing of changes in the rate of prepayments
may significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments and the level of the index applicable to
the adjustable rate mortgage loans is consistent with the expectations of
investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any payment date, the Overcollateralized Amount and the Note
Balances of the Class M-3 Notes and the Class M-2 Notes have been reduced to
zero, the yield to maturity on the Class M-1 Notes will become extremely
sensitive to losses on the mortgage loans and the timing of losses, that are
covered by subordination, because the entire amount of any Realized Losses, to
the extent not covered by Net Monthly Excess Cashflow, will be allocated to the
Class M-1 Notes. If on any payment date, the Overcollateralized Amount and the
Note Balance of the Class M-3 Notes have been reduced to zero, the yield to
maturity on the Class M-2 Notes will become extremely sensitive to losses on the
mortgage loans and the timing of losses that are covered by subordination,
because the entire amount of any Realized Losses, to the extent not covered by
Net Monthly Excess Cashflow, will be allocated to the Class M-2 Notes. If on any
payment date, the Overcollateralized Amount has been reduced to zero, the yield
to maturity on the Class M-3 Notes will become extremely sensitive to losses on
the mortgage loans and the timing of losses that are covered by subordination,
because the entire amount of any Realized Losses, to the extent not covered by
Net Monthly Excess Cashflow, will be allocated to the Class M-3 Notes. Once
Realized Losses have been allocated to the subordinate notes, Realized Losses
will not be reinstated thereafter. However, Allocated Realized Loss Amounts may
be paid to the holders of the subordinate notes, after certain distributions to
the holders of the Class A Notes and subordinate notes with lower numerical
class designations, but before the equity certificates are entitled to any
distributions. See "Description of the Notes--Overcollateralization Provisions"
in this prospectus supplement.
Investors in the subordinate notes should fully consider the risk that
Realized Losses on the mortgage loans could result in the failure of these
investors to fully recover their investments. For additional considerations
relating to the yield on the subordinate notes, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the prospectus.
S-28
<PAGE>
THE DEPOSITOR
FOR FURTHER INFORMATION REGARDING THE DEPOSITOR, SEE "THE DEPOSITOR" IN
THE PROSPECTUS.
LOAN ORIGINATION HISTORY
The depositor originates mortgage loans on single family properties,
multifamily properties, commercial properties, mixed use and manufactured home
properties nationwide and purchases mortgage loans from lenders, mortgage
bankers, and brokers on a wholesale basis. The depositor conducts loan
origination and/or wholesale operations in all states in the United States
except Alaska and Hawaii. The dollar amounts of first and second mortgage loans
originated and purchased by the depositor, collectively, during the nine month
period ended ______________ and the twelve month periods ended _____________,
199_, 199_ and 199_ were approximately $_____________, $_____________,
$___________, $___________ and $___________, respectively.
UNDERWRITING CRITERIA
[All of the mortgage loans were or will be originated or purchased by
the depositor and are or will be serviced by the servicer. All mortgage loan
applications are underwritten, and properties appraised, prior to origination
and/or purchase by the depositor. All loans are reviewed and approved by a loan
officer of the depositor, each of whom has specific credit limits based on
experience and seniority. However, only ______ senior loan officers can approve
loan applications from $_______-$_______, only thirteen executive officers of
the depositor can approve loan applications from $_______-$_______ and only
_____ senior executive officers of the depositor can approve loan applications
from $_______-$_______. All loan applications over $_______ require the approval
of two specific senior executive officers of the depositor and ratification by
the board of directors of the depositor.
Borrower loan applications are reviewed through a combination of
reviews of credit bureau reports and/or individual certifications. Income is
determined through various means, including applicant interviews, written
verifications with employers and review of pay stubs and tax returns, and a
determination is made that the borrower has a sufficient level of disposable
income to satisfy debt repayment requirements.
Substantially all properties of the depositor are appraised by
independent fee appraisers approved by the depositor in advance of funding,
although in rare instances the appraisal may be performed by a licensed in-house
appraiser of the depositor. In addition, as part of the depositor's quality
control audit procedures, approximately one of every ten properties with respect
to a loan originated by the depositor is then reappraised by a different
appraiser and approximately 10% of all loans originated or purchased are
reunderwritten. With respect to manufactured homes, standard Fannie Mae
manufactured housing appraisal guidelines are used by both staff and independent
fee appraisers. Loans are closed through approved attorneys, title insurers or
agents of title insurers and escrow companies, and the lien position is insured
by major title companies. The depositor makes loans primarily on suburban and
urban single family homes in major metropolitan areas. In addition, the
depositor makes loans secured by owner-occupied and
S-29
<PAGE>
investor properties which include a commercial unit. Loans secured by
multifamily properties and mixed residential and commercial structures are also
made where the loan proceeds may be used by the borrower for business purposes.
The maximum permitted combined loan-to-value ratio and debt-to-income
ratio guidelines for each underwriting program and class are set forth herein
under "The Depositor- Underwriting Criteria-Fixed Rate Loans 1" and "The
Depositor-Underwriting Criteria-Adjustable Rate Loans". Approximately ____% of
the fixed rate mortgage loans were underwritten to Classes IIB, III, III-SE, IV,
IV-PI and V.
Approximately ____% of the adjustable rate mortgage loans, by original
adjustable rate principal balance, were underwritten to Classes IIB, III,
III-SE, IV, IV-PI and V.]
FIXED RATE LOANS
[SINGLE FAMILY LOANS. Approximately ____% of the mortgage loans, by
original pool principal balance, were originated or purchased by the depositor
pursuant to its Fixed-Rate Mortgage Program underwriting guidelines. The
Fixed-Rate Mortgage Program Underwriting Guidelines are primarily intended to
evaluate a borrower's credit standing and ability to repay a mortgage loan and
to assess the value of the related mortgaged property as collateral for such
mortgage loan.
The fixed rate mortgage loans are originated primarily for borrowers
who are refinancing existing debt, which may include mortgage loans. Therefore,
the related mortgage may be either a senior or junior lien. In general, the
borrowers, in connection with certain lower numbered and earlier alphabetically
designated underwriting classes, have a history of paying consumer and prior
mortgage debt predominantly in a timely manner or, instead, in connection with
certain higher numbered and later alphabetically designated underwriting
classes, may have payment histories that include up to three payments missed on
a prior mortgage obligation and/or, in some cases, major derogatory credit items
such as outstanding judgments or prior bankruptcies.
The Fixed-Rate Mortgage Program allows originations of mortgage loans
secured by primary residences or investment properties.
Several different underwriting classes are used to categorize
borrowers' creditworthiness. In addition to general Fixed-Rate Mortgage Program
underwriting guidelines, each class has guidelines relating to maximum permitted
combined loan-to-value ratio, maximum permitted debt-to-income ratio and
acceptable consumer credit and mortgage credit delinquencies and defaults.
Generally, higher numbered and later alphabetically designated underwriting
classes (as set forth in the table below) permit a greater number of derogatory
credit items than the lower numbered and earlier alphabetically designated
underwriting classes.
Each underwriting class has guidelines and standards for the type of
income, employment and asset verification performed prior to closing the loan.
In general, the Fixed-Rate Mortgage Program does not require verification of the
source of the borrower's assets to close the loan because this is not deemed to
be a critical credit factor in the case of a refinanced mortgage loan.
S-30
<PAGE>
The Fixed-Rate Mortgage Program Class AAA, Class AA, Class I, Class II and Class
IIB generally require the verification of employment and income that is stated
on the borrower's application. The Class ANIV, Class III and Class III-SE
program guidelines generally require verification of employment without
verification of income that must be stated on the application. The Class IV
program generally requires the verification of income that is stated on the
application. The Class IV-PI program generally requires the verification of
fifty percent of income that is stated on the application. The Class V program
generally requires the verification of all income that can be verified by
independent means. Generally, the maximum permitted combined loan-to-value ratio
and debt-to-income ratio guidelines for each Fixed-Rate Mortgage Program
underwriting class are as follows:
S-31
<PAGE>
<TABLE>
<CAPTION>
FIXED-RATE MORTGAGE PROGRAM
SINGLE FAMILY LOANS
MAXIMUM
PERMITTED MAXIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AAA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
AA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
ANIV Owner Occupied One- to Four-Family
Owner-Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
I Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
II Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IIB Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III-SE Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV-PI Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
V Non-Owner Occupied One- to Four-Family
</TABLE>
The maximum permitted combined loan-to-value ratio may be increased by
__% for Classes ____, _____ and __________on only owner occupied one- to
four-family dwellings and units in planned unit developments, if the borrowers
have exhibited an excellent mortgage payment history, verified for the most
recent twelve month period.
S-32
<PAGE>
Further adjustments to both the maximum permitted combined
loan-to-value ratio and the maximum permitted debt-to-income ratio are available
only on owner occupied one- to four-family dwellings and units in planned unit
developments, through utilization of the "rate add-on feature". This feature,
offered on all loan classes with the exception of Class V, typically allows the
loan-to-value ratio to be increased a maximum of __%. The rate add-on feature is
no longer available on any other property type but, rather, has been
incorporated into the maximum permitted combined loan-to-value ratio and the
maximum permitted debt-to-income ratio at origination.
Down payment requirements for purchase money transactions are
verifiable liquid assets of the borrower. In addition, the minimum cash down
payment required to be provided by the borrower, which may include any gift
received by the borrower, is __% of the sale price, except with respect to Class
AAA, Class AA and Class I which is __% of the sale price. For all classes with
the exception of V, if the property is an owner-occupied one- to four-family
residence, a seller financed subordinate mortgage loan is allowed. In some cases
a seller financed subordinate loan may exceed __% of the purchase price.
On a case-by-case basis, the depositor may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
class guidelines warrants an underwriting exception. Compensating factors may
include, but are not limited to, low combined loan-to-value ratio, low
debt-to-income ratio, good credit history, stable employment and duration of
residence at the applicant's current address.]
[MANUFACTURED HOME LOANS. The manufactured home loans included in the
mortgage pool (approximately ___%, by original pool principal balance, are fixed
rate and were originated or purchased by the depositor pursuant to its
Manufactured Home Loan Program. The Manufactured Home Loan Program allows
origination of fixed-rate and adjustable-rate mortgage loans on manufactured
homes that have been permanently affixed to a permanent foundation and to the
real property. In addition, the Manufactured Home Loan Program allows
origination of fully amortizing loans only, with a standard amortization term of
ten (10), fifteen (15) or twenty (20) years for multi- wide properties and
fifteen (15) years for single-wide properties and balloon loans which provide
for equal monthly payments of principal and interest based on a 30 year
amortization schedule, and a single payment of the remaining principal balance
of the balloon loan at the end of the 15th year following origination. Thirty
(30) year and twenty-five (25) year amortizations may also be permitted, subject
to certain limitations, for loans secured by multi-wide properties. Subject to
certain limitations, the manufactured home, if multi-wide, may be either a
second home or a vacation home.
The depositor's underwriting standards under the Manufactured Home Loan
Program are primarily intended to evaluate a borrower's credit standing and
ability to repay a mortgage loan and to assess the value of the manufactured
home and underlying real estate as collateral for such mortgage loan. In
general, the depositor's underwriting guidelines with respect to eligible
borrowers under the Manufactured Home Loan Program are the same as those under
the depositor's Fixed-Rate Mortgage Program or Adjustable-Rate Mortgage Program,
as the case may be.
The Manufactured Home Loan Program underwriting guidelines with respect
to eligible properties are, in general, the same as those for the Fixed-Rate
Mortgage Program or Adjustable- Rate Mortgage Program, as the case may be, with
necessary modifications due to the nature of the product. The Manufactured Home
must be constructed pursuant to Federal Manufactured Home
S-33
<PAGE>
Construction and Safety Standards and the property must be zoned 1-4 family
residential. The wheels, axles and trailer hitch must have been removed and the
home must be permanently affixed to a permanent foundation on the real estate.
The depositor requires a manufactured housing unit (ALTA 7 or state equivalent)
endorsement from each title insurer of a Manufactured Home Loan stating that the
insurer agrees that the related manufactured housing unit is included within the
term "land" when used in the title policy. Each underwriting class, in addition
to standard Fixed-Rate Mortgage Program guidelines or Adjustable-Rate Mortgage
Program guidelines, as the case may be, has guidelines as to the maximum
permitted combined loan-to-value ratio based on the size of the manufactured
home (single-wide or multi-wide). Generally, higher numbered and later
alphabetically designated underwriting classes (as set forth in the table below)
permit a greater number of derogatory credit items than the lower numbered and
earlier alphabetically designated underwriting classes.]
<TABLE>
<CAPTION>
MANUFACTURED HOME LOAN PROGRAM
MAXIMUM
PERMITTED MAXIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AA Owner Occupied Single-wide
Owner Occupied Multi-wide
ANIV Owner Occupied Single-wide
Owner Occupied Multi-wide
I Owner Occupied Single-wide
Owner Occupied Multi-wide
II Owner Occupied Single-wide
Owner Occupied Multi-wide
IIB Owner Occupied Single-wide
Owner Occupied Multi-wide
III Owner Occupied Single-wide
Owner Occupied Multi-wide
III-SE Owner Occupied Single-wide
Owner Occupied Multi-wide
IV Owner Occupied Single-wide
Owner Occupied Multi-wide
</TABLE>
[MULTIFAMILY LOANS AND MIXED USE LOANS. The multifamily and mixed use
loans included in the mortgage pool (approximately ___%, by original pool
principal balance) were originated or purchased by the depositor pursuant to its
Fixed Rate Mortgage Program--Multifamily and Mixed Use. The depositor primarily
underwrites loans for 5 or more unit apartment buildings in Arizona, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana,
Maine, Massachusetts, Maryland, Michigan, Minnesota, Missouri, New Hampshire,
New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the
District of Columbia under the Fixed-Rate Mortgage Program--Multifamily and
Mixed Use.
S-34
<PAGE>
The depositor's underwriting standards under the Fixed Rate Mortgage
Program-- Multifamily and Mixed Use are primarily intended to assess the ability
of the mortgaged property to generate adequate cash flow to support the mortgage
and to a lesser extent, the financial capabilities and managerial ability of the
mortgagor. In determining whether a loan should be granted, the depositor
considers the reliability of the income stream from investment property, the
debt service coverage ratios and the adequacy of such property as collateral for
the mortgage loan, the creditworthiness of the mortgagor and the mortgagor's
management experience. The "debt service coverage ratio" or "DSCR" with respect
to a mortgaged property means (a) the annual net operating income for the
related mortgaged property used in underwriting the related mortgage loan
divided by (b) the annual debt service (principal and interest) for such
mortgage loan. While their primary consideration in underwriting a mortgage loan
is the mortgaged property, sufficient documentation on the mortgagor is required
to establish the financial strength and ability of the borrower to successfully
operate the mortgaged property and meet the obligations of the note and the
mortgage.
Under the Fixed Rate Mortgage Program--Multifamily and Mixed Use, the
amount of the mortgage loan is not more than ___% of the appraised value. The
debt service coverage ratio ("DSCR") is not less than _____.
The Fixed Rate Mortgage Program--Multifamily and Mixed Use requires the
inspection of the property and records regarding the property are inspected to
determine that the property is in compliance with current zoning requirements,
the number of buildings on the property, the proximity of the property to
natural hazards and flood zones and whether there are any negative environmental
factors. The property must front on publicly dedicated and maintained streets
with provisions for adequate and safe ingress and egress. Also, the title is
reviewed to determine if there are any covenants, conditions and restrictions or
easements on the property. The properties are appraised by licensed and insured
independent appraisers approved by the depositor and reviewed either by the
depositor's property evaluation department and/or an outside consultant.]
Generally, the maximum permitted combined loan-to-value ratio and
minimum permitted debt service coverage ratio guidelines for each underwriting
class are as follows:
<TABLE>
<CAPTION>
FIXED-RATE MORTGAGE PROGRAM
MULTIFAMILY AND MIXED USE
MAXIMUM
PERMITTED MINIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT SERVICE
CLASS PROPERTY TYPE RATIO COVERAGE
----- ------------- ----- --------
<S> <C> <C> <C>
AA Owner Occupied..............................
Non-Owner Occupied..........................
I Owner Occupied..............................
Non-Owner Occupied..........................
II Owner Occupied..............................
Non-Owner Occupied..........................
IV Owner Occupied..............................
Non-Owner Occupied..........................
S-35
<PAGE>
V Owner Occupied..............................
Non-Owner Occupied..........................
</TABLE>
[COMMERCIAL LOANS. The commercial loans included in the mortgage pool
(approximately ___%, by original pool principal balance) were originated or
purchased by the depositor pursuant to its Commercial Property Program. Under
this program the depositor primarily underwrites loans for 3 or more unit
buildings with less than a 40% residential component. The properties primarily
consist of commercial and/or office space with a minimum of three tenants.
The depositor's underwriting standards under the Commercial Property
Program are primarily intended to assess the ability of the mortgaged property
to generate adequate cash flow to support the mortgage and to a lesser extent,
the financial capabilities and managerial ability of the mortgagor. In
determining whether a loan should be granted, the depositor considers the
reliability of the income stream from investment property, the DSCRs and the
adequacy of such property as collateral for the mortgage loan, the
creditworthiness of the mortgagor and the mortgagor's management experience.
While the primary consideration in underwriting a mortgage loan under this
program is the mortgaged property, sufficient documentation on the mortgagor is
required to establish the financial strength and ability of the borrower to
successfully operate the mortgaged property and meet the obligations of the note
and the mortgage.
Under the Commercial Property Program, the amount of the mortgage loan
is not more than __% of the appraised value. The DSCR is not less than ___.
The Commercial Property Program requires the inspection of the property
and records regarding the property to determine that the property is in
compliance with current zoning requirements, the number of buildings on the
property, the proximity of the property to natural hazards and flood zones and
whether there are any negative environmental factors. The property must front on
publicly dedicated and maintained streets with provisions for adequate and safe
ingress and egress. Also, the title is reviewed to determine if there are any
covenants, conditions and restrictions or easements on the property. The
properties are appraised by licensed and insured independent appraisers approved
by the depositor and reviewed either by the depositor's property evaluation
department and/or an outside consultant.]
Generally, the maximum permitted CLTV and minimum permitted DSCR
guidelines for each underwriting class are as follows:
S-36
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL PROPERTY PROGRAM
MAXIMUM
PERMITTED MINIMUM
COMBINED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT SERVICE
CLASS PROPERTY TYPE RATIO COVERAGE RATIO
----- ------------- ----- --------------
<S> <C> <C> <C>
A Owner Occupied..............................
Non-Owner Occupied..........................
I Owner Occupied..............................
Non-Owner Occupied..........................
II Owner Occupied..............................
Non-Owner Occupied..........................
IV Owner Occupied..............................
Non-Owner Occupied..........................
V Owner Occupied..............................
Non-Owner Occupied..........................
</TABLE>
ADJUSTABLE RATE MORTGAGE LOANS
[SINGLE FAMILY LOANS. Approximately ___% of the mortgage pool, by
original pool principal balance, were originated or purchased by the depositor
pursuant to its Adjustable-Rate First Mortgage Program underwriting guidelines.
The Adjustable-Rate First Mortgage Program guidelines are primarily intended to
evaluate a borrower's credit standing and ability to repay a mortgage loan and
to assess the value of the related mortgaged property as collateral for such
mortgage loan.
The adjustable rate mortgage loans are originated primarily for
borrowers who are refinancing existing debt. In general, the borrowers, in
connection with certain lower numbered and earlier alphabetically designated
underwriting classes, have a history of paying consumer and prior mortgage debt
predominantly in a timely manner or, instead, in connection with certain higher
numbered and later alphabetically designated underwriting classes, may have
payment histories that include up to three payments missed on a prior mortgage
obligation and/or, in some cases, major derogatory credit items such as
outstanding judgments or prior bankruptcies.
Several different underwriting classes are used to categorize the
creditworthiness of borrowers. In addition to general Adjustable-Rate First
Mortgage Program guidelines, each class has guidelines relating to maximum
permitted loan-to-value ratio, maximum permitted debt-to-income ratio and
acceptable consumer credit and mortgage credit delinquencies and defaults.
Generally, higher numbered and later alphabetically designated underwriting
classes (as set forth in the table below) permit a greater number of derogatory
credit items than the lower numbered and earlier alphabetically designated
underwriting classes.
Each underwriting class has guidelines and standards for the type of
income, employment and asset verification performed prior to closing the loan.
In general, the Adjustable-Rate First Mortgage Program does not require
verification of the source of the borrower's assets to close the loan because
this is not deemed to be a critical credit factor in the case of a refinanced
mortgage
S-37
<PAGE>
loan. The Adjustable-Rate First Mortgage Program Class AA, Class I, Class II and
Class IIB generally require the verification of employment and income that is
stated on the borrower's application. The Class ANIV, Class III and Class III-SE
program guidelines generally require verification of employment without
verification of income that must be stated on the application. The Class III-SE
program, although originally intended for self-employed borrowers only, is now
used as a credit class for all borrowers. The Class IV program generally
requires the verification of income that is stated on the application and the
Class V program generally requires the verification of all income that can be
verified by independent means.]
Generally, the maximum permitted loan-to-value ratio and maximum
permitted debt-to-income ratio guidelines for each underwriting class are as
follows:
<TABLE>
<CAPTION>
ADJUSTABLE-RATE FIRST MORTGAGE PROGRAM
MAXIMUM MAXIMUM
PERMITTED PERMITTED
UNDERWRITING LOAN-TO-VALUE DEBT-TO-INCOME
CLASS PROPERTY TYPE RATIO RATIO
----- ------------- ----- -----
<S> <C> <C> <C>
AA Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
ANIV Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
I Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
II Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IIB Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III-SE Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
III Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV Owner Occupied One- to Four-Family
S-38
<PAGE>
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
IV-PI Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
Non-Owner Occupied Condominium/Townhouse/PUD
V Owner Occupied One- to Four-Family
Owner Occupied Condominium/Townhouse/PUD
Non-Owner Occupied One- to Four-Family
</TABLE>
The maximum permitted loan-to-value ratio may be increased 5% for Class
AA, ANIV, I, II, IIB, III-SE, III, IV and IV-PI on owner-occupied one- to
four-family dwellings only, if the borrowers have exhibited an excellent
mortgage payment history, verified for the most recent twelve month period.
Further adjustments to both maximum permitted loan-to-value ratio and
maximum permitted debt-to-income ratio are available only on owner-occupied one-
to four-family dwellings, through utilization of the rate add-on feature. This
feature, offered on all loan classes with the exception of Class V, typically
allows the loan-to-value ratio to be increased a maximum of __%. The rate add-on
feature is no longer available on any other property type but, rather, has been
incorporated into the maximum permitted combined loan-to-value ratio and the
maximum permitted debt-to-income ratio at origination.
Down payment requirements for purchase money transactions are
verifiable liquid assets of the borrower. In addition, the minimum cash down
payment required to be provided by the borrower, which may include any gift
received by the borrower, is __% of the sale price, except with respect to Class
AA and Class I which is __% of the sale price. For all classes with the
exception of V, if the property is an owner-occupied one- to four-family
residence, a seller financed subordinate mortgage loan is allowed. In some cases
a seller financed subordinate loan may exceed __% of the purchase price.
On a case-by-case basis, the depositor may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
guidelines of a particular class warrants an underwriting exception.
Compensating factors may include, but are not limited to, low loan-to-value
ratio, low debt-to-income ratio, good credit history, stable employment and time
in residence at the applicant's current address.]
[MANUFACTURED HOME LOANS. Approximately ___% of the mortgage pool, by
original pool principal) are manufactured home loans that are adjustable rate
mortgage loans and were originated or purchased by the depositor pursuant to its
Manufactured Home Loan Program as described above under the caption "The
Depositor-Underwriting Criteria-Pool".]
S-39
<PAGE>
ADDITIONAL INFORMATION CONCERNING THE MORTGAGE LOANS
The description in this prospectus supplement of the mortgage pool and
the mortgaged properties is based upon the mortgage pool as constituted as of
the close of business on the cut-off date, as adjusted for the scheduled
principal payments due on or before that date. Prior to the issuance of the
notes, mortgage loans may be removed from the mortgage pool as a result of
incomplete documentation or otherwise if the depositor deems the removal
necessary or desirable, and may be prepaid at any time. A limited number of
other mortgage loans may be included in the mortgage pool prior to the issuance
of the notes unless including these mortgage loans would materially alter the
characteristics of the mortgage pool. The depositor believes that the
information set forth throughout this prospectus supplement will be
representative of the characteristics of the mortgage pool as it will be
constituted at the time the notes are issued, although the range of mortgage
rates and maturities and certain other characteristics of the mortgage loans may
vary.
DESCRIPTION OF THE NOTES
GENERAL DESCRIPTION OF THE NOTES
AFC Trust Series ____-__, AFC Mortgage Loan Asset Backed Notes, Series
____-__ will consist of ____ classes of notes, designated as:
o the Class A Notes and
o the Class M-1 Notes, the Class M-2 Notes and the
Class M-3 Notes which will collectively be referred
to in this prospectus supplement as the subordinate
notes.
The notes will be issued by AFC Trust Series ____-__, the issuer, under
the terms of an indenture, dated as of ________ __, ____, between the issuer and
the indenture trustee. Only the notes are offered by this prospectus supplement.
Trust certificates, Series ____-__, or the equity certificates, will be issued
under the terms of an owner trust agreement, dated as of ________ __, ____,
between the depositor and the owner trustee, and will represent the beneficial
ownership interest in the issuer. The equity certificates are not being offered
by this prospectus supplement and will be delivered on the closing date to the
____________, as partial consideration for the conveyance of the mortgage loans
by ____________ to the depositor.
Distributions on the offered notes will be made on the 25th day of each
month, or, if that day is not a business day, on the next succeeding business
day, beginning in _______ ____.
The notes represent non-recourse debt obligations of the issuer secured
by a trust estate, which consists primarily of a segregated pool of
conventional, one- to four-family, adjustable-rate and fixed-rate first lien
mortgage loans having an aggregate principal balance as of the cut-off date of
approximately $___________, subject to a permitted variance as described in this
S-40
<PAGE>
prospectus supplement under "The Mortgage Pool." Proceeds of the trust estate
will be the sole source of payments on the notes. The issuer is not expected to
have any significant assets other than the trust estate pledged as collateral to
secure the notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the
Class M-3 Notes will have an aggregate initial note balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus [5]%. The Note Interest Rates on the notes are
adjustable, subject to the maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each payment date as described under "--Note
Interest Rate" in this prospectus supplement. The final maturity date of the
notes is the payment date occurring in _______ ____.
The notes will be issued, maintained and transferred on the book-entry
records of DTC and its participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess of the minimum denominations.
The notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC as clearing agency, except as
provided under "Definitive Notes" in this prospectus supplement. The depositor
has been informed by DTC that DTC's nominee will be CEDE & Co. No person
acquiring an interest in any class of the notes will be entitled to receive a
note representing that person's interest, except as set forth below under
"Definitive Notes". Unless and until definitive notes are issued under the
limited circumstances described in this prospectus supplement, all references to
actions by noteholders with respect to the notes shall refer to actions taken by
DTC upon instructions from its participants, and all references in this
prospectus supplement to payments, notices, reports and statements to
noteholders with respect to the notes shall refer to payments, notices, reports
and statements to DTC or CEDE & Co., as the registered holder of the notes, for
payment to note owners in accordance with DTC procedures. See "--Registration of
the Notes" and "--Definitive Notes" in this prospectus supplement.
Any definitive notes will be transferable and exchangeable at the
offices of the indenture trustee. No service charge will be imposed for any
registration of transfer or exchange, but the indenture trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection with the registration of transfer or exchange.
All payments to holders of the notes, other than the final payment on
any class of notes, will be made by or on behalf of the indenture trustee to the
persons in whose names the notes are registered at the close of business on each
record date. The record date for each payment date is:
o with respect to the notes, other than any definitive
notes, the close of business on the business day
immediately preceding the payment date or
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o with respect to the definitive notes will be the
close of business on the last business day of the
month preceding the month in which the payment date
occurs.
Payments will be made either by check mailed to the address of each
noteholder as it appears in the note register or upon written request to the
indenture trustee at least five business days prior to the relevant record date
by any holder of notes having an aggregate initial Note Balance that is in
excess of the lesser of (i) $5,000,000 or (ii) two-thirds of the initial
aggregate Note Balance of that class of notes, by wire transfer in immediately
available funds to the account of the noteholder specified in the request. The
final payment on any class of notes will be made in like manner, but only upon
presentment and surrender of the notes at the corporate trust office of the
indenture trustee or other location specified in the notice to noteholders of
the final payment.
REGISTRATION OF THE NOTES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations and to facilitate the clearance and
settlement of securities transactions between its participants through
electronic book entries, thereby eliminating the need for physical movement of
notes. Participants include securities brokers and dealers, including the
underwriter of the notes offered by this prospectus supplement, banks, trust
companies and clearing corporations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Note owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the book-entry notes may do so only through participants and indirect
participants. In addition, note owners will receive all distributions of
principal of and interest on the book-entry notes from the indenture trustee
through DTC and DTC participants. The indenture trustee will forward payments to
DTC in same day funds and DTC will forward these payments to participants in
next day funds settled through the New York Clearing House. Each participant
will be responsible for disbursing these payments to indirect participants or to
note owners. Unless and until definitive notes are issued, it is anticipated
that the only noteholder of the book-entry notes will be CEDE & Co., as nominee
of DTC. Note owners will not be recognized by the indenture trustee as
noteholders, as the term is used in the indenture and note owners will be
permitted to exercise the rights of noteholders only indirectly through DTC and
its participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of the
book-entry notes among participants and to receive and transmit distributions of
principal of, and interest on, the book-entry notes. Participants and indirect
participants with which note owners have accounts with
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respect to the book-entry notes similarly are required to make book-entry
transfers and receive and transmit payments on behalf of their respective note
owners. Accordingly, although note owners will not possess definitive notes, the
rules, regulations and procedures creating and affecting DTC and its operations
provide a mechanism by which note owners through their participants and indirect
participants will receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of banks, the ability of a note
owner to pledge book-entry notes to persons or entities that do not participate
in the DTC system, or to otherwise act with respect to these notes, may be
limited due to the absence of physical notes for the book-entry notes. In
addition, under a book-entry format, note owners may experience delays in their
receipt of payments since distributions will be made by the indenture trustee to
CEDE & Co., as nominee for DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a noteholder
under the indenture only at the direction of one or more participants to whose
DTC account the book-entry notes are credited. Additionally, under the rules,
regulations and procedures creating and affecting DTC and its operations, DTC
will take actions with respect to specified voting rights only at the direction
of and on behalf of participants whose holdings of book-entry notes evidence
these specified voting rights. DTC may take conflicting actions with respect to
voting rights, to the extent that participants whose holdings of book-entry
notes evidencing these voting rights, authorize divergent action.
DTC management is aware that some computer applications, systems and
similar items for processing data that are dependent upon calendar dates,
including dates before, on and after January 1, 2000, may encounter Year 2000
problems. DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program so that its
computer applications, systems and similar items for processing data, as the
same relate to the timely payment of distributions, including principal and
income payments, to securityholders, book-entry deliveries and settlement of
trades within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on which DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed its participants and other
members of the financial community that it is contacting and will continue to
contact third party vendors from whom DTC acquires services to: (i) impress upon
them the importance of their services being Year 2000 compliant and (ii)
determine the extent of their efforts for Year 2000 remediation and,
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as appropriate, testing of their services. In addition, DTC is in the process of
developing contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to its participants and other members of the financial community
for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
The issuer, the originators, the depositor, the master servicer, the
seller, the [SPE], the owner trustee, the indenture trustee and their respective
affiliates will have no liability for any actions taken by DTC or its nominee or
Cedel or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the notes held by CEDE & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE NOTES
Definitive notes will be issued to note owners or their nominees,
rather than to DTC or its nominee, only if:
o the depositor advises the indenture trustee in
writing that DTC is no longer willing or able to
discharge properly its responsibilities as clearing
agency with respect to the notes and the depositor is
unable to locate a qualified successor,
o the depositor, at its option, advises the indenture
trustee in writing that it elects to terminate the
book-entry system through DTC, or
o after the occurrence of an event of default, note
owners representing in the aggregate not less than
51% of the voting rights of the notes advise the
indenture trustee and DTC through participants, in
writing, that the continuation of a book-entry system
through DTC, or a successor to DTC, is no longer in
the note owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the indenture trustee is required to notify all note owners through
participants of the availability of definitive notes. Upon surrender by DTC of
the definitive notes representing the notes and receipt of instructions for
re-registration, the indenture trustee will reissue the notes as definitive
notes issued in the respective principal amounts owned by individual note
owners, and thereafter the indenture trustee will recognize the holders of the
definitive notes as noteholders under the indenture. The definitive notes will
be issued in minimum denominations of $10,000, except that any beneficial
ownership represented by a note in an amount less than $10,000 immediately prior
to the issuance of a definitive note shall be issued in a minimum denomination
equal to the amount represented by that note.
BOOK-ENTRY FACILITIES
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Note owners may elect to hold their interests in the notes through DTC
in the United States or through Cedel or Euroclear in Europe, if they are
participants of these systems, or indirectly through organizations which are
participants in these systems. The notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of the class and will
initially be registered in the name of Cede & Co., the nominee of DTC. Cedel and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries which in turn will hold these positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. These credits or any transactions in these
securities settled during this processing will be reported to the relevant
Euroclear participants or Cedel participants on that business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
participant or Euroclear participant to a participant of DTC will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedel participants and Euroclear participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by Citibank or Chase, as applicable; however, these cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines based on
European time. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to Citibank
or Chase, as appicable, to take action to effect final settlement on its behalf
by delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel participants and Euroclear participants may not deliver instructions
directly to the European depositaries.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, eliminating the need for physical movement of notes. Transactions
may be settled in Cedel in any of 28 currencies, including United States
dollars. Cedel provides to its Cedel participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedel interfaces with
domestic markets in several countries. As a professional
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depository, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, eliminating
the need for physical movement of notes and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York, or
Morgan, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. All operations are conducted by Morgan, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with Morgan, not Euroclear Clearance Systems, S.C.. Euroclear Clearance Systems,
S.C. establishes policy for Euroclear on behalf of Euroclear participants.
Euroclear participants include banks, including central banks, securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is
a member bank of the Federal Reserve System. It is regulated and examined by the
Board of Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law. These
terms and conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific notes to specific securities
clearance accounts. Morgan acts under these terms and conditions only on behalf
of Euroclear participants, and has no record of or relationship with persons
holding through Euroclear participants.
Payments with respect to notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by Citibank or Chase, as applicable. These payments will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations.
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Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform these procedures and these procedures may be discontinued at any time.
See Annex I to this prospectus supplement.
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe
the cash flows on the notes:
ALLOCATED REALIZED LOSS AMOUNT: The Allocated Realized Loss Amount with
respect to any class of subordinate notes and any payment date is the sum of:
o any Realized Loss allocated to that class of
subordinate notes on the payment date and
o any Allocated Realized Loss Amount for that class
remaining unpaid from previous payment dates plus
accrued interest thereon at the Note Accrual Rate for
that class.
AVAILABLE INTEREST RATE: The Available Interest Rate for any payment
date is a rate per annum equal to the fraction, expressed as a percentage, the
numerator of which is:
o the Current Interest Payment Amount for the payment
date,
and the denominator of which is
o the aggregate Note Balance of the notes immediately
prior to the payment date multiplied by the actual
number of days elapsed in the related Interest
Accrual Period and divided by 360.
AVAILABLE PAYMENT AMOUNT: The Available Payment Amount for any payment
date is equal to the sum, net of amounts reimbursable therefrom to the master
servicer, the servicers, the indenture trustee or the owner trustee, of:
o the aggregate amount of scheduled monthly payments on
the mortgage loans due on the related due date and
received on or prior to the related determination
date, after deduction of the master servicing fee,
the servicing fees and the indenture trustee fee,
o certain unscheduled payments in respect of the
mortgage loans, including prepayments, insurance
proceeds, liquidation proceeds and proceeds from
repurchases of and substitutions for the mortgage
loans occurring during the preceding calendar month
and
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o all monthly advances with respect to the mortgage
loans received for the payment date.
BANKRUPTCY LOSS: A Bankruptcy Loss is a Deficient Valuation or a Debt
Service Reduction.
CLASS A PRINCIPAL PAYMENT AMOUNT: The Class A Principal Payment Amount
for any payment date on or after the Stepdown Date and on which a Trigger Event
is not in effect, is an amount equal to the excess of:
o the Note Balance of the Class A Notes immediately
prior to the payment date OVER
o the lesser of (a) the product of _____% and the
aggregate principal balance of the mortgage loans as
of the last day of the related due period and (b) the
aggregate principal balance of the mortgage loans as
of the last day of the related due period minus
$_________.
CLASS M-1 PRINCIPAL PAYMENT AMOUNT: The Class M-1 Principal Payment
Amount for any payment date on or after the Stepdown Date and on which a Trigger
Event is not in effect, is an amount equal to the excess of:
o the sum of (a) the Note Balance of the Class A Notes,
after taking into account the payment of the Class A
Principal Payment Amount on the payment date and (b)
the Note Balance of the Class M-1 Notes immediately
prior to the payment date OVER
o the lesser of (a) the product of _____% and the
aggregate principal balance of the mortgage loans as
of the last day of the related due period and (b) the
aggregate principal balance of the mortgage loans as
of the last day of the related due period minus
$_________.
CLASS M-2 PRINCIPAL PAYMENT AMOUNT: The Class M-2 Principal Payment
Amount for any payment date on or after the Stepdown Date and on which a Trigger
Event is not in effect, is an amount equal to the excess of:
o the sum of (a) the Note Balance of the Class A Notes,
after taking into account the payment of the Class A
Principal Payment Amount on the payment date, (b) the
Note Balance of the Class M-1 Notes, after taking
into account the payment of the Class M-1 Principal
Payment Amount on the payment date and (c) the Note
Balance of the Class M-2 Notes immediately prior to
the payment date OVER
o the lesser of (a) the product of _____% and the
aggregate principal balance of the mortgage loans as
of the last day of the related due period and (b)
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the aggregate principal balance of the mortgage loans
as of the last day of the related due period minus
$__________.
CLASS M-3 PRINCIPAL PAYMENT AMOUNT: The Class M-3 Principal Payment
Amount for any payment date on or after the Stepdown Date and on which a Trigger
Event is not in effect, is an amount equal to the excess of:
o the sum of (a) the Note Balance of the Class A Notes,
after taking into account the payment of the Class A
Principal Payment Amount on the payment date, (b) the
Note Balance of the Class M-1 Notes, after taking
into account the payment of the Class M-1 Principal
Payment Amount on the payment date, (c) the Note
Balance of the Class M-2 Notes, after taking into
account the payment of the Class M-2 Principal
Payment Amount on the payment date and (d) the Note
Balance of the Class M-3 Notes immediately prior to
the payment date OVER
o the lesser of (a) the product of _____% and the
aggregate principal balance of the mortgage loans as
of the last day of the related due period and (b) the
aggregate principal balance of the mortgage loans as
of the last day of the related due period minus
$__________.
COMPENSATING INTEREST: With respect to any principal prepayments, any
payments made by the master servicer from its own funds to cover Prepayment
Interest Shortfalls.
CREDIT ENHANCEMENT PERCENTAGE: The Credit Enhancement Percentage for
any payment date is the percentage obtained by dividing:
o the sum of the Overcollateralized Amount and the
aggregate Note Balance of the subordinate notes by
o the aggregate principal balance of the mortgage
loans, calculated after taking into account payments
of principal on the mortgage loans and payment of the
Principal Payment Amount to the notes on the payment
date.
CURRENT INTEREST PAYMENT AMOUNT: The Current Interest Payment Amount
for any payment date is an amount equal to interest collections or advances on
the mortgage loans during the related due period, net of the master servicing
fee, the servicing fees and the indenture trustee fee.
DEFICIENT VALUATION: With respect to any mortgage loan, a Deficient
Valuation is a valuation by a court of competent jurisdiction of the mortgaged
property in an amount less than the then outstanding indebtedness under the
mortgage loan, which valuation results from a proceeding initiated under the
United States Bankruptcy Code.
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DEBT SERVICE REDUCTION: A Debt Service Reduction is any reduction in
the amount which a mortgagor is obligated to pay on a monthly basis with respect
to a mortgage loan as a result of any proceeding initiated under the United
States Bankruptcy Code, other than a reduction attributable to a Deficient
Valuation.
INTEREST ACCRUAL PERIOD: The Interest Accrual Period for any payment
date is the period commencing on the payment date of the month immediately
preceding the month in which the payment date occurs, or, in the case of the
first period, commencing on the closing date, and ending on the day preceding
the payment date. All payments of interest on the notes will be based on a
360-day year and the actual number of days in the applicable Interest Accrual
Period.
INTEREST CARRY FORWARD AMOUNT: The Interest Carry Forward Amount with
respect to any class of notes and any payment date, is any shortfall in payment
of interest represented by the excess, if any, of the Interest Payment Amount
that would be payable on that class at the applicable Note Accrual Rate over the
Interest Payment Amount actually paid on the class at the Available Interest
Rate, together with any shortfall in payment of interest remaining unpaid from
previous payment dates plus interest accrued on those classes at the related
Note Accrual Rate.
INTEREST PAYMENT AMOUNT: The Interest Payment Amount for the notes of
any class on any payment date is equal to interest accrued during the related
Interest Accrual Period on the Note Balance of the notes immediately prior to
the payment date at the then-applicable Note Interest Rate for the class.
NET MONTHLY EXCESS CASHFLOW: The Net Monthly Excess Cashflow for any
payment date is equal to the sum of:
o any Overcollateralization Reduction Amount and
o the excess of:
o the Available Payment Amount for the payment
date OVER
o the sum for the payment date of the
aggregate of the Interest Payment Amounts
payable to the holders of the notes and the
sum of the amounts described in clauses
(b)(i) through (iii) of the definition of
Principal Payment Amount.
NOTE ACCRUAL RATE: The Note Accrual Rate with respect to any class of
notes and any payment date is the lesser of the rate described for that class in
the first bullet point under the definition of Note Interest Rate and the
maximum Note Interest Rate.
NOTE BALANCE: The Note Balance of a note outstanding at any time
represents the then maximum amount that the holder of that note is entitled to
receive as payments allocable to principal from the cash flow on the mortgage
loans and the other assets in the trust estate. The
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Note Balance of any class of notes as of any date of determination is equal to
the initial Note Balance of that class reduced by the aggregate of:
o all amounts allocable to principal previously
distributed with respect to the note and
o any reductions in the Note Balance deemed to have
occurred in connection with allocations of Realized
Losses.
NOTE INTEREST RATE:
o The Note Interest Rate on the Class A Notes will be a
rate per annum equal to the lesser of:
o one-month LIBOR plus ____%, in the
case of each payment date through
and including the payment date on
which the aggregate Note Balance is
reduced to less than __% of the
aggregate initial Note Balance, or
one-month LIBOR plus ____%, in the
case of any payment date thereafter,
o the Available Interest Rate for the
payment date and
o _____% per annum, which is also
referred to as the maximum Note
Interest Rate.
o The Note Interest Rate on the Class M-1 Notes will be
a rate per annum equal to the lesser of:
o one-month LIBOR plus ____%, in the case of
each payment date through and including the
payment date on which the aggregate Note
Balance is reduced to less than __% of the
aggregate initial Note Balance, or one-month
LIBOR plus ____%, in the case of any payment
date thereafter,
o the Available Interest Rate for the payment
date and
o the maximum Note Interest Rate.
o The Note Interest Rate on the Class M-2 Notes will be
a rate per annum equal to the lesser of:
o one-month LIBOR plus ____%, in the case of
each payment date through and including the
payment date on which the aggregate Note
Balance is reduced to less than __% of the
aggregate initial
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Note Balance, or one-month LIBOR plus ____%,
in the case of any payment date thereafter,
o the Available Interest Rate for the payment
date and
o the maximum Note Interest Rate.
o The Note Interest Rate on the Class M-3 Notes will be
a rate per annum equal to the lesser of:
o one-month LIBOR plus ____%, in the case of
each payment date through and including the
payment date on which the aggregate Note
Balance is reduced to less than __% of the
aggregate initial Note Balance, or one-month
LIBOR plus _____%, in the case of any
payment date thereafter,
o the Available Interest Rate for the payment
date and
o the maximum Note Interest Rate.
OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount with respect
to any payment date is the excess, if any, of the aggregate principal balance of
the mortgage loans immediately following the payment date OVER the Note Balance
of the notes, after taking into account the payment of the amounts described in
clauses (b)(i) through (iv) of the definition of Principal Payment Amount on the
payment date.
OVERCOLLATERALIZATION INCREASE AMOUNT: With respect to the notes and
any payment date, any amount of Net Monthly Excess Cashflow actually applied as
an accelerated payment of principal to the extent the Required
Overcollateralized Amount exceeds the Overcollateralized Amount as of the
Payment Date.
OVERCOLLATERALIZATION REDUCTION AMOUNT: The Overcollateralization
Reduction Amount is the amount by which the Overcollateralized Amount exceeds
the Required Overcollateralized Amount.
PREPAYMENT INTEREST SHORTFALL: With respect to any principal
prepayments on the mortgage loans, any resulting shortfall.
PRINCIPAL PAYMENT AMOUNT: The Principal Payment Amount for any payment
date, other than the final maturity date and the payment date immediately
following the acceleration of the notes due to an event of default, will be the
lesser of:
(a) the excess of the Available Payment Amount over the
aggregate of the Interest Payment Amounts for the notes; and
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(b) THE SUM OF:
(1) the principal portion of all scheduled
monthly payments on the mortgage loans due during the
related due period, whether or not received on or
prior to the related determination date;
(2) the principal portion of all proceeds
received during the related prepayment period in
respect of the repurchase of a mortgage loan, or, in
the case of a substitution, certain amounts
representing a principal adjustment, as contemplated
in the servicing agreements;
(3) the principal portion of all other
unscheduled collections, including insurance
proceeds, liquidation proceeds and all full and
partial principal prepayments, received during the
related prepayment period, to the extent applied as
recoveries of principal on the mortgage loans;
(4) the principal portion of any Realized
Losses incurred or deemed to have been incurred on
any mortgage loans in the calendar month preceding
the payment date to the extent covered by Net Monthly
Excess Cashflow for the payment date; and
(5) the amount of any Overcollateralization
Increase Amount for the payment date;
MINUS
(6) the amount of any Overcollateralization
Reduction Amount for the payment date.
REALIZED LOSS: A Realized Loss is any Bankruptcy Loss and any amount of
loss realized with respect to any defaulted mortgage loan that is finally
liquidated through foreclosure sale, disposition of the related mortgaged
property if acquired on behalf of the noteholders by deed in lieu of foreclosure
or otherwise. The amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest on the remaining
unpaid principal balance through the last day of the month in which the mortgage
loan was finally liquidated, after application of all amounts recovered, net of
amounts reimbursable to the servicers for monthly advances, servicing advances
and other related expenses, including attorney's fees, towards interest and
principal owing on the mortgage loan.
REQUIRED OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount
required to be
SCHEDULED PRINCIPAL BALANCE: The Scheduled Principal Balance of any
mortgage loan as of any date of determination is equal to the principal balance
of the mortgage loan as of the cut-off date, after application of all scheduled
principal payments due on or before the cut-off date, whether or not received,
reduced by:
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o the principal portion of all monthly payments due on or before
the date of determination, whether or not received,
o all amounts allocable to unscheduled principal that were
received prior to the calendar month in which the date of
determination occurs, and
o any Bankruptcy Loss occurring out of a Deficient Valuation
that was incurred prior to the calendar month in which the
date of determination occurs.
STEPDOWN DATE: The Stepdown Date for any payment date is the later to
occur of:
o the payment date occurring in _______ ____ and
o the first payment date on which the Credit
Enhancement Percentage, calculated for this purpose
only after taking into account payments of principal
on the mortgage loans, but prior to any payment of
the Principal Payment Amount to the notes then
entitled to payments of principal on the payment
date, is greater than or equal to _____%.
TRIGGER EVENT: With respect to any payment date, a Trigger Event is in
effect if the percentage obtained by dividing:
o the principal amount of mortgage loans delinquent 60
days or more by
o the aggregate principal balance of the mortgage
loans, in each case, as of the last day of the
previous calendar month,
exceeds the lesser of:
o _____% of the Credit Enhancement Percentage and
o ______%.
INTEREST PAYMENTS ON THE NOTES
The Note Interest Rate and the Note Accrual Rate for the notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be obtained by
telephoning the indenture trustee at __________.
To the extent of the Current Interest Payment Amount, in the priorities
set forth below, the holders of each class of notes will be entitled to receive
on each payment date interest payments in an amount equal to the Interest
Payment Amount for that class. On each payment date, the Current Interest
Payment Amount will be distributed in the following order of priority:
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FIRST, to the holders of the Class A Notes, the Interest Payment Amount
for the Class A Notes;
SECOND, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to
the holders of the Class M-1 Notes, the Interest Payment Amount for the
Class M-1 Notes;
THIRD, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes and
the Class M-1 Notes, to the holders of the Class M-2 Notes, the
Interest Payment Amount for the Class M-2 Notes; and
FOURTH, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes,
the Class M-1 Notes and the Class M-2 Notes, to the holders of the
Class M-3 Notes, the Interest Payment Amount for the Class M-3 Notes.
With respect to any payment date, to the extent that the aggregate of
the Interest Payment Amounts for the notes is limited by the Current Interest
Payment Amount for the related due period, the holders of some classes of notes
may receive an Interest Payment Amount calculated at the Available Interest Rate
rather than at the applicable Note Accrual Rate for those classes and the
payment date. The Interest Carry Forward Amount, if any, for any class of the
notes for any payment date is payable to the extent of available funds remaining
after certain other payments on the notes on the payment date, but before any
payments on the equity certificates on the payment date. See
"--Overcollateralization Provisions" in this prospectus supplement.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the second business
day preceding the Interest Accrual Period, or the interest determination date,
the indenture trustee will determine one-month LIBOR for the next Interest
Accrual Period. One-month LIBOR means, as of any interest determination date,
the London interbank offered rate for one-month U.S. dollar deposits which
appears on telerate page 3750 as of 11:00 a.m. London time on that date. If the
rate does not appear on telerate page 3750, the rate for that day will be
determined on the basis of the offered rates of the reference banks for
one-month U.S. dollar deposits, as of 11:00 a.m., London time, on the interest
determination date. The indenture trustee will request the principal London
office of each of the reference banks to provide a quotation of its rate. If on
the interest determination date two or more reference banks provide offered
quotations, one-month LIBOR for the related Interest Accrual Period shall be the
arithmetic mean of the offered quotations, rounded upwards if necessary to the
nearest whole multiple of 0.0625%. If on the interest determination date fewer
than two reference banks provide offered quotations, one-month LIBOR for the
related Interest Accrual Period shall be the higher of:
o one-month LIBOR as determined on the previous interest determination
date and
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o the reserve interest rate.
As used in this section, business day means a day on which banks are
open for dealing in foreign currency and exchange in London and New York City;
telerate page 3750 means the display page currently so designated on the Dow
Jones Telerate Capital Markets Report, or other page as may replace that page on
that service for the purpose of displaying comparable rates or prices);
reference banks means leading banks selected by the indenture trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market:
o with an established place of business in London,
o which have been designated by the indenture trustee and
o not controlling, controlled by, or under common control with,
the depositor or the issuer; and
Reserve interest rate shall be the rate per annum that the indenture
trustee determines to be either:
o the arithmetic mean, rounded upwards if necessary to
the nearest whole multiple of 0.0625%, of the
one-month U.S. dollar lending rates which New York
City banks selected by the indenture trustee are
quoting on the relevant interest determination date
to the principal London offices of leading banks in
the London interbank market or,
o in the event that the indenture trustee can determine
no arithmetic mean, the lowest one-month U.S. dollar
lending rate which New York City banks selected by
the indenture trustee are quoting on the interest
determination date to leading European banks.
The establishment of one-month LIBOR on each interest determination
date by the indenture trustee and the indenture trustee's calculation of the
rate of interest applicable to the notes for the related Interest Accrual Period
shall, in the absence of manifest error, be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each payment date, the Principal Payment Amount will be distributed
to the holders of the notes then entitled to payments of principal.
The Principal Payment Amount for the final maturity date or the payment
date immediately following the acceleration of the notes due to an event of
default will equal the amount necessary to reduce the Note Balance of any notes
outstanding to zero. In no event will the Principal Payment Amount with respect
to any Payment Date be:
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o less than zero or
o greater than the then-outstanding aggregate Note Balance of
the notes.
The Principal Payment Amount for the first payment date will include
approximately $_________ collected by the servicers in respect of prepayments on
the mortgage loans during the _____________ prepayment period.
On each Payment Date prior to the Stepdown Date or on which a Trigger
Event is in effect, the Principal Payment Amount shall be distributed:
o first, to the Class A Notes, until the Note Balance
of the Class A Notes has been reduced to zero;
o second, to the Class M-1 Notes, until the Note
Balance of the Class M-1 Notes has been reduced to
zero;
o third, to the Class M-2 Notes, until the Note Balance
of the Class M-2 Notes has been reduced to zero; and
o fourth, to the Class M-3 Notes, until the Note
Balance of the Class M-3 Notes has been reduced to
zero.
On each payment date on or after the Stepdown Date and on which a
Trigger Event is not in effect, the holders of the Class A Notes and the
subordinate notes shall be entitled to receive payments in respect of principal
to the extent of the Principal Payment Amount in the following amounts and order
of priority:
o FIRST, the lesser of:
o the Principal Payment Amount and
o the Class A Principal Payment Amount, shall
be distributed to the holders of the Class A
Notes, until the Note Balance of the Class A
Notes has been reduced to zero;
o SECOND, the lesser of the excess of
o the Principal Payment Amount over
o the amount distributed to the holders of the
Class A Notes under clause FIRST above and
the Class M-1 Principal Payment Amount,
shall be distributed to the holders of the
Class M-1 Notes, until the Note Balance of
the Class M-1 Notes has been reduced to
zero;
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o THIRD, the lesser of the excess of
o the Principal Payment Amount over
o the sum of the amounts distributed to the
holders of the Class A Notes under clause
FIRST above and to the holders of the Class
M-1 Notes under clause SECOND above and the
Class M-2 Principal Payment Amount, shall be
distributed to the holders of the Class M-2
Notes, until the Note Balance Class M-2
Notes has been reduced to zero; and
o FOURTH, the lesser of the excess of
o the Principal Payment Amount over
o the sum of the amounts distributed to the
holders of the Class A Notes under clause
FIRST above, to the holders of the Class M-1
Notes under clause SECOND above and to the
holders of the Class M-2 Notes under clause
THIRD above and the Class M-3 Principal
Payment Amount, shall be distributed to the
holders of the Class M-3 Notes, until the
Note Balance of the Class M-3 Notes has been
reduced to zero.
On the final maturity date or the payment date immediately following
the acceleration of the notes due to any event of default principal will be
payable on each class of notes in an amount equal to the Note Balance of that
class on the payment date. On the final maturity date or the payment date
immediately following the acceleration of the notes due to any event of default,
amounts in respect of accrued interest, Interest Carry Forward Amounts and
Allocated Realized Loss Amounts will also be payable on each class of notes in
the priorities set forth in the indenture. There can be no assurance, however,
that sufficient funds will be available on any date to retire the Note Balances
and pay any other amounts.
The allocation of payments in respect of principal to the Class A Notes
on each payment date prior to the Stepdown Date or on which a Trigger Event has
occurred, will have the effect of accelerating the amortization of the Class A
Notes while, in the absence of Realized Losses, increasing the respective
percentage interest in the principal balance of the mortgage loans evidenced by
the subordinate notes and the Overcollateralized Amount. Increasing the
respective percentage interest in the trust estate of the subordinate notes and
the Overcollateralized Amount relative to that of the Class A Notes is intended
to preserve the availability of the subordination provided by the subordinate
notes and the Overcollateralized Amount.
The holders of the equity certificates will be entitled to all
prepayment charges received on the mortgage loans and these amounts will not be
available for distribution on the notes.
CREDIT ENHANCEMENT
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The credit enhancement provided for the benefit of the holders of the
notes consists of subordination, as described below, and overcollateralization,
as described under "--Overcollateralization Provisions" in the next section.
The rights of the holders of the subordinate notes and the equity
certificates to receive payments will be subordinated, to the extent described
in this prospectus supplement, to the rights of the holders of the Class A
Notes. This subordination is intended to enhance the likelihood of regular
receipt by the holders of the Class A Notes of the full amount of interest and
principal to which they are entitled and to afford these holders protection
against Realized Losses.
The protection afforded to the holders of the Class A Notes by means of
the subordination of the subordinate notes and the equity certificates will be
accomplished by:
o the preferential right of the holders of the Class A Notes to
receive on any payment date, prior to payment on the
subordinate notes and the equity certificates, payments in
respect of interest and principal, subject to available funds,
and
o if necessary, the right of the holders of the Class A Notes to
receive future payments of amounts that would otherwise be
payable to the holders of the subordinate notes and the equity
certificates.
In addition, the rights of the holders of subordinate notes with lower
numerical class designations will be senior to the rights of holders of
subordinate notes with higher numerical class designations, and the rights of
the holders of all of the subordinate notes to receive payments in respect of
the mortgage loans will be senior to the rights of the holders of the equity
certificates, in each case to the extent described in this prospectus
supplement. This subordination is intended to enhance the likelihood of regular
receipt by the holders of subordinate notes with lower numerical class
designations relative to the holders of subordinate notes with higher numerical
class designations, and by the holders of all of the subordinate notes relative
to the holders of the equity certificates, of the full amount of interest and
principal to which they are entitled and to afford these holders protection
against Realized Losses, as described under "--Allocation of Realized Losses" in
this prospectus supplement.
OVERCOLLATERALIZATION PROVISIONS
The weighted average mortgage rate for the mortgage loans, adjusted to
reflect the master servicing fee, the servicing fees and the indenture trustee
fee payable from interest received or advanced on the mortgage loans, is
generally expected to be higher than the weighted average of the Note Interest
Rates on the notes, thus generating excess interest collections which, in the
absence of Realized Losses, will not be necessary to fund interest payments on
the notes. The indenture requires that, on each payment date, the Net Monthly
Excess Cashflow, if any, be applied on each payment date as an accelerated
payment of principal on class or classes of notes
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then entitled to receive payments in respect of principal, but only to the
limited extent hereafter described.
With respect to any payment date, any Net Monthly Excess Cashflow, or,
in the case of clause FIRST below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount, shall be paid as follows:
o FIRST, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have
been incurred on the mortgage loans;
o SECOND, to the holders of the class or classes of notes then entitled
to receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
o THIRD, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for the Class A Notes;
o FOURTH, to the holders of the Class M-1 Notes, in an amount equal to
the Interest Carry Forward Amount for the Class M-1 Notes;
o FIFTH, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss Amount for the Class M-1 Notes;
o SIXTH, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for the Class M-2 Notes;
o SEVENTH, to the holders of the Class M-2 Notes, in an amount equal to
the Allocated Realized Loss Amount for the Class M-2 Notes;
o EIGHTH, to the holders of the Class M-3 Notes, in an amount equal to
the Interest Carry Forward Amount for the Class M-3 Notes;
o NINTH, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for the Class M-3 Notes; and
o TENTH, to the holders of the equity certificates as provided in the
indenture.
As of the closing date, the aggregate principal balance of the mortgage
loans as of the cut-off date will exceed the aggregate Note Balance of the notes
by an amount equal to approximately $_________. This amount represents
approximately ____% of the aggregate principal balance of the mortgage loans as
of the cut-off date, which is the initial amount of overcollateralization
required to be provided by the mortgage pool under the indenture. Under the
indenture, the Overcollateralized Amount is required to be maintained at the
Required Overcollateralized Amount. In the event that Realized Losses are
incurred on the mortgage loans, these Realized Losses may result in an
overcollateralization deficiency since these
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Realized Losses will reduce the principal balance of the mortgage loans without
a corresponding reduction to the aggregate Note Balance of the notes. In the
event of an occurrence of this kind, the indenture requires the payment from Net
Monthly Excess Cashflow, subject to available funds, of an amount equal to any
overcollateralization deficiency, which shall constitute a principal payment on
the notes in reduction of the Note Balances of those notes. This has the effect
of accelerating the amortization of the notes relative to the amortization of
the mortgage loans, and of increasing the Overcollateralized Amount.
On and after the Stepdown Date and provided that a Trigger Event is not
in effect, the Required Overcollateralized Amount may be permitted to decrease,
or step down, below the initial $_________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the mortgage loans, after giving effect to principal payments to be
distributed on the payment date, subject to a floor of $_________. In the event
that the Required Overcollateralized Amount is permitted to step down on any
payment date, the indenture provides that a portion of the principal which would
otherwise be distributed to the holders of the notes on the payment date shall
be distributed to the holders of the equity certificates, subject to the
priorities set forth above. With respect to each of these payment dates, the
Principal Payment Amount will be reduced by the Overcollateralization Reduction
Amount after taking into account all other payments to be made on the payment
date, which amount shall be distributed as Net Monthly Excess Cashflow according
to the priorities set forth above. This has the effect of decelerating the
amortization of the notes relative to the amortization of the mortgage loans,
and of reducing the Overcollateralized Amount. However, if on any payment date a
Trigger Event is in effect, the Required Overcollateralized Amount will not be
permitted to step down on the payment date.
ALLOCATION OF LOSSES; SUBORDINATION
Any Realized Loss on the mortgage loans will be allocated on any
payment date:
o first, to Net Monthly Excess Cashflow,
o second, to the Overcollateralized Amount,
o third, to the Class M-3 Notes,
o fourth, to the Class M-2 Notes, and
o fifth, to the Class M-1 Notes.
The indenture does not permit the allocation of Realized Losses to the
Class A Notes. Investors in the Class A Notes should note that although Realized
Losses cannot be allocated to the these notes, under certain loss scenarios
there will not be enough principal and interest collected on the mortgage loans
to pay the Class A Notes all interest and principal amounts to which they are
then entitled.
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Once Realized Losses have been allocated to the subordinate notes,
these Realized Losses will not be reinstated thereafter. However, Allocated
Realized Loss Amounts may be paid to the holders of these classes of notes,
after certain distributions to the holders of the Class A Notes and subordinate
notes with lower numerical class designations, but before the equity
certificates
are entitled to any distributions.
Any allocation of a Realized Loss to a note will be made by reducing
the Note Balance of that note by the amount so allocated on the payment date in
the month following the calendar month in which the Realized Loss was incurred.
Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Note Balance of any note be reduced more than
once in respect of any particular amount both:
o allocable to the notes in respect of Realized Losses and
o payable as principal to the holder of the notes from Net Monthly
Excess Cashflow.
MONTHLY ADVANCES
Subject to the following limitations, the servicer will be obligated to
advance or cause to be advanced on or before each payment date its own funds, or
funds in the note account that are not included in the Available Payment Amount
for the payment date, in an amount equal to the aggregate of all payments of
interest, net of the related servicing fee, that were due during the related due
period on the mortgage loans serviced by that servicer and that were delinquent
on the related determination date, plus certain amounts representing assumed
payments not covered by any current net income on the mortgaged properties
acquired by foreclosure or deed in lieu of foreclosure.
Monthly advances are required to be made only to the extent they are
deemed by the related servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making monthly
advances is to maintain a regular cash flow of interest to the noteholders,
rather than to guarantee or insure against losses. The servicers will not be
required to make any monthly advances with respect to reductions in the amount
of the monthly payments on the mortgage loans due to bankruptcy proceedings or
the application of the Relief Act.
All monthly advances will be reimbursable to the related servicer from
late collections, insurance proceeds and liquidation proceeds from the mortgage
loan as to which the unreimbursed monthly advance was made. In addition, any
monthly advances previously made in respect of any mortgage loan that are deemed
by the related servicer to be nonrecoverable from related late collections,
insurance proceeds or liquidation proceeds may be reimbursed to the related
servicer out of any funds in the note account prior to the payments on the
notes. In the event that any servicer fails in its obligation to make any
required advance, the master servicer will be obligated to make this advance,
and in the event that the master servicer fails in its obligation to make this
advance, the indenture trustee will be obligated to make the advance, in each
case to the extent required in the related servicing agreement.
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THE ISSUER
AFC Trust Series ____-__ is a business trust formed under the laws of
the State of Delaware under an owner trust agreement, dated as of ________ __,
____, between the depositor and the owner trustee for the transactions described
in this prospectus supplement. The owner trust agreement constitutes the
"governing instrument" under the laws of the State of Delaware relating to
business trusts. After its formation, the issuer will not engage in any activity
other than:
o acquiring and holding the mortgage loans and the
proceeds from the mortgage loans,
o issuing the notes and the equity certificates,
o making payments on the notes and the equity
certificates and
o engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or
are incidental thereto or connected therewith.
The issuer is not expected to have any significant assets other than
the trust estate pledged as collateral to secure the notes. The assets of the
issuer will consist of the mortgage loans pledged to secure the notes. The
issuer's principal offices are in __________, ________, in care
of ________________, as owner trustee.
THE OWNER TRUSTEE
_________________ is the owner trustee under the owner trust agreement.
The owner trustee is a _________ banking corporation and its principal offices
are located in _____________.
Neither the owner trustee nor any director, officer or employee of the
owner trustee will be under any liability to the issuer or the noteholders under
the owner trust agreement under any circumstances, except for the owner
trustee's own misconduct, gross negligence, bad faith or grossly negligent
failure to act or in the case of the inaccuracy of the representations made by
the owner trustee in the owner trust agreement. All persons into which the owner
trustee may be merged or with which it may be consolidated or any person
resulting from a merger or consolidation shall be the successor of the owner
trustee under the owner trust agreement.
The principal compensation to be paid to the owner trustee in respect
of its obligations under the owner trust agreement will have been paid by or on
behalf of the issuer on or prior to the closing date.
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THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
indenture trustee for the notes under the indenture. The indenture trustee's
offices for notices under the indenture are located at
______________________________ and its telephone number is ______________.
The principal compensation to be paid to the indenture trustee in
respect of its obligations under the indenture, or the indenture trustee fee,
will be equal to:
o accrued interest at ________% per annum, or the
indenture trustee fee rate, on the Scheduled
Principal Balance of each mortgage loan, payable
monthly, and
o any interest or other income earned on funds held in
the note account, to the extent not payable as
compensation to the related servicer, as provided in
the indenture.
The indenture will provide that the indenture trustee may withdraw
funds from the note account:
o to reimburse itself for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection and
including reasonable compensation and expenses, disbursements
and advances of its agents, counsel, accountants and experts
and
o to reimburse the owner trustee for all reasonable out-of
pocket expenses incurred or made by the owner trustee for all
services rendered by the owner trustee it in the owner
trustee's execution of the trust created under the owner trust
agreement and in the exercise and performance of any of the
owner trustee's powers and duties under the owner trust
agreement.
Under the indenture, the issuer, from the assets of the trust estate,
shall indemnify the indenture trustee against any and all loss, liability or
expense, including reasonable attorneys' fees, incurred by the indenture trustee
in connection with the administration of the trust estate and the performance of
the indenture trustee's duties hereunder. The issuer is not required, however,
to reimburse any expense or indemnify against any loss, liability or expense
incurred by the indenture trustee through the indenture trustee's own willful
misconduct, negligence or bad faith.
THE SERVICING AGREEMENT
The following summary describes some of the terms of the servicing
agreements, dated as of __________ _______, ____, among the issuer, the
indenture trustee and the servicer. The summary does not purport to be complete
and is subject to, and qualified in its entirety by
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reference to, the provisions of the servicing agreements. Whenever particular
sections or defined terms of the servicing agreements are referred to, these
sections or defined terms are incorporated in this prospectus supplement by
reference. The depositor will provide to a prospective or actual noteholder
without charge, on written request, a copy, without exhibits, of the servicing
agreements. Requests should be addressed to Superior Bank FSB, One Lincoln
Centre, Oakbrook Terrace, Illinois 60181, Attention: President.
THE SERVICER
__________________ is the servicer under the servicing agreement. The
servicer is a ____________ corporation. The servicer's principal offices are
located in _______________.
[The servicer, as of ______________, serviced approximately
$_____________ of mortgage loans (including the mortgage loans and mortgage
loans not originated or purchased by the depositor).
Statements are provided for all mortgage loans serviced. Mortgagors are
instructed to forward all payments, along with a coupon detachable from the
statement, to a lockbox account. Available funds are then transferred from the
lockbox account to the related principal and interest account. Ten days after a
missed payment, phone calls to the borrower are initiated by the servicer and on
the sixteenth day, an automated mailgram is sent. Follow-up calls by experienced
collection personnel are made as required to promote prompt payment and to
counsel the borrower. At the second missed payment, generally, an on-site
interview is scheduled with the borrower and the mortgaged property is
inspected. If foreclosure is necessary, the servicer's litigation department
supervises and monitors all litigation procedures (including bankruptcy
proceedings) conducted by the foreclosing attorneys. If title passes to the
mortgagee, the servicer's real estate division will immediately insure that the
mortgaged property is preserved and protected. Upon extensive review and
analysis, a disposition strategy is developed and the property is aggressively
marketed.
The following table and discussion set forth certain information
concerning the delinquency and loss experience on mortgage loans secured by
single family properties, multifamily properties, commercial properties and
mixed use properties (including the mortgage loans originated or purchased by
the depositor and serviced by the servicer).
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<TABLE>
<CAPTION>
DELINQUENCY AND LOSS EXPERIENCE(1)
($ IN THOUSANDS)
FISCAL YEAR ENDING ,
------------------------------------------------------ [NINE MONTHS
ENDED
199 199 199 , 199 ]
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Total Outstanding Principal Balance...............
Number of Loans...................................
Period of Delinquency(2):
30-59 Days(3)
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
60-89 Days
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
90 Days or More..............................
Principal Balance.......................
Number of Loans.........................
Percent of Delinquency by Dollar........
Total Delinquency
Principal Balance.......................
Number of Loans.........................
Percent by Delinquency by Dollar........
Average Outstanding Principal Balance.............
Net Gains/(Losses) on Liquidated Loans............
Net Gains/(Losses) as a Percent of Average
Outstanding Principal Balance................
Net Gains/(Losses) on Liquidated Loans
including advances(4)........................
Net Gains/(Losses) as a Percent of Average
Outstanding Principal Balance(4).............
</TABLE>
------------------
(1) This table includes fixed-rate and adjustable-rate mortgage
loans.
(2) Includes mortgage loans in the process of foreclosure and
mortgaged properties acquired through foreclosure or deed in
lieu of foreclosure.
(3) Represents two payments missed.
(4) Includes all net recorded servicer advances through date of
liquidation less recoveries of such advances. (5) Percentages
for the nine month period ending ______, 199_ are annualized.
The number of outstanding mortgage loans originated pursuant to the
Adjustable-Rate First Mortgage Program in the servicer's loan portfolio, and the
total principal balance of such loans, as of ______________ were approximately
______ and $____________ , respectively, as of __________ were approximately
_______ and $_____________, respectively, as of _______, ____ were approximately
_____ and $___________, respectively, and as of _____________ were approximately
_____ and $___________, respectively. As of ______________, only _____ of such
adjustable-rate mortgage loans were delinquent.
At ______________ with respect to the mortgage loans set forth in the
preceding table, ___ properties (representing $__________ in principal balance
of such loans) were acquired through foreclosure of the related mortgage loans
or through deed in lieu of foreclosure and were
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not liquidated. The average length of ownership of foreclosed properties has
historically been __ months with an average loss (including accrued and unpaid
interest) per property of $______.
The delinquency and loss experience percentages in the preceding table
are calculated on the basis of all conventional mortgage loans serviced for the
depositor as of the end of the periods indicated. However, because the total
amount of loans serviced by the servicer has rapidly increased over these
periods as a result of new originations, the total amount of loans serviced as
of the end of any indicated period will include many loans that will not have
been outstanding long enough to give rise to some or all of the indicated
periods of delinquency. In the absence of such substantial continuous additions
of newly originated loans to the total amount of loans serviced, the delinquency
percentages indicated in the preceding table would be higher and could be
substantially higher.]
YEAR 2000 COMPLIANCE
[_________________ is a federally chartered and insured savings
association, regulated by the Office of Thrift Supervision. Pursuant to OTS and
Federal Financial Institutions Examination Counsel guidelines, ________
initiated a comprehensive program to study the impact on its computer systems in
order to be year 2000 compliant. This study involved identifying affected
systems and/or applications and implementing appropriate modifications or
replacements of hardware and software maintained by ________. The study also
involved receiving assurance that similar actions have or are being taken by
third party service providers that are relied upon by ________. In addition,
________ took necessary steps to receive assurance that its borrowers on income
producing properties are taking necessary steps to address their year 2000
issues so that income to cover debt service will not be interrupted.
Under this program, ________ identified computer systems that will
require either modification, upgrade or replacement. ________ utilized primarily
in-house personnel to perform these tasks, and also contracted with outside
consultants, to a lesser degree, for some specific programming functions. As
such, ________'s planned modifications, upgrades and replacement of existing
systems, along with third party confirmations, have been completed and
________'s computer systems and software are year 2000 compliant, and any
related costs did not have a material adverse impact on the results of
operations, cash flows or financial condition of ________.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation, or servicing fee, to be paid to the
servicer in respect of its servicing activities for the notes will be equal to
accrued interest at the servicing fee rate of ____% per annum with respect to
each mortgage loan serviced by it for each calendar month on the same principal
balance on which interest on the mortgage loan accrues for the calendar month.
As additional servicing compensation, the servicer is entitled to retain all
assumption fees and late payment charges in respect of mortgage loans serviced
by it, to the extent collected from mortgagors, together with any interest or
other income earned on funds held in the note
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account, to the extent not payable as compensation to the indenture trustee, and
any escrow accounts in respect of mortgage loans serviced by it.
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the due date of the
preceding monthly payment up to the date of the prepayment, instead of for a
full month. When a partial principal prepayment is made on a mortgage loan, the
mortgagor is not charged interest on the amount of the prepayment for the month
in which the prepayment is made. Each servicer is obligated to pay from its own
funds Compensating Interest for any prepayment interest shortfall, but only to
the extent of its aggregate servicing fee for the related due period. Each
servicer is obligated to pay insurance premiums and other ongoing expenses
associated with the mortgage pool in respect of mortgage loans serviced by it
and incurred by each servicer in connection with its responsibilities under the
related servicing agreement and is entitled to reimbursement therefor as
provided in the servicing agreement. See "Description of the
Securities--Servicing Compensation and Payment of Expenses" in the prospectus
for information regarding expenses payable by the servicers.
SERVICER EVENTS OF DEFAULT
In addition to those events of default, as defined in the prospectus,
pertaining to the servicing of the mortgage loans and described under
"Description of the Securities--Events of Default" in the prospectus, upon the
occurrence of certain loss triggers with respect to the mortgage loans, the
servicer may be removed as servicer of the mortgage loans serviced by it in
accordance with the terms of the related servicing agreement. If any servicer is
removed in connection with an event of default applicable to that servicer under
the terms of the related servicing agreement, the master servicer will become
the successor servicer of the mortgage loans serviced by the terminated
servicer.
THE INDENTURE AND OWNER TRUST AGREEMENT
The following summary describes certain terms of the indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the owner trust agreement and
indenture. Whenever particular defined terms of the indenture are referred to,
these defined terms are incorporated in this prospectus supplement by reference.
The depositor will provide to a prospective or actual noteholder without charge,
on written request, a copy, without exhibits, of the indenture and the owner
trust agreement. Requests should be addressed to Superior Bank FSB, One Lincoln
Centre, Oakbrook Terrace, Illinois 60181, Attention: President.
GENERAL DESCRIPTION OF THE INDENTURE
The notes will be issued under the indenture, a form of which is filed
as an exhibit to the registration statement. A Current Report on Form 8-K
relating to the notes containing a copy of the indenture and the owner trust
agreement as executed will be filed by the depositor with the Securities and
Exchange Commission within fifteen days of the initial issuance of the notes.
Reference is made to the prospectus for important information in addition to
that set forth in this
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prospectus supplement regarding the trust estate, the terms and conditions of
the indenture and the owner trust agreement and the notes. The notes will be
transferable and exchangeable at the corporate trust offices of the indenture
trustee, located in _______________.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the notes are issued, the depositor will convey
each mortgage loan to the issuer.
At the time of issuance of the notes, the issuer will pledge all of its
right, title and interest in and to the mortgage loans, including all principal
and interest due on each mortgage loan after the cut-off dates, without
recourse, to the indenture trustee under the indenture as collateral for the
notes; provided, however, that the seller will reserve and retain all its right,
title and interest in and to principal and interest due on the mortgage loan on
or prior to the cut-off date, whether or not received on or prior to the cut-off
date, and to prepayments received prior to the cut-off date. The indenture
trustee, concurrently with this assignment, will authenticate and deliver the
notes at the direction of the issuer in exchange for, among other things, the
mortgage loans.
The indenture will require the issuer to deliver to the indenture
trustee or to a custodian with respect to each mortgage loan:
o the mortgage note endorsed without recourse to the
indenture trustee,
o the original mortgage with evidence of recording
indicated on the mortgage and
o an assignment of the mortgage in recordable form to
the indenture trustee.
EVENTS OF DEFAULT
Notwithstanding the prospectus, an "event of default" under the
indenture with respect to the notes is as follows:
o the failure of the issuer to pay the Interest Payment
Amount, the Principal Payment Amount or any
Overcollateralization Increase Amount on any payment
date, in each case to the extent that funds are
available on the payment date to make these payments,
which continues unremedied for a period of five days;
o the failure by the issuer on the final maturity date
to reduce the Note Balances of any notes then
outstanding to zero;
o a default in the observance or performance of any
covenant or agreement of the issuer in the indenture
and the continuation of any default of this
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kind for a period of thirty days after notice to the
issuer by the indenture trustee or by the holders of
at least 25% of the voting rights of the notes;
o any representation or warranty made by the issuer in
the indenture or in any certificate or other writing
delivered under the indenture having been incorrect
in any material respect as of the time made, and the
circumstance in respect of which the representation
or warranty being incorrect not having been cured
within thirty days after notice thereof is given to
the issuer by the indenture trustee or by the holders
of at least 25% of the voting rights of the notes; or
o certain events of bankruptcy, insolvency,
receivership or reorganization of the issuer.
Notwithstanding the prospectus, if an event of default occurs and is
continuing, the indenture trustee or the holders of a majority of the voting
rights may declare the Note Balance of all the notes to be due and payable
immediately. This declaration may, under certain circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding voting rights.
If, following an event of default, the notes have been declared to be
due and payable, the indenture trustee may, in its discretion, notwithstanding
this acceleration, elect to maintain possession of the collateral securing the
notes and to continue to apply payments on the collateral as if there had been
no declaration of acceleration if the collateral continues to provide sufficient
funds for the payment of principal of and interest on the notes as they would
have become due if there had not been a declaration of acceleration. In
addition, the indenture trustee may not sell or otherwise liquidate the
collateral securing the notes following an event of default, unless:
o the holders of 100% of the then aggregate outstanding
voting rights consent to the sale,
o the proceeds of the sale or liquidation are
sufficient to pay in full the principal of and
accrued interest, due and unpaid at their respective
Note Accrual Rates, on the outstanding notes at the
date of the sale or
o the indenture trustee determines that the collateral
would not be sufficient on an ongoing basis to make
all payments on the notes as the payments would have
become due if the notes had not been declared due and
payable, and the indenture trustee obtains the
consent of the holders of 66 2/3% of the then
aggregate outstanding voting rights.
In the event that the indenture trustee liquidates the collateral in
connection with an event of default, the indenture provides that the indenture
trustee will have a prior lien on the proceeds of any liquidation for unpaid
fees and expenses. As a result, upon the occurrence of an event of default, the
amount available for payments to the noteholders would be less than would
otherwise
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be the case. However, the indenture trustee may not institute a proceeding for
the enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the indenture for the benefit of the noteholders
after the occurrence of an event of default.
In the event the principal of the notes is declared due and payable, as
described above, the holders of any notes issued at a discount from par may be
entitled to receive no more than an amount equal to the unpaid principal amount
of the note less the amount of the discount that is unamortized.
No noteholder will have any right under the indenture to institute any
proceeding with respect to the indenture unless:
o the holder previously has given to the indenture
trustee written notice of default and the continuance
of this default,
o the holders of notes of any class evidencing not less
than 25% of the aggregate outstanding Note Balance
constituting that class have made written request
upon the indenture trustee to institute a proceeding
in its own name as indenture trustee thereunder and
have offered to the indenture trustee reasonable
indemnity,
o the indenture trustee has neglected or refused to
institute any proceeding for 60 days after receipt of
a request and indemnity and
o no direction inconsistent with the written request
has been given to the indenture trustee during the 60
day period by the holders of a majority of the Note
Balance of that class.
However, the indenture trustee will be under no obligation to exercise
any of the trusts or powers vested in it by the indenture or to institute,
conduct or defend any litigation under the indenture or in relation to the
indenture at the request, order or direction of any of the holders of notes
covered by the indenture, unless those holders have offered to the indenture
trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
VOTING RIGHTS
At all times, 100% of all voting rights will be allocated among the
holders of the Class A Notes, or, after the Class A Notes have been paid in
full, the class of subordinate notes then outstanding with the lowest numerical
class designation, in proportion to the then outstanding Note Balances of their
respective notes.
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OPTIONAL REDEMPTION
The circumstances under which the obligations created by the indenture
will terminate in respect of the notes are described in "Description of the
Securities--Termination" in the prospectus.
At its option, the majority holder of the equity certificates may
redeem the notes, in whole but not in part, on any payment date on or after the
payment date on which the aggregate Note Balance is reduced to less than [20%]
of the aggregate initial Note Balance. Any redemption of
this kind will be paid in cash at a price equal to the sum of:
o 100% of the aggregate Note Balance then outstanding,
o the aggregate of any Allocated Realized Loss Amounts
on the notes remaining unpaid immediately prior to
the payment date,
o the aggregate of the Interest Payment Amounts on the
notes for the payment date and
o the aggregate of any Interest Carry Forward Amounts
for the payment date.
Upon any redemption of this kind, the remaining assets in the trust
estate shall be released from the lien of the indenture.
In no event will the trust created by the indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the indenture. See "Description of the Securities--Termination" in the
Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion to the effect that based on the application
of existing law and assuming compliance with the owner trust agreement, for
federal income tax purposes:
o the notes will be characterized as indebtedness and
not as representing an ownership interest in the
trust estate or an equity interest in the issuer or
the depositor and
o the issuer will not be classified as an association
taxable as a corporation for federal income tax
purposes or a "publicly traded partnership" as
defined in Treasury Regulation Section 1.7704.
The notes will not be treated as having been issued with "original
issue discount," as defined in the prospectus. The prepayment assumption that
will be used in determining the rate of amortization of market discount and
premium, if any, for federal income tax purposes will be
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based on the assumption that the mortgage loans will prepay at a rate equal to
__% CPR. No representation is made that the mortgage loans will prepay at that
rate or at any other rate. See "Federal Income Tax Consequences" in the
prospectus.
Taxable mortgage pool, or TMP, rules enacted as part of the Tax Reform
Act of 1986 treat certain arrangements in which debt obligations are secured or
backed by real estate mortgage loans as taxable corporations. An entity, or a
portion of an entity, will be characterized as a TMP if:
(i) substantially all of its assets are debt obligations
and more than 50% of these debt obligations consist
of real estate mortgage loans or interests in real
estate mortgage loans,
(ii) the entity is the obligor under debt obligations with
two or more maturities, and
(iii) payments on the debt obligations referred to in
clause (ii) bear a relationship to payments on the
debt obligations referred to in clause (i).
Furthermore, a group of assets held by an entity can be treated as a
separate TMP if the assets are expected to produce significant cashflow that
will support one or more of the entity's issues of debt obligation.
It is anticipated that the issuer will be characterized as a TMP for
federal income tax purposes. In general, a TMP is treated as a "separate"
corporation not includible with any other corporation in a consolidated income
tax return, and is subject to corporate income taxation.
The notes will not be treated as assets described in Section
7701(a)(19)(C) of the Code or "real estate assets" under Section 856(c)(4)(A) of
the Code. In addition, interest on the notes will not be treated as "interest on
obligations secured by mortgages on real property" under Section 856(c)(3)(B) of
the Code. The notes will also not be treated as "qualified mortgages" under
Section 860G(a)(3)(C) of the Code.
Prospective investors in the notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the prospectus for a
discussion of the application of federal income and state and local tax laws to
the issuer and purchasers of the notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated ________ __, ____, the depositor has agreed to sell, and
________________, as underwriter, has agreed to purchase the notes. The
underwriter is obligated to purchase all notes of the respective classes offered
by this prospectus supplement if it purchases any.
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The notes will be purchased from the depositor by the underwriter and
will be offered by the underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the depositor from the sale of the notes, before deducting
expenses payable by the depositor, will be approximately ___% of the aggregate
initial Note Balance of the notes. In connection with the purchase and sale of
the notes, the underwriter may be deemed to have received compensation from the
depositor in the form of underwriting discounts.
The offered notes are offered subject to receipt and acceptance by the
underwriter, to prior sale and to the underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the offered notes will be made through the
facilities of DTC on or about the closing date.
The underwriting agreement provides that the depositor will indemnify
the underwriter against those civil liabilities set forth in the underwriting
agreement, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the underwriter may be required to make in
respect of these liabilities.
SECONDARY MARKET
There can be no assurance that a secondary market for the notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the notes will be the monthly
statements discussed in the prospectus under "Description of the
Securities--Reports to Securityholders", which will include information as to
the outstanding Note Balance of the notes and the status of the applicable form
of credit enhancement. There can be no assurance that any additional information
regarding the notes will be available through any other source. In addition, the
depositor is not aware of any source through which price information about the
notes will be generally available on an ongoing basis. The limited nature of the
information regarding the notes may adversely affect the liquidity of the notes,
even if a secondary market for the notes becomes available.
LEGAL OPINIONS
Legal matters relating to the notes will be passed upon for the
depositor by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition of the issuance of the notes that the Class A Notes
be rated "AAA" by _____________ and "AAA" by _______________, that the Class M-1
Notes be rated at least "AA" by ____ and at least "AA" by ____, that the Class
M-2 Notes be rated at least "A" by ____ and at least "A" by _____ and that the
Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the notes address the
likelihood of the receipt by noteholders of all payments to which the
noteholders are entitled, other than payments of
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interest to the extent of any Interest Carry Forward Amounts. The rating process
addresses structural and legal aspects associated with the notes, including the
nature of the underlying mortgage loans. The ratings assigned to the notes do
not represent any assessment of the likelihood that principal prepayments will
be made by the mortgagors or the degree to which the rate of these prepayments
will differ from that originally anticipated. The ratings do not address the
possibility that noteholders might suffer a lower than anticipated yield due to
non-credit events.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the notes are subsequently lowered for any reason, no
person or entity is obligated to provide any additional credit support or credit
enhancement with respect to the notes.
The depositor has not requested that any rating agency rate the notes
other than as stated above. However, there can be no assurance as to whether any
other rating agency will rate the notes, or, if it does, what rating would be
assigned by any other rating agency. A rating on the notes by another rating
agency, if assigned at all, may be lower than the ratings assigned to the notes
as stated above.
LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute "mortgage
related securities" for purposes of SMMEA for so long as they are rated not
lower than the second highest rating category by a rating agency, as defined in
the prospectus, and will be legal investments for certain entities to the extent
provided in SMMEA. SMMEA, however, provides for state limitation on the
authority of these entities to invest in "mortgage related securities", provided
that the restricting legislation was enacted prior to October 3, 1991. Some
states have enacted legislation which overrides the preemption provisions of
SMMEA. The Class M-2 Notes and the Class M-3 Notes will not constitute "mortgage
related securities" for purposes of SMMEA.
The depositor makes no representations as to the proper
characterization of the notes for legal investment or other purposes, or as to
the ability of particular investors to purchase the notes under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of the notes. 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 legal
advisors in determining whether and to what extent the notes constitute a legal
investment or are subject to investment, capital or other restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
ERISA and the Code impose requirements on employee benefit plans and
certain other retirement plans and arrangements, including, but not limited to,
individual retirement accounts
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and annuities, as well as on collective investment funds and certain separate
and general accounts of insurance companies in which these plans or arrangements
are invested, all of which are referred to as a Plan, and on persons who are
fiduciaries with respect to these Plans. ERISA and the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" and
"parties in interest" who have certain specified relationships to the Plan.
Accordingly, prior to making an investment in the notes, investing Plans should
determine whether the issuer, the depositor, the seller, the trust estate, the
underwriter, any other underwriter, the owner trustee, the indenture trustee,
the master servicer, the servicers, any other servicer, any administrator, any
provider of credit support, or any insurer or any of their affiliates is a
"party in interest" or "disqualified person" with respect to a Plan and, if so,
whether this transaction is subject to one or more statutory or administrative
exemptions. Additionally, an investment of the assets of a Plan in securities
may cause the assets included in the trust estate to be deemed "plan assets" of
the Plan, and any person with certain specified relationships to the trust
estate to be deemed a "party in interest" or "disqualified person." The U.S.
Department of Labor, or DOL, has promulgated regulations at 29 C.F.R. Section
2510.3-101 defining the term "plan assets" for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. Under these regulations, when
a Plan acquires an "equity interest" in another entity, such as the trust
estate, the underlying assets of that entity may be considered to be plan
assets. These regulations provide that the term "equity interest" means any
interest in an entity other than an instrument which is treated as indebtedness
under applicable local law and which has no "substantial equity features."
Although not entirely free from doubt, it is believed that, as of the date of
this prospectus supplement, the notes will be treated as debt obligations
without significant equity features for the purposes of the regulations. Because
of the factual nature of certain of the above-described provisions of ERISA, the
Code and the regulations, Plans or persons investing plan assets should
carefully consider whether an investment of this kind might constitute or give
rise to a prohibited transaction under ERISA or the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire any of the notes 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 notes.
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$___________ (APPROXIMATE)
SUPERIOR BANK FSB
DEPOSITOR
AFC MORTGAGE LOAN ASSET BACKED NOTES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED.
<PAGE>
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR COVER PAGES.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the notes offered by this prospectus supplement and
with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered notes, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ __, ____.
<PAGE>
ANNEX I
GLOBAL CLEARANCE AND SETTLEMENT AND DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered AFC Trust
Series ____-__, AFC Mortgage Loan Asset Backed Notes, Series ____-__, Class A,
Class M-1, Class M-2 and Class M-3 Notes will be available only in book-entry
form. Investors in the global securities may hold the global securities through
any of DTC, Cedel or Euroclear. The global securities will be traceable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice, that is seven calendar day settlement.
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear, in such capacity,
and as DTC participants.
Non-U.S. holders of Global Securities will be subject to U.S.
withholding taxes unless those holders meet specific requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of CEDE as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their relevant depositary
which in turn will hold those positions in their accounts as DTC participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
<PAGE>
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior mortgage
loan asset-backed notes issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC, SELLER AND CEDEL OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Cedel participant or a Euroclear participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel participant or
Euroclear participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the relevant depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in the
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
relevant depositary to the DTC participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel participant's or Euroclear
participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date, which would be the preceding day
when settlement occurred in New York. If settlement is not completed on the
intended value date--the trade fails-- the Cedel or Euroclear cash debt will be
valued instead as of the actual settlement date.
Cedel participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later. As an
alternative, if Cedel or Euroclear has extended a line of credit to them, Cedel
participants or Euroclear participants can elect not to preposition funds and
allow that credit line to be drawn upon to finance settlement. Under this
procedure, Cedel participants or Euroclear participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of overdraft
charges,
<PAGE>
although the result will depend on each Cedel participant's or Euroclear
participant's particular cost of funds. Since the settlement is taking place
during New York business hours, DTC participants can employ their usual
procedures for crediting Global Securities to the respective European depositary
for the benefit of Cedel participants or Euroclear participants. The sale
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC participants a cross-market transaction will settle no differently than
a trade between two DTC participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Cedel participants and Euroclear
participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The seller will send
instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective depositary, as appropriate, to credit
the Global Securities to the DTC participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in the accrual period and a year assumed to consist to 360
days. For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Cedel participant or Euroclear
participant the following day, and receipt of the cash proceeds in the Cedel
participant's or Euroclear participant's account would be back-valued to the
value date, which would be the preceding day, when settlement occurred in New
York. Should the Cedel participant or Euroclear participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date--the trade fails--receipt of the
cash proceeds in the Cedel participant's or Euroclear participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC participants for delivery to Cedel participants or
Euroclear participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
o borrowing through Cedel or Euroclear for one day, until the
purchase side of the trade is reflected in their Cedel or
Euroclear accounts, in accordance with the clearing system's
customary procedures
o borrowing the Global Securities in the U.S. from a DTC
participant no later than one day prior to settlement, which
would give the Global Securities sufficient time to be
reflected in their Cedel or Euroclear account in order to
settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC
participant is at least one day prior to the value date for
the sale to the Cedel participant or Euroclear participant.
<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear, or through DTC if the holder has an address outside the
U.S., will be subject to the 30% U.S. withholding tax that applies to payments
of interest, including original issue discount, on registered debt issued by
United States Persons, unless
o each clearing system, bank or other financial institution that
holds customers' securities in the ordinary course of its
trade or business in the chain of intermediaries between the
beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and
o the beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
o EXEMPTION FOR NON-UNITED STATES PERSONS (FORM W-8).
Beneficial holders of Global Securities that are
non-United States Persons can obtain a complete
exemption from the withholding tax by filing a signed
Form W-8 (Certificate of Foreign Status). If the
information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of the change.
o EXEMPTION FOR NON-UNITED STATES PERSONS WITH
EFFECTIVELY CONNECTED INCOME (FORM 4224). A
non-United States Person, including a non-U.S.
corporation or bank with a U.S. branch, for which the
interest income is effectively connected with its
conduct of a trade or business in the United States,
can obtain an exemption from the withholding tax by
filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
o EXEMPTION OR REDUCED RATE FOR NON-UNITED STATES
PERSONS RESIDENT IN TREATY COUNTRIES (FORM 1001).
Non-United States Persons residing in a country that
has a tax treaty with the United States can obtain an
exemption or reduced tax rate, depending on the
treaty terms, by filing Form 1001 (Holdership,
Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed
by noteholders or their agent.
o EXEMPTION FOR UNITED STATES PERSONS (FORM W-9).
United States Persons can obtain a complete exemption
from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and
Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form
<PAGE>
to the person through whom it holds the security--the clearing agency, in the
case of persons holding directly on the books of the clearing agency. Form W-8
and Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JULY 23, 1999
AFC MORTGAGE LOAN ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
SUPERIOR BANK FSB
Depositor
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS AND IN THE PROSPECTUS SUPPLEMENT.
THE PROSPECTUS TOGETHER WITH THE ACCOMPANYING PROSPECTUS SUPPLEMENT WILL
CONSTITUTE THE FULL PROSPECTUS.
- --------------------------------------------------------------------------------
THE SECURITIES:
Superior Bank FSB, as depositor, will sell the securities, which may be in the
form of mortgage pass-through certificates or mortgage-backed notes. Each issue
of securities will have its own series designation and will evidence either:
o the ownership of trust fund assets, or
o debt obligations secured by trust fund assets.
THE TRUST FUND AND ITS ASSETS
The assets of a trust fund will primarily include any combination of various
types of one- to four-family residential first and junior lien mortgage loans,
multifamily first and second mortgage loans, commercial first and second
mortgage loans, mixed use residential and commercial first and second mortgage
loans, manufactured housing conditional sales contracts and installment loan
agreements or home improvement installments sales contracts and installment loan
agreements.
CREDIT ENHANCEMENT
The assets of the trust fund for a series of securities may also include letters
of credit, insurance policies, guarantees, reserve funds or currency or interest
rate exchange agreements or any combination of credit support. Credit
enhancement may also be provided by means of subordination of one or more
classes of securities, cross support or by overcollateralization.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the securities may be made through one or more different methods,
including through underwriters as described in "Methods of Distribution" in this
prospectus and in the related prospectus supplement.
The date of this Prospectus is .
<PAGE>
TABLE OF CONTENTS
Important Notice about Information in this Prospectus
and Each Accompanying Prospectus Supplement...............................3
Risk Factors...................................................................4
Introduction; Glossary........................................................11
Description of the Trust Funds................................................11
Principal and Interest Account...........................................15
Certificate Account......................................................16
Pre-Funding Account......................................................16
Credit Support...........................................................16
Use of Proceeds...............................................................16
Yield Considerations..........................................................16
Maturity and Weighted Average Life.......................................19
Foreclosures and Payment Plans...........................................21
Description of The Securities.................................................22
Distributions on the Securities..........................................24
Example of Distributions.................................................26
Monthly Advances by Servicer in Respect of
Delinquencies on the Mortgage Assets.................................27
Compensating Interest....................................................28
Form of Reports to Securityholders.......................................28
Termination of the Trust Fund and Disposition of
Trust Fund Assets....................................................30
Assignment of Mortgage Assets; Repurchases...............................31
Representations and Warranties; Repurchases..............................33
Payments on Mortgage Assets; Deposits to
Principal and Interest Account.......................................34
Deposits to Certificate Account..........................................36
Pre-Funding Account......................................................37
Collection and Other Servicing Procedures................................37
Servicing Advances.......................................................39
Sub-Servicers............................................................40
Realization Upon Defaulted Mortgage Loans and
Contracts............................................................40
Hazard Insurance Policies................................................41
Due-on-Sale Provisions...................................................42
Servicing and Other Compensation and Payment
of Expenses..........................................................42
Annual Evidence as to the Compliance of the
Master Servicer......................................................43
Matters Regarding the Servicer and the Depositor
....................................................................43
Events of Default under the Governing
Agreement and Rights Upon Events of
Default..............................................................44
Amendment of the Governing Agreements....................................48
Optional Purchase by the Servicer of Defaulted
Mortgage Loans.......................................................49
Duties of the Trustee....................................................50
Description of the Trustee...............................................50
Description of Credit Support.................................................50
Subordinate Certificates.................................................52
Cross-Support Provisions.................................................52
Insurance or Guarantees With Respect to the
Mortgage Assets......................................................52
Letter of Credit.........................................................52
Insurance Policies and Surety Bonds with respect
to the Securities....................................................53
Reserve Funds or Spread Account..........................................53
Overcollateralization....................................................54
Description of Primary Insurance Policies.....................................54
Primary Mortgage Insurance Policies......................................54
Primary Hazard Insurance Policies........................................55
FHA Insurance............................................................56
VA Guarantees............................................................60
Legal Aspects of Mortgage Assets..............................................60
Mortgage Loans...........................................................60
Manufactured Home Contracts..............................................61
Foreclosure on Mortgages.................................................64
Foreclosure on Mortgaged Properties Located in
the Commonwealth of Puerto Rico......................................67
Repossession with respect to Manufactured
Home Contracts.......................................................68
Junior Mortgages.........................................................69
Rights of Redemption.....................................................69
Anti-Deficiency Legislation and Other
Limitations on Lenders...............................................70
Consumer Protection Laws with respect to
Manufactured Housing Contracts and Home
Improvement Contracts................................................72
Other Limitations........................................................73
Enforceability of Provisions.............................................74
Leases and Rents.........................................................75
Subordinate Financing....................................................75
Applicability of Usury Laws..............................................76
Alternative Mortgage Instruments.........................................76
Formaldehyde Litigation with respect to
Manufactured Homes...................................................77
Soldiers' and Sailors' Civil Relief Act of 1940..........................78
Environmental Legislation................................................78
Forfeitures in Drug and RICO Proceedings.................................79
Negative Amortization Loans..............................................80
Installment Contracts....................................................80
Federal Income Tax Consequences...............................................81
General..................................................................81
REMICs...................................................................82
Notes...................................................................102
Grantor Trust Funds.....................................................103
Partnership Trust Funds.................................................114
State And Other Tax Consequences.............................................120
ERISA Considerations.........................................................121
Representation from Plans Investing in Notes
with "Substantial Equity Features" or
Certain Securities..................................................127
Tax Exempt Investors....................................................128
Consultation with Counsel...............................................128
Legal Investment.............................................................129
Methods of Distribution......................................................130
Legal Matters................................................................131
Financial Information........................................................131
Rating.......................................................................132
Available Information........................................................132
Incorporation of Certain Information by Reference............................132
2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the securities of that series. If the
prospectus supplement contains information about a particular series
that differs from the information contained in this prospectus, you
should rely on the information in the prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
3
<PAGE>
RISK FACTORS
The offered securities are not suitable investments for all investors. In
particular, you should not purchase the offered securities unless you understand
and are able to bear the prepayment, credit, liquidity and market risks
associated with the securities.
You should carefully consider the following factors in connection with the
purchase of the securities offered hereby as well as any additional risk factors
that are set forth in the prospectus supplement related to your security:
THE SECURITIES WILL HAVE LIMITED LIQUIDITY SO INVESTORS MAY BE UNABLE TO SELL
THEIR SECURITIES OR MAY BE FORCED TO SELL THEM AT A DISCOUNT FROM THEIR INITIAL
OFFERING PRICE
There can be no assurance that a resale market for the securities of any
series will develop following the issuance and sale of any series of securities.
Even if a resale market does develop, it may not provide securityholders with
liquidity of investment or continue for the life of the securities of any
series. The prospectus supplement for any series of securities may indicate that
an underwriter specified in the prospectus supplement intends to establish a
secondary market in the securities, however no underwriter will be obligated to
do so. As a result, any resale prices that may be available for any offered
security in any market that may develop may be at a discount from the initial
offering price. The securities offered hereby will not be listed on any
securities exchange.
THE YIELD TO MATURITY ON YOUR SECURITIES WILL DEPEND ON A VARIETY OF FACTORS
INCLUDING PREPAYMENTS
The timing of principal payments on the securities of a series will be
affected by a number of factors, including the following:
o the extent of prepayments on the underlying assets in the trust fund
or;
o how payments of principal are allocated among the classes of
securities of that series as specified in the related prospectus
supplement;
o if any party has an option to terminate the related trust fund early,
the effect of the exercise of the option;
o the rate and timing of defaults and losses on the assets in the
related trust fund; and
o repurchases of assets in the related trust fund as a result of
material breaches of representations and warranties made by the
depositor, servicer or mortgage loan seller.
Prepayments on mortgage loans are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility.
4
<PAGE>
The rate of prepayment of the mortgage loans included in or underlying the
assets in each trust fund may affect the yield to maturity of the securities. In
general, if you purchase a class of offered securities at a price higher than
its outstanding principal balance and principal distributions on your class
occur faster than you anticipate at the time of purchase, the yield will be
lower than you anticipate. Conversely, if you purchase a class of offered
securities at a price lower than its outstanding principal balance and principal
distributions on that class occur more slowly than you anticipate at the time of
purchase, the yield will be lower than you anticipate.
To the extent amounts in any pre-funding account have not been used to
purchase additional mortgage loans, holders of the related securities may
receive an additional prepayment.
The yield to maturity on some types of classes of securities, including
securities that are entitled to principal distributions only or interest
distributions only, securities as to which accrued interest or a portion thereof
will not be distributed but rather added to the principal balance of the
security, and securities with an interest rate which fluctuates inversely with
an index, may be relatively more sensitive to the rate of prepayment on the
related mortgage loans than other classes of securities and, if applicable, to
the occurrence of an early retirement of the securities. The prospectus
supplement for a series will set forth the related classes of securities that
may be more sensitive to prepayment rates.
SEE "YIELD CONSIDERATIONS" AND "MATURITY AND PREPAYMENT CONSIDERATIONS" IN
THIS PROSPECTUS.
THE RATINGS OF YOUR SECURITIES MAY BE LOWERED OR WITHDRAWN WHICH MAY ADVERSELY
AFFECT THE LIQUIDITY OR MARKET VALUE OF YOUR SECURITY
It is a condition to the issuance of the securities that each series of
securities be rated in one of the four highest rating categories by a nationally
recognized statistical rating agency. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time. No person is obligated to maintain the rating on any security, and
accordingly, there can be no assurance to you that the ratings assigned to any
security on the date on which the security is originally issued will not be
lowered or withdrawn by a rating agency at any time thereafter. The rating(s) of
any series of securities by any applicable rating agency may be lowered
following the initial issuance of the securities as a result of the downgrading
of the obligations of any applicable credit support provider, or as a result of
losses on the related mortgage loans in excess of the levels contemplated by the
rating agency at the time of its initial rating analysis. Neither the depositor,
the servicer nor any of their respective affiliates will have any obligation to
replace or supplement any credit support, or to take any other action to
maintain any rating(s) of any series of securities. If any rating is revised or
withdrawn, the liquidity or the market value of your security may be adversely
affected.
THE PAYMENT PERFORMANCE OF THE SECURITIES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE ASSETS IN THE RELATED TRUST FUNDS; SOME TYPES OF
MORTGAGE LOANS MAY BE ESPECIALLY PRONE TO DEFAULTS AND MAY EXPOSE THE RELATED
CERTIFICATES TO GREATER LOSSES
5
<PAGE>
The securities will be directly or indirectly backed by mortgage loans,
manufactured housing, conditional sales contracts and installment loan
agreements or home improvement installment sales contracts and installment loan
agreements. Some types of mortgage loans and contracts may have a greater
likelihood of delinquency and foreclosure, and a greater likelihood of loss in
the event of delinquency and foreclosure. You should be aware that if the
mortgaged properties fail to provide adequate security for the mortgage loans or
contracts included in a trust fund, any resulting losses, to the extent not
covered by credit support, will be allocated to the related securities in the
manner described in the related prospectus supplement and consequently would
adversely affect the yield to maturity on those securities. The depositor cannot
assure you that the values of the mortgaged properties have remained or will
remain at the appraised values on the dates of origination of the related
mortgage loans. The prospectus supplement for each series of securities will
describe the mortgage loans and contracts which are to be included in the trust
fund related to your security and risks associated with those mortgage loans and
contracts which you should carefully consider in connection with the purchase of
your security.
NONPERFECTION OF SECURITY INTERESTS IN MANUFACTURED HOMES MAY RESULT IN LOSSES
ON THE RELATED MANUFACTURED HOUSING CONTRACTS AND THE SECURITIES BACKED BY THE
MANUFACTURED HOUSING CONTRACTS
Any conditional sales contracts and installment loan agreements with
respect to manufactured homes included in a trust fund will be secured by a
security interest in a manufactured home. Perfection of security interests in
manufactured homes and enforcement of rights to realize upon the value of the
manufactured homes as collateral for the manufactured housing contracts are
subject to a number of federal and state laws, including the Uniform Commercial
Code as adopted in each state and each state's certificate of title statutes.
The steps necessary to perfect the security interest in a manufactured home will
vary from state to state. If the depositor fails, due to clerical errors or
otherwise, to take the appropriate steps to perfect the security interest, the
trustee may not have a first priority security interest in the manufactured home
securing a manufactured housing contract. Additionally, courts in many states
have held that manufactured homes may, under certain circumstances, become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. The failure to properly perfect a valid, first priority security
interest in a manufactured home securing a manufactured housing contract could
lead to losses that, to the extent not covered by credit support, may adversely
affect the yield to maturity of the related securities.
6
<PAGE>
CREDIT SUPPORT MAY BE LIMITED; THE FAILURE OF CREDIT SUPPORT TO COVER LOSSES ON
THE TRUST FUND ASSETS WILL RESULT IN LOSSES ALLOCATED TO THE RELATED SECURITIES
Credit support is intended to reduce the effect of delinquent payments or
losses on the underlying trust fund assets on those classes of securities that
have the benefit of the credit support. With respect to each series of
securities, credit support will be provided in one or more of the forms referred
to in this prospectus and the related prospectus supplement. Regardless of the
form of credit support provided, the amount of coverage will usually be limited
in amount and may be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, credit support may provide only very limited coverage
as to certain types of losses or risks, and may provide no coverage as to
certain other types of losses or risks. If losses on the trust fund assets
exceed the amount of coverage provided by any credit support or the losses are
of a type not covered by any credit support, these losses will be borne by the
holders of the related securities or specific classes of the related securities.
SEE "DESCRIPTION OF CREDIT SUPPORT".
FORECLOSURE OF MORTGAGE LOANS MAY RESULT IN LIMITATIONS OR DELAYS IN RECOVERY
AND LOSSES ALLOCATED TO THE RELATED SECURITIES
Even assuming that the mortgaged properties provide adequate security for
the mortgage loans, substantial delays can be encountered in connection with the
liquidation of defaulted mortgage loans and corresponding delays in the receipt
of related proceeds by the securityholders could occur. An action to foreclose
on a mortgaged property securing a mortgage loan is regulated by state statutes,
rules and judicial decisions and is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. In some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a mortgaged
property. In the event of a default by a mortgagor, these restrictions may
impede the ability of the servicer to foreclose on or sell the mortgaged
property or to obtain liquidation proceeds sufficient to repay all amounts due
on the related mortgage loan. The servicer will be entitled to deduct from
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on the related liquidated mortgage loan and not yet repaid,
including payments to prior lienholders, accrued servicing fees, legal fees and
costs of legal action, real estate taxes, and maintenance and preservation
expenses, monthly advances and servicing advances. If the mortgaged properties
fail to provide adequate security for the mortgage loans in the trust fund
related to your security and insufficient funds are available from any
applicable credit support, you could experience a loss on your investment.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be less as a
percentage of the outstanding principal balance of the smaller principal balance
mortgage loan than would be the case with a larger principal balance loan.
SEE "LEGAL ASPECTS OF MORTGAGE ASSETS" IN THIS PROSPECTUS.
7
<PAGE>
MORTGAGED PROPERTIES ARE SUBJECT TO ENVIRONMENTAL RISKS AND THE COST OF
ENVIRONMENTAL CLEAN-UP MAY INCREASE LOSSES ON THE RELATED MORTGAGE LOANS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
the property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. A lender also risks liability on foreclosure of the mortgage on the
property. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate the property, may adversely affect the owner's or
operator's ability to sell such property. Although the incidence of
environmental contamination of residential properties is less common than that
for commercial properties, mortgage loans contained in a trust fund may be
secured by mortgaged properties in violation of environmental laws, ordinances
or regulations. The servicer is generally prohibited from foreclosing on a
mortgaged property unless it has taken adequate steps to ensure environmental
compliance with respect to the mortgaged property. However, to the extent the
servicer errs and forecloses on mortgaged property that is subject to
environmental law violations, and to the extent a mortgage loan seller does not
provide adequate representations and warranties against environmental law
violations, or is unable to honor its obligations, including the obligation to
repurchase a mortgage loan upon the breach of a representation or warranty, a
trust fund could experience losses which, to the extent not covered by credit
support, could adversely affect the yield to maturity on the related securities.
THE EXERCISE OF AN OPTIONAL TERMINATION RIGHT WILL AFFECT THE YIELD TO MATURITY
ON THE RELATED SECURITIES
The prospectus supplement for each series of securities will set forth the
party that may, at its option, purchase the assets of the related trust fund if
the aggregate principal balance of the mortgage loans and other trust fund
assets in the trust fund for that series is less than the percentage specified
in the related prospectus supplement of the aggregate principal balance of the
outstanding mortgage loans and other trust fund assets at the cut-off date for
that series. The percentage will be between 25% and 0%. The exercise of the
termination right will effect the early retirement of the securities of that
series. The prospectus supplement for each series of securities will set forth
the price to be paid by the terminating party and the amounts that the holders
of the securities will be entitled to receive upon early retirement.
A trust fund may also be terminated and the certificates retired upon the
servicer's determination, if applicable and based upon an opinion of counsel,
that the REMIC status of the trust fund has been lost or that a substantial risk
exists that the REMIC status will be lost for the then current taxable year.
The termination of a trust fund and the early retirement of securities by
any party would decrease the average life of the securities and may adversely
affect the yield to holders of some classes of related securities.
8
<PAGE>
VIOLATIONS OF FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE LOANS
Federal and state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices:
o regulate interest rates and other charges on mortgage loans;
o require certain disclosures to borrowers;
o require licensing of originators; and
o regulate generally the origination, servicing and collection process
for the mortgage loans.
Depending on the specific facts and circumstances involved, violations may
limit the ability of a trust fund to collect all or a part of the principal of
or interest on the mortgage loans, may entitle the borrower to a refund of
amounts previously paid and could result in liability for damages and
administrative enforcement against the originator or an assignee of the
originator, such as the trust, or the initial servicer or a subsequent servicer,
as the case may be. In particular, it is possible that some mortgage loans
included in a trust fund will be subject to the Home Ownership and Equity
Protection Act of 1994. The Homeownership Act adds some additional provisions to
Regulation Z, the implementing regulation of the Federal Truth-In-Lending Act.
These provisions impose additional disclosure and other requirements on
creditors with respect to non-purchase money mortgage loans with high interest
rates or high up-front fees and charges. In general, mortgage loans within the
purview of the Homeownership Act have annual percentage rates over 10 percentage
points greater than the yield on Treasury securities of comparable maturity
and/or fees and points which exceed the greater of 8% of the total loan amount
or $441. The $441 amount is adjusted annually based on changes in the Consumer
Price Index for the prior year. The provisions of the Homeownership Act apply on
a mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor, such as a trust fund,
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including the right to rescind the mortgage loan.
Recently, class action lawsuits under the Homeownership Act have been brought
naming as a defendant securitization trusts such as the trust funds with respect
to the mortgage loans.
In addition, amendments to the federal bankruptcy laws have been proposed
that could result in (1) the treatment of a claim secured by a junior lien in a
borrower's principal residence as protected only to the extent that the claim
was secured when the security interest was made and (2) the disallowance of
claims based on secured debt if the creditor failed to comply with specific
provisions of the Truth in Lending Act (15 U.S.C. ss.1639). Such amendments
could apply retroactively to secured debt incurred by the debtor prior to the
date of effectiveness of the amendments.
9
<PAGE>
The depositor will represent that all applicable federal and state laws
were complied with in connection with the origination of the mortgage loans. If
there is a material and adverse breach of a representation, the depositor will
be obligated to repurchase any affected mortgage loan or to substitute a new
mortgage loan into the related trust fund. If the depositor fails to repurchase
or substitute, a trust fund could experience losses which, to the extent not
covered by credit support, could adversely affect the yield to maturity on the
related securities. SEE "LEGAL ASPECTS OF MORTGAGE LOANS".
10
<PAGE>
INTRODUCTION; GLOSSARY
The mortgage pass-through certificates or mortgage-backed notes offered by
this prospectus and the prospectus supplement will be offered from time to time
in series.
Each series of mortgage pass-through certificates will represent in the
aggregate the entire beneficial ownership interest in the assets deposited into
a particular trust fund. Each series of mortgage-backed notes will represent
indebtedness secured by the assets deposited into a particular trust fund. The
certificates and notes of any series are collectively referred to in this
prospectus as the "securities".
The securities of each series will be payable solely from the assets of the
related trust fund, including any applicable credit support, and will not have
any claims against the assets of any other trust fund or recourse to any other
party. The securities will not represent an interest in or obligation of the
depositor, the servicer, the trustee or any of their respective affiliates.
Some capitalized terms are used in this prospectus to assist you in
understanding the terms of the securities. The capitalized terms used in this
prospectus are defined in the glossary beginning on page __ in this prospectus.
DESCRIPTION OF THE TRUST FUNDS
The trust fund for each series will be held by the trustee for the benefit
of the related securityholders. Each trust fund will consist of:
o a segregated pool of various types of first and junior lien mortgage
loans, manufactured housing conditional sales contracts and
installment loan agreements or home improvement installment sales
contracts and installment loan agreements as are subject to the
related agreement governing the trust fund;
o amounts on deposit in the principal and interest account, certificate
account, pre-funding account or any other account maintained for the
benefit of the securityholders;
o property acquired on behalf of securityholders by foreclosure, deed in
lieu of foreclosure or repossession and any revenues received on the
property;
o the rights of the depositor under any hazard insurance policies, FHA
insurance policies, VA guarantees and primary mortgage insurance
policies to be included in the trust fund, each as described under
"Description of Primary Insurance Policies";
o the rights of the depositor under the agreement or agreements pursuant
to which it acquired the mortgage loans to be included in the trust
fund;
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o the rights of the trustee in any cash advance reserve fund or surety
bond to be included in the trust fund, each as described under
"Monthly Advances by Servicer in Respect of Delinquencies on the Trust
Fund Assets"; and
o any letter of credit, mortgage pool insurance policy, special hazard
insurance policy, bankruptcy bond, financial guarantee insurance
policy, reserve fund, currency or interest rate exchange agreement,
guarantee or guaranteed investment contract, each as described under
"Description of Credit Support".
Each Mortgage Asset will be evidenced by a promissory note or contract,
referred to in this prospectus as a "mortgage note", secured by a first or
junior mortgage, deed of trust or similar instrument creating a lien on any of
the following mortgaged properties:
o one- to four-family residential properties including detached and
attached dwellings, townhouses, rowhouses, individual condominium
units, individual units in planned-unit developments and individual
units in de minimis planned-unit developments. Loans secured by this
type of property may be conventional loans, FHA-insured loans or VA-
guaranteed loans as specified in the related prospectus supplement;
o residential properties consisting of five or more dwelling units in
multi-story structures;
o commercial properties including office buildings, retail buildings and
a variety of other commercial properties as may be described in the
related prospectus supplement;
o properties consisting of mixed residential and commercial structures;
o leasehold interests in residential properties, the title of which is
held by third party lessors;
o manufactured homes that, in the case of mortgage loans, are
permanently affixed to their site or, in the case of manufactured home
contracts, may be relocated, or
o real property acquired upon foreclosure or comparable conversion of
the mortgage loans included in a trust fund.
No more than 10% of the Mortgage Assets in any mortgage pool (by original
principal balance of the mortgage pool) will be secured by commercial
properties. The term of any leasehold will exceed the term of the mortgage note
by at least five years.
The manufactured homes securing the mortgage loans or manufactured housing
contracts will consist of manufactured homes within the meaning of 42 United
States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when
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connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter.
The home improvement contracts will be secured primarily by mortgages on
Single Family Properties that are generally subordinate to other mortgages on
the same mortgaged property or by purchase money security interests in the home
improvements financed thereby.
The mortgaged properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the United
States. The mortgaged properties may include vacation, second and non-owner
occupied homes.
Each Mortgage Asset will be selected by the depositor for inclusion in a
trust fund from among those originated by or purchased by the depositor, either
directly or through its affiliates or from banks, savings and loan associations,
mortgage bankers, mortgage brokers, investment banking firms, the Federal
Deposit Insurance Corporation and other mortgage loan originators or sellers not
affiliated with the depositor or from its affiliates. Each seller of mortgage
loans will be referred to in this prospectus and the related prospectus
supplement as a "mortgage loan seller". Each prospectus supplement will contain
information, as of the date of the prospectus supplement, with respect to the
underwriting standards and criteria applied by the depositor in originating or
purchasing the mortgage loans to be included in a trust fund.
The Mortgage Assets to be included in a trust fund will have original terms
to maturity of not more than 30 years and will be any one of the following:
o Fully amortizing Mortgage Assets with a fixed rate of interest and
level monthly payments to maturity;
o Fully amortizing Mortgage Assets with an interest rate that adjusts
periodically, with corresponding adjustments in the amount of monthly
payments, to equal the sum, which may be rounded, of a fixed
percentage amount and an index;
o ARM Loans that provide for an election, at the borrower's option, to
convert the adjustable interest rate to a fixed interest rate, which
will be described in the related prospectus supplement;
o ARM Loans that provide for negative amortization or accelerated
amortization resulting from delays in or limitations on the payment
adjustments necessary to amortize fully the outstanding principal
balance of the loan at its then applicable interest rate over its
remaining term;
o Fully amortizing Mortgage Assets with a fixed interest rate and level
monthly payments, or payments of interest only, during the early years
of the term, followed by periodically increasing monthly payments of
principal and interest for the duration of
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the term or for a specified number of years, which will be described
in the related prospectus supplement;
o Fixed interest rate Mortgage Assets providing for level payment of
principal and interest on the basis of an assumed amortization
schedule or payments of interest only and a balloon payment at the end
of a specified term; and
o Mortgage Assets that provide for a line of credit pursuant to which
amounts may be advanced to the borrower from time to time; and
o Another type of Mortgage Asset described in the related prospectus
supplement.
The trust fund may include mortgage loans that are delinquent as of the
date the related series of securities is issued. In that case, the related
prospectus supplement will set forth, as to each mortgage loan, available
information as to the period of delinquency and any other information relevant
for a prospective purchaser to make an investment decision. No mortgage loan in
a trust fund will be 90 or more days delinquent and no trust fund will include a
concentration greater than 20% of mortgage loans which are more than 30 and less
than 90 days delinquent.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENT. Each prospectus
supplement will contain specific information with respect to the Mortgage Assets
contained in the related trust fund. That information will be as of the cut-off
date specified in the prospectus supplement, which will usually be the close of
business on the first day of the month of formation of the related trust fund,
including the following:
o the aggregate outstanding principal balance, the largest, smallest and
average outstanding principal balance of the Mortgage Assets,
o the type of property securing the Mortgage Assets and the percentage
of Mortgage Assets in the related mortgage pool which are secured by
that type of property,
o the remaining terms to maturity and the weighted average remaining
term to maturity of the Mortgage Assets,
o the earliest origination date and latest origination date,
o the interest rates or range of interest rates borne by the Mortgage
Assets and the weighted average interest rate borne by the Mortgage
Assets,
o the geographical distribution of the mortgaged properties on a
state-by-state basis,
o information with respect to the prepayment provisions, if any, of the
Mortgage Assets,
o with respect to ARM Loans, the index, the adjustment dates, the
highest, lowest and weighted average margin, and the maximum interest
rate variation at the time of any adjustment and over the life of the
ARM Loan,
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o the range of debt service coverage ratios for mortgage loans secured
by multifamily properties or commercial properties,
o the specific type of property securing commercial loans, and
o information regarding the payment characteristics of the Mortgage
Assets, for example whether the mortgage loans provide for payments of
interest only for any period and the frequency and amount by which,
and the term during which, monthly payments adjust or other
amortization provisions.
If specific information respecting the trust fund assets is not known to
the depositor at the time securities are initially offered, more general
information of the nature described above will be provided in the prospectus
supplement, and specific information as to the trust fund assets to be included
in the trust fund on the date of issuance of the securities will be set forth in
a report which will be available to purchasers of the related securities at or
before the initial issuance of the securities and will be filed, together with
the related pooling and servicing agreement, with respect to each series of
certificates, or the related servicing agreement, trust agreement and indenture,
with respect to each series of notes, as part of a report on Form 8-K with the
Securities and Exchange Commission within fifteen days after the initial
issuance. If Mortgage Assets are added to or deleted from the trust fund after
the date of the related prospectus supplement, the addition or deletion will be
noted on the report on Form 8-K. In no event, however, will more than 5% (by
principal balance at the cut-off date) of the mortgage loans deviate from the
characteristics of the mortgage loans set forth in the related prospectus
supplement. In addition, a report on Form 8-K will be filed within 15 days after
the end of any pre-funding period containing information respecting the trust
fund assets transferred to a trust fund after the date of issuance of the
related securities as described in the third following paragraph.
PRINCIPAL AND INTEREST ACCOUNT
Each trust fund will include one or more principal and interest accounts
established and maintained on behalf of the securityholders into which the
servicer will deposit payments received after the cut-off date with respect to
the Mortgage Assets as described under "Payments on Mortgage Assets; Deposits to
Principal and Interest Account" in this prospectus and in the related prospectus
supplement. Any amounts received after the cut-off date in respect of interest
accrued on the Mortgage Assets prior to the cut-off date will not be a part of
any trust fund and will not be deposited in the principal and interest account.
Also, unless the prospectus supplement for a series of securities states
otherwise, the Depositor's Yield, which represents the right to receive all
prepayment penalties and premiums collected on the Mortgage Assets and other
amounts if specified in the related prospectus supplement, will be retained by
the Depositor and will not be a part of any trust fund. A principal and interest
account may be maintained as an interest bearing or non-interest bearing account
and funds held therein may be invested in certain short-term, high quality
investments. SEE "DESCRIPTION OF THE AGREEMENTS-- PAYMENTS ON THE MORTGAGE
LOANS; DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT".
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CERTIFICATE ACCOUNT
Each trust fund will include one or more certificate accounts established
and maintained on behalf of the securityholders into which the trustee will, to
the extent described in this prospectus and in the prospectus supplement,
deposit all amounts remitted by the servicer from the principal and interest
account and payments received or advanced with respect to the other assets in
the trust fund. A certificate account will be maintained as a non-interest
bearing account and funds held therein may be invested in certain short-term,
high quality investments. SEE "DESCRIPTION OF THE POOLING AND SERVICING
AGREEMENTS--DEPOSITS TO CERTIFICATE ACCOUNT".
PRE-FUNDING ACCOUNT
The related trust fund may include one or more pre-funding accounts
established and maintained on behalf of the securityholders into which the
trustee will deposit amounts received from the depositor to be applied to
acquire additional Mortgage Assets subject to the conditions specified in the
related prospectus supplement. SEE "DESCRIPTION OF POOLING AND SERVICING
AGREEMENTS--SUBSEQUENT MORTGAGE LOANS".
CREDIT SUPPORT
Partial or full protection against defaults and losses on the Mortgage
Assets in the related trust fund may be provided to one or more classes of
securities in the related series by credit support. Credit support may be in the
form of subordination of one or more classes of securities in a series, letter
of credit, insurance policy, guarantee, reserve fund, cross-collateralization,
overcollateralization or another type of credit support, or a combination
thereof. The amount and types of coverage, the identification of the entity
providing the coverage, if applicable, and related information with respect to
each type of credit support, if any, will be described in the prospectus
supplement for a series of securities. SEE "DESCRIPTION OF CREDIT SUPPORT".
USE OF PROCEEDS
The net proceeds to be received from the sale of the securities will be
applied by the depositor to finance the purchase of, or to repay short-term
loans incurred to originate or finance the purchase of, the Mortgage Assets or
will be used by the depositor for general corporate purposes. The depositor
expects that it will make additional sales of securities similar to the
securities from time to time, but the timing and amount of offerings of
securities will depend on a number of factors, including the volume of Mortgage
Assets acquired by the depositor, prevailing interest rates, availability of
funds and general market conditions.
YIELD CONSIDERATIONS
The yield on any offered security will depend on the following:
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o the price paid by the securityholder,
o the rate at which interest accrued on the security,
o the receipt and timing of receipt of distributions on the security,
o the weighted average life of the Mortgage Assets in the related trust
fund,
o liquidations of Mortgage Assets following mortgagor defaults,
o purchases of Mortgage Assets in the event of optional termination of
the trust fund or breaches of representations made in respect of such
Mortgage Assets by the depositor, the servicer and others, and
o in the case of securities evidencing interests in ARM Loans, by
changes in the interest rates or the conversions of ARM Loans to a
fixed interest rate.
SECURITY INTEREST RATE. Securities of any class within a series may have
fixed, variable or adjustable security interest rates, which may or may not be
based upon the interest rates borne by the Mortgage Assets in the related trust
fund. The prospectus supplement with respect to any series of securities will
specify the security interest rate for each class of securities or, in the case
of a variable or adjustable security interest rate, the method of determining
the security interest rate. Holders of Stripped Interest Securities or a class
of securities having a security interest rate that varies based on the weighted
average interest rate of the underlying Mortgage Assets will be affected by
disproportionate prepayments and repurchases of Mortgage Assets having higher
interest rates than the average interest rate.
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL. The effective yield to
securityholders entitled to payments of interest will be slightly lower than the
yield otherwise produced by the applicable security interest rate because, while
interest on the Mortgage Assets may accrue from the first day of each month, the
distributions of such interest will not be made until the remittance date which
may be as late as the 25th day of the month following the month in which
interest accrues on the Mortgage Assets. On each remittance date, a payment of
interest on the securities, or addition to the principal balance of a class of
Accrual Securities, will include interest accrued during the interest accrual
period described in the related prospectus supplement for that remittance date.
If the interest accrual period ends on a date other than a remittance date for
the related series, the yield realized by the holders of the securities may be
lower than the yield that would result if the interest accrual period ended on
the remittance date. In addition, if so specified in the related prospectus
supplement, interest accrued for an interest accrual period for one or more
classes of securities may be calculated on the assumption that distributions of
principal, and additions to the principal balance of Accrual Securities, and
allocations of losses on the Mortgage Assets may be made on the first day of the
interest accrual period for a remittance date and not on the remittance date.
This method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
interest accrual period.
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PRINCIPAL PREPAYMENTS. The yield to maturity on the securities will be
affected by the rate of principal payments on the Mortgage Assets, including
principal prepayments, curtailments, defaults and liquidations. The rate at
which principal prepayments occur on the Mortgage Assets will be affected by a
variety of factors, including, without limitation, the following:
o the terms of the Mortgage Assets,
o the level of prevailing interest rates,
o the availability of mortgage credit,
o in the case of multifamily loans and commercial loans, the quality of
management of the mortgaged properties, and
o economic, demographic, geographic, tax, legal and other factors.
In general, however, if prevailing interest rates fall significantly below
the interest rates on the Mortgage Assets included in a particular trust fund,
those Mortgage Assets are likely to be the subject of higher principal
prepayments than if prevailing rates remain at the rates borne by those Mortgage
Assets. Conversely, if prevailing interest rates rise significantly above the
interest rates on the Mortgage Assets included in a particular trust fund, those
Mortgage Assets are likely to be the subject of lower principal prepayments than
if prevailing rates remain at the rates borne by those Mortgage Assets. The rate
of principal payments on some or all of the classes of securities of a series
will correspond to the rate of principal payments on the Mortgage Assets
included in the related trust fund and is likely to be affected by the existence
of prepayment premium provisions of the Mortgage Assets in a mortgage pool, and
by the extent to which the servicer of any such Mortgage Asset is able to
enforce such provisions. Mortgage Assets with a prepayment premium provision, to
the extent enforceable, generally would be expected to experience a lower rate
of principal prepayments than otherwise identical Mortgage Assets without such
provisions, or with lower prepayment premiums.
If the purchaser of a security offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a security offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Mortgage Assets, the actual yield
to maturity will be lower than that so calculated. In either case, the effect on
yield of prepayments on one or more classes of securities of a series may be
mitigated or exacerbated by the priority of distributions of principal to those
classes as provided in the related prospectus supplement.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed in respect of a security, the greater the effect
on such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at
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a rate higher or lower than the rate anticipated by the investor during a given
period may not be offset by a subsequent like decrease or increase in the rate
of principal payments.
DEFAULTS. The rate of defaults on the Mortgage Assets will also affect the
rate and timing of principal payments on the Mortgage Assets and thus the yield
on the securities. In general, defaults on Single Family Loans are expected to
occur with greater frequency in their early years. However, Mortgage Assets that
require balloon payments, including multifamily loans, risk default at maturity,
or that the maturity of the balloon loan may be extended in connection with a
workout. The rate of default on mortgage loans which are refinance or limited
documentation mortgage loans, Mortgage Assets with high loan-to-value ratios,
and ARM Loans may be higher than for other types of Mortgage Assets.
Furthermore, the rate and timing of defaults and liquidations on the Mortgage
Assets will be affected by the general economic condition of the region of the
country in which the related mortgaged properties are located. The risk of
delinquencies and loss is greater and prepayments are less likely in regions
where a weak or deteriorating economy exists, as may be evidenced by, among
other factors, increasing unemployment or falling property values.
MATURITY AND WEIGHTED AVERAGE LIFE
PREPAYMENTS. The rates at which principal payments are received on the
Mortgage Assets included in a trust fund and the rate at which payments are made
from any credit support for the related series of securities may affect the
ultimate maturity and the weighted average life of each class of the series.
Prepayments on the Mortgage Assets in a trust fund will generally accelerate the
rate at which principal is paid on some or all of the classes of the securities
of the related series.
If so provided in the prospectus supplement for a series of securities, one
or more classes of securities may have a final scheduled remittance date, which
is the date on or prior to which the principal balance thereof is scheduled to
be reduced to zero, calculated on the basis of the assumptions applicable to
such series set forth therein.
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of that
security will be repaid to the investor. The weighted average life of a class of
securities of a series will be influenced by, among other factors, the rate at
which principal on the related Mortgage Assets is paid to that class, which may
be in the form of scheduled amortization or prepayments. For this purpose, the
term "prepayment" includes prepayments, in whole or in part, and liquidations
due to default.
In addition, the weighted average life of the securities may be affected by
the varying maturities of the related Mortgage Assets. If any Mortgage Assets in
a trust fund have actual terms to maturity of less than those assumed in
calculating the final scheduled remittance dates for the classes of securities
of the related series, one or more classes of the securities may be fully paid
prior to their respective final scheduled remittance dates, even in the absence
of prepayments. Accordingly, the prepayment experience of the mortgage pool
will, to some extent, be a function of the mix of interest rates and maturities
of the Mortgage Assets in that mortgage pool. SEE "DESCRIPTION OF THE TRUST
FUNDS".
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate prepayment model or the
Standard Prepayment
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Assumption prepayment model, each as described below. CPR represents a constant
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of loans for the life of those loans. SPA represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of loans. A prepayment assumption of 100% of SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance of
the loans in the first month of the life of the loans and an additional 0.2% per
annum in each month thereafter until the thirtieth month. Beginning in the
thirtieth month and in each month thereafter during the life of the loans, 100%
of SPA assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor 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 loans. Moreover, CPR and SPA were
developed based upon historical prepayment experience for Single Family Loans.
Thus, it is likely that prepayment of any Mortgage Assets will not conform to
any particular level of CPR or SPA.
The prospectus supplement with respect to each series of securities may
contain tables, if applicable, setting forth the projected weighted average life
of one or more classes of offered securities of the series and the percentage of
the initial principal balance of each class that would be outstanding on
specified remittance dates based on the assumptions stated in that prospectus
supplement, including assumptions that prepayments on the related Mortgage
Assets are made at rates corresponding to various percentages of CPR, SPA or at
other rates specified in the prospectus supplement. Tables and assumptions are
intended to illustrate the sensitivity of the weighted average life of the
securities to various prepayment rates and are not intended to predict or to
provide information that will enable investors to predict the actual weighted
average life of the securities. It is unlikely that prepayment of any Mortgage
Assets for any series will conform to any particular level of CPR, SPA or any
other rate specified in the related prospectus supplement.
TYPE OF MORTGAGE ASSET. The type of Mortgage Assets included in a trust
fund may affect the weighted average life of the related securities. A number of
Mortgage Assets may have balloon payments due at maturity, and because the
ability of a mortgagor to make a balloon payment typically will depend upon its
ability either to refinance the loan or to sell the related mortgaged property,
there is a risk that Mortgage Assets having balloon payments may default at
maturity, or that the servicer may extend the maturity of the Mortgage Asset in
connection with a workout. In addition, a number of Mortgage Assets may be
junior mortgage loans. The rate of default on junior mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the mortgagor or adverse conditions in the
market where the property is located. In order to minimize losses on defaulted
Mortgage Assets, the servicer may, to the extent and under the circumstances set
forth in this prospectus and in the related servicing agreement, be permitted to
modify Mortgage Assets that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Asset will tend to extend the weighted average life of
the securities, thereby lengthening the period of time elapsed from the date of
issuance of a security until it is retired.
Although the interest rates on ARM Loans will be subject to periodic
adjustments, adjustments generally will, unless otherwise specified in the
related prospectus supplement, (1) not increase or decrease the interest rate by
more than a fixed percentage amount on each adjustment
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date, (2) not increase the interest rate over a fixed percentage amount during
the life of any ARM Loan and (3) be based on an index, which may not rise and
fall consistently with the mortgage interest rate, plus the related fixed
percentage set forth in the related mortgage note, which may be different from
margins being used at the time for newly originated adjustable rate mortgage
loans. As a result, the interest rates on the ARM Loans in a mortgage pool at
any time may not equal the prevailing rates for similar, newly originated
adjustable rate mortgage loans. In certain rate environments, the prevailing
rates on fixed rate mortgage loans may be sufficiently low in relation to the
then-current mortgage rates on ARM Loans with the result that the rate of
prepayments may increase as a result of refinancings. There can be no certainty
as to the rate of prepayments on the Mortgage Assets during any period or over
the life of any series of securities.
The interest rates on ARM Loans subject to negative amortization generally
adjust monthly and their amortization schedules adjust less frequently. During a
period of rising interest rates, as well as immediately after origination when
initial interest rates are generally lower than the sum of the indices
applicable at origination and the related margins, the amount of interest
accruing on the principal balance of these types of Mortgage Assets may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing Mortgage Assets may
become deferred interest which will be added to the principal balance thereof
and will bear interest at the applicable interest rate. The addition of any
deferred interest to the principal balance of any related class or classes of
securities of a series will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which the
securities were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on the ARM Loan
would exceed the amount of scheduled principal and accrued interest on the
principal balance thereof, and since such excess will be applied to reduce the
principal balance of the related class or classes of securities, the weighted
average life of the securities will be reduced which may adversely affect yield
to holders thereof, depending upon the price at which such securities were
purchased.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the Mortgage Assets that are foreclosed in relation to the
number of Mortgage Assets that are repaid in accordance with their terms will
affect the weighted average life of those Mortgage Assets and that of the
related series of securities. Servicing decisions made with respect to the
Mortgage Assets, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Assets in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Assets
and thus the weighted average life of the securities.
DUE-ON-SALE CLAUSES. Acceleration of mortgage payments as a result of
certain transfers of or the creation of encumbrances upon underlying mortgaged
property is another factor affecting prepayment rates that may not be reflected
in the prepayment standards or models used in the relevant prospectus
supplement. In most cases the Mortgage Assets will include "due-on-sale" clauses
that permit the lender to accelerate the maturity of the loan if the borrower
sells, transfers or conveys the property. The servicer, on behalf of the trust
fund, will employ its usual practices in determining whether to exercise any
right that the trustee may have as mortgagee to accelerate payment of the
Mortgage Asset. An ARM Loan may be assumable under some conditions if the
proposed transferee of the related mortgaged property establishes its ability to
repay the Mortgage Asset and, in the reasonable judgment of the servicer or the
related sub-servicer, the security for the
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ARM Loan would not be impaired by the assumption. The extent to which ARM Loans
are assumed by purchasers of the mortgaged properties rather than prepaid by the
related mortgagors in connection with the sales of the mortgaged properties will
affect the weighted average life of the related series of securities. SEE "LEGAL
ASPECTS OF MORTGAGE ASSETS--ENFORCEABILITY OF CERTAIN PROVISIONS" AND
"DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS--DUE-ON-SALE PROVISIONS".
THE DEPOSITOR
Superior Bank FSB, the depositor, is a federally chartered stock savings
bank acquired by Coast to Coast Financial Corporation, a Nevada corporation, on
December 30, 1988. The deposits of the depositor are insured by the Savings
Association Insurance Fund of the FDIC. The depositor is a member of the Federal
Home Loan Bank of Chicago and is subject to regulation, examination and
supervision by the Office of Thrift Supervision and the FDIC. The depositor
maintains its principal office at One Lincoln Centre, Oakbrook Terrace, Illinois
60181 and administrative offices for the consumer finance operations of the
depositor at 135 Chestnut Ridge Road, Montvale, New Jersey 07645. In the near
future, most likely within six months of the date of this prospectus, the
depositor's consumer finance operations will be relocated to 1 Ramland Road,
Orangeburg, New York. The telephone number of the principal office of the
Depositor is (708) 916-4000 and the telephone number of its administrative
offices is currently (201) 930-1500.
On November 30, 1992, the depositor acquired by merger the mortgage
origination and servicing operating assets utilized by Alliance Funding Company,
Inc., a Delaware corporation, and its subsidiaries in mortgage origination and
servicing activities. Effective December 1, 1992 mortgage origination and
servicing activities historically conducted by Alliance Funding Company, Inc.
and its mortgage banking and servicing subsidiaries began to be conducted by two
new divisions of the depositor. These new divisions are the Alliance Funding
Division, primarily engaged in mortgage origination, and the Servicing Division,
primarily engaged in mortgage servicing. As of the effective date, the senior
officers of Alliance Funding Company, Inc. became senior officers of the
Alliance Funding Division with direct responsibility for the operations of the
new Alliance Funding Division and the Servicing Division.
The depositor originates mortgage loans (including the Mortgage Assets) on
residential and multifamily dwellings nationwide; purchases mortgage loans from
lenders, mortgage bankers, and brokers on a wholesale basis; assembles and sells
pools of mortgages to commercial banks and other financial institutions; and
services the mortgage portfolios it has placed with investors. Each prospectus
supplement will contain information, as of the date of such prospectus
supplement, with respect to the underwriting criteria of the depositor.
DESCRIPTION OF THE SECURITIES
The securities will be issued in series. As used herein with respect to any
series, the term "certificate" or the term "note" refers to all of the
certificates or notes of that series, whether or not offered hereby and by the
related prospectus supplement, unless the context otherwise requires.
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The certificates of each series, including any class of certificates not
offered hereby, will be issued in fully registered form only and will represent
the entire beneficial ownership interest in the trust fund created pursuant to
the related pooling and servicing agreement. The notes of each series, including
any class of notes not offered hereby, will be issued in fully registered form
only and will represent indebtedness of the trust fund created pursuant to the
related indenture.
If so provided in the prospectus supplement, any class of securities of any
series may be represented by a certificate or note registered in the name of a
nominee of The Depository Trust Company. The interests of beneficial owners of
securities registered in the name of DTC will be represented by entries on the
records of participating members of DTC. Definitive certificates or notes will
be available for securities registered in the name of DTC only under the limited
circumstances provided in the related prospectus supplement. The securities will
be transferable and exchangeable for like securities of the same class and
series in authorized denominations at the corporate trust office of the trustee
as specified in the related prospectus supplement. The prospectus supplement for
each series of securities will describe any limitations on transferability. No
service charge will be made for any registration of exchange or transfer of
securities, but the depositor or the trustee or any agent of the trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
Each series of securities may consist of either:
o a single class of securities evidencing the entire beneficial
ownership of or indebtedness of the related trust fund;
o two or more classes of securities evidencing the entire beneficial
ownership of or indebtedness of the related trust fund, one or more
classes of which will be senior in right of payment to one or more of
the other classes to the extent described in the related prospectus
supplement;
o two or more classes of securities, one or more classes of which are
entitled to (a) principal distributions, with disproportionate,
nominal or no interest distributions or (b) interest distributions,
with disproportionate, nominal or no principal distributions;
o two or more classes of securities which differ as to timing,
sequential order, priority of payment, security interest rate or
amount of distributions of principal or interest or both, or as to
which distributions of principal or interest or both on any class may
be made upon the occurrence of specified events, in accordance with a
schedule or formula, or on the basis of collections from designated
portions of the mortgage pool, which series may include one or more
classes of securities, as to which accrued interest or a portion
thereof will not be distributed but rather will be added to the
principal balance of the security on each distribution date in the
manner described in the related prospectus supplement; and
o other types of classes of securities, as described in the related
prospectus supplement.
With respect to any series of notes, the equity certificates, insofar as
they represent the beneficial ownership interest in the issuer, will be
subordinate to the related notes.
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Each class of securities, other than some Strip Securities, will have a
stated principal amount and, unless otherwise provided in the related prospectus
supplement, will be entitled to payments of interest on the stated principal
amount based on a fixed, variable or adjustable security interest rate. SEE
"-DISTRIBUTION OF INTEREST ON THE SECURITIES" AND "-DISTRIBUTION OF PRINCIPAL OF
THE SECURITIES" BELOW.
The specific percentage ownership interest of each class of securities and
the minimum denomination for each security will be set forth in the related
prospectus supplement.
DISTRIBUTIONS ON THE SECURITIES
Distributions allocable to principal and interest on the securities of each
series will be made by or on behalf of the trustee each month on each date as
specified in the related prospectus supplement and referred to as a "remittance
date", commencing with the month following the month in which the applicable
cut-off date occurs. Distributions will be made to the persons in whose names
the securities are registered at the close of business on the Record Date. The
amount of each distribution will be determined as of the close of business on
the date specified in the related prospectus supplement and referred to as the
"determination date". All distributions with respect to each class of securities
on each remittance date will be allocated pro rata among the outstanding
securities in that class. Payments will be made either by wire transfer in
immediately available funds to the account of a securityholder at a bank or
other entity having appropriate facilities therefor, if the securityholder has
so notified the depositor or its designee no later than the date specified in
the related prospectus supplement and, if so provided in the related prospectus
supplement, holds securities in the requisite amount specified therein, or by
check mailed to the address of the person entitled thereto as it appears on the
security register maintained by the trustee or its agent; provided, however,
that the final distribution in retirement of the securities will be made only
upon presentation and surrender of the securities at the office or agency of the
trustee or its agent specified in the notice to securityholders of the final
distribution. With respect to each series of certificates or notes, the security
register will be referred to as the "certificate register" or "note register",
respectively.
DISTRIBUTIONS OF INTEREST ON THE SECURITIES. Each class of securities may
earn interest at a different rate, which may be a fixed, variable or adjustable
security interest rate. The related prospectus supplement will specify the
security interest rate for each class, or, in the case of a variable or
adjustable security interest rate, the method for determining the security
interest rate. The security interest rate of each security offered hereby will
be stated in the related prospectus supplement as the "pass-through rate" with
respect to a certificate and the "note interest rate" with respect to a note.
Unless otherwise specified in the related prospectus supplement, interest on the
securities will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
With respect to each series of securities and each remittance date, the
distribution in respect of interest on each security, other than some classes of
Accrual Securities and Strip Securities, will be equal to the interest accrued
during the related interest accrual period on the outstanding principal balance
of the security immediately prior to the remittance date, at the applicable
security interest rate. As to each Strip Security with no or, in some cases, a
nominal principal balance, the distributions in respect of interest on any
distribution date will be on the basis of a notional amount and equal one
month's Stripped Interest. The method of determining the notional amount for a
class
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of Strip Securities will be described in the related prospectus supplement.
Reference to notional amount is solely for convenience in certain calculations
and does not represent the right to receive any distribution of principal. Prior
to the time interest is distributable on any class of Accrual Securities,
interest accrued on that class will be added to the principal balance thereof on
each remittance date. Interest distributions on a series of securities will be
reduced in the event of shortfalls in collections of interest resulting from
prepayments on mortgage loans unless the servicer is obligated to cover the
shortfalls from its own funds up to its servicing fee for the related due
period. The particular manner in which interest shortfalls are to be allocated
among some or all of the classes of securities of a series will be specified in
the related prospectus supplement. The related prospectus supplement will also
describe the extent to which the amount of accrued interest that is otherwise
distributable on, or in the case of Accrual Securities added to the principal
balance of, a class of offered securities may be reduced as a result of other
contingencies, such as applicable law, delinquencies, losses and deferred
interest on or in respect of the Mortgage Assets in the related trust fund. With
respect to each series of certificates or notes, the interest distributions
payable will be referred to in the applicable prospectus supplement as the
"accrued certificate interest" or "accrued note interest", respectively. SEE
"YIELD CONSIDERATIONS".
DISTRIBUTIONS OF PRINCIPAL OF THE SECURITIES. The principal balance of a
security, at any time, will equal the maximum amount that the holder will be
entitled to receive in respect of principal out of the future cash flow on the
Mortgage Assets and other assets included in the related trust fund. The
principal balance of each security offered hereby will be stated in the related
prospectus supplement as the "certificate principal balance" with respect to a
certificate and the "note balance" with respect to a note. With respect to each
security, distributions generally will be applied to undistributed accrued
interest thereon, and thereafter to principal. The outstanding principal balance
of a security will be reduced to the extent of distributions of principal
thereon, and if and to the extent so provided in the related prospectus
supplement, by the amount of any realized losses, allocated thereto. The
outstanding principal balance of a security may be increased by any deferred
interest if so specified in the related prospectus supplement. The initial
aggregate principal balance of a series and each class of securities related to
a series will be specified in the related prospectus supplement. Distributions
of principal will be made on each remittance date to the class or classes of
securities entitled thereto until the principal balance of that class has been
reduced to zero. With respect to a Senior/Subordinate Series, distributions
allocable to principal of a class of securities will be based on the percentage
interest in the related trust fund evidenced by the class, which in turn will be
based on the principal balance of that class as compared to the principal
balance of all classes of securities of the series. Distributions of principal
of any class of securities will be made on a pro rata basis among all of the
securities of that class. Strip Securities with no principal balance will not
receive distributions of principal.
ALLOCATION TO SECURITYHOLDERS OF LOSSES AND SHORTFALLS. With respect to any
defaulted mortgage loan that is finally liquidated, through foreclosure sale or
otherwise, the amount of the realized loss incurred in connection with
liquidation will equal the excess, if any, of the unpaid principal balance of
the liquidated loan immediately prior to liquidation, over the aggregate amount
of Liquidation Proceeds derived from liquidation remaining after application of
the proceeds to unpaid accrued interest on the liquidated loan and to reimburse
the servicer or any sub-servicer for related unreimbursed servicing expenses.
With respect to mortgage loans the principal balances of which have been reduced
in connection with bankruptcy proceedings, the amount of that reduction also
will be treated as a realized loss. As to any series of securities, other than a
Senior/Subordinate
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Series, any realized loss not covered as described under "Description of Credit
Support" will be allocated among the securities in the manner specified in the
related prospectus supplement. As to any Senior/Subordinate Series, realizes
losses will be allocated first to the most subordinate class of securities as
described below under "Description of Credit Support--Subordination. "
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on a series of
securities, based upon the assumption that such securities will be issued in
June 199_ and that the remittance date is the twenty-fifth day of each month:
June 1, 199_........................... Cut-off date. The original pool
principal balance will be the
aggregate principal balances of the
Mortgage Assets as of the cut-off
date after application of all
payments due and collected on such
date.
June 2-July 1, 199_.................... Collection period. The servicer or the
sub-servicers remit for deposit in
the principal and interest account
all amounts received on account of
the Mortgage Assets.
June 30, 199_.......................... Record date (the last day of the month
immediately preceding the month of
the related remittance date).
Distributions on July 25, 199_ will
be made to securityholders of record
at the close of business on June 30,
199_.
July 22, 199_.......................... Determination date (E.G., the day of
the month which is at least two
business days prior to the remittance
date). The servicer determines the
amount of principal and interest that
will be distributed to the
securityholders on July 25, 199_, and
transfers funds in the principal and
interest account to the certificate
account together with any monthly
advances and compensating interest.
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Not later than 10:00 a.m., New York
time, on July 24, 199_............... If applicable, notice in the event that
an event of default has occurred with
respect to such remittance date is
given by the trustee. The trustee
will notify the servicer and the
provider of the credit support of the
amount of credit support, if any,
required to be distributed to the
securityholders on July 25, 199_.
July 25, 199_.......................... Remittance date (E.G., the 25th day of
the month or if such 25th day is not
a business day, the first business
day immediately following). The
trustee or its designee will
distribute to securityholders the
amounts required to be distributed
pursuant to the related pooling and
servicing agreement or indenture.
MONTHLY ADVANCES BY SERVICER IN RESPECT OF DELINQUENCIES ON THE MORTGAGE ASSETS
With respect to any series of securities, the servicer will be required as
part of its servicing responsibilities to advance on or before each remittance
date its own funds or funds held in the principal and interest account that are
not included in the amount available for that remittance date, an amount equal
to the aggregate of payments of interest, net of related servicing fees that
were due during the related Due Period and were delinquent on the related
determination date, and, with respect to each REO Property which was acquired
during or prior to the related Due Period and which was not disposed of during
such Due Period, an amount equal to the excess, if any, of interest on the
principal balance deemed to apply to such REO Property for the most recently
ended calendar month at the related interest rate, net of the related servicing
fees, over the net income from such property for such month, subject to the
servicer's good faith determination that any monthly advances made will be
reimbursable from proceeds subsequently recovered on the Mortgage Asset related
to the advance.
Monthly advances are intended to maintain a regular flow of scheduled
interest to holders of the class or classes of securities entitled thereto,
rather than to guarantee or insure against losses. Monthly advances of the
servicer's funds will be reimbursable only out of late collections of interest
on the Mortgage Assets respecting which advances were made, including amounts
received under any form of credit support; provided, however, that any monthly
advance will be reimbursable from any amounts in the certificate account, after
distributions to securityholders, to the extent that the servicer shall
determine that the monthly advance is not ultimately recoverable from late
collections of interest. If monthly advances have been made by the servicer from
excess funds in the principal and interest account, the servicer will replace
such funds in the principal and interest account on any future distribution date
to the extent that funds in the certificate account on that remittance date are
less than payments required to be made to securityholders on that date. If so
specified in the related prospectus supplement, the obligations of the servicer
to make monthly advances may be secured by a cash advance reserve fund or a
surety bond. If applicable, information regarding the
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characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
COMPENSATING INTEREST
With respect to each Mortgage Asset in the related trust fund for which a
principal prepayment in full or in part was received during a Due Period, the
servicer will be required, if so specified in the related prospectus supplement,
to remit to the trustee for deposit in the certificate account, from and to the
extent of amounts otherwise payable to it as servicing compensation, an amount
equal to the difference between (a) 30 days' interest on the principal balance
of that Mortgage Asset as of the beginning of the related Due Period at the rate
at which interest accrues on that Mortgage Asset, net of the per annum rate at
which the servicer's servicing fee accrues, and (b) the amount of interest
actually received on that Mortgage Asset for the Due Period, net of the
servicer's servicing fees. This difference is referred to in this prospectus as
"compensating interest".
FORM OF REPORTS TO SECURITYHOLDERS
With each distribution to holders of any class of securities of a series,
the servicer or the trustee, will forward or cause to be forwarded to each
securityholder, to the depositor and to any other parties as may be specified in
the related servicing agreement, a statement setting forth the following as of
the remittance date:
(1) the amount of the distribution to holders of securities of that
class applied to reduce the principal balance of the securities;
(2) the amount of the distribution to holders of securities of that
class allocable to interest;
(3) the amount of related administration or servicing compensation
received by the trustee or the servicer and any sub-servicer and any other
customary information as the servicer deems necessary or desirable, or that
a securityholder reasonably requests, to enable securityholders to prepare
their tax returns;
(4) the amount available for distribution to securityholders for that
remittance date;
(5) if applicable, the aggregate amount of advances and compensating
interest included in the distribution;
(6) the aggregate principal balance of the Mortgage Assets at the
close of business on that remittance date;
(7) the aggregate amount of principal and interest received on the
Mortgage Assets during the related Due Period;
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(8) the number and aggregate principal balance of Mortgage Assets (a)
delinquent one month, (b) delinquent two or more months, and (c) as to
which foreclosure proceedings have been commenced;
(9) with respect to any mortgaged property acquired on behalf of
securityholders through foreclosure or deed in lieu of foreclosure during
the preceding calendar month, the principal balance of the related Mortgage
Asset as of the close of business on the remittance date in such month;
(10) the aggregate principal balance of each class of securities
(including any class of securities not offered hereby) at the close of
business on that remittance date, separately identifying any reduction in
the principal balance due to the allocation of any realized loss and any
increase in the principal balance of a class of Accrual Securities in the
event accrued interest has been added to that balance;
(11) the amount of any special hazard realized losses allocated to the
subordinate securities, if any, at the close of business on that remittance
date;
(12) the amount deposited in the reserve fund, if any, on that
remittance date;
(13) the amount remaining in the reserve fund, if any, as of the close
of business on that remittance date;
(14) the aggregate unpaid accrued interest, if any, on each class of
securities at the close of business on that remittance date;
(15) in the case of securities that accrue interest at the variable
rate, the security interest rate applicable to that remittance date, as
calculated in accordance with the method specified in the related
prospectus supplement; and
(16) as to any series which includes credit support, the amount of
coverage of each instrument of credit support included in the trust fund as
of the close of business on that distribution date.
In the case of information furnished pursuant to subclauses (1)-(3) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
securities or for such other specified portion thereof. With respect to each
series of certificates or notes, securityholders will be referred to as the
"certificateholders" or the "noteholders", respectively.
Within a reasonable period of time after the end of each calendar year, the
servicer or the trustee, as provided in the related prospectus supplement, shall
furnish to each person who at any time during the calendar year was a holder of
a security a statement containing the information set forth in subclauses
(1)-(4) above, aggregated for such calendar year or the applicable portion
thereof during which that person was a securityholder. This obligation of the
servicer or the trustee shall be deemed to have been satisfied to the extent
that substantially comparable information shall be provided by the servicer or
the trustee pursuant to any requirements of the Code as are from time to time in
force.
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TERMINATION OF THE TRUST FUND AND DISPOSITION OF TRUST FUND ASSETS
The obligations created by the governing agreements for each series of
securities will terminate upon the earlier to occur of the following:
o the final payment or other liquidation of the last trust fund asset subject
thereto or the disposition of all underlying property subject to the last
trust fund asset acquired upon foreclosure of that trust fund asset,
o the mutual consent of the servicer, the provider of credit support, if any,
and all securityholders in writing, and
o the purchase of all of the assets of the trust fund by the party entitled
to effect the termination, under the circumstances and in the manner set
forth in the related prospectus supplement.
In no event, however, will the trust created by the related agreements
continue beyond twenty-one years after the death of the last surviving lineal
descendant of the person named in the related agreement, alive as of the cut-off
date. Written notice of termination of the related agreements will be given to
each securityholder, and the final distribution will be made only upon surrender
and cancellation of the securities at an office or agency appointed by the
trustee which will be specified in the notice of termination.
Any purchase of all of the assets of the trust fund as described above
shall be made at the price set forth in the related prospectus supplement which
will generally be equal to sum of (a) 100% of the principal balance of each
Mortgage Asset as of the day of the purchase plus accrued interest thereon at
the applicable interest rate, net of the rate at which the servicing fee is
calculated if the servicer is the purchasing party, to the first day of the
month following the purchase plus (b) the appraised value of any underlying
property subject to the Mortgage Assets acquired for the benefit of
securityholders.
In connection with any purchase of all of the assets of the trust fund, the
purchasing party will also pay the outstanding fees and expenses of the trustee
and the provider of credit support. The purchase price for termination in this
manner will be reduced by amounts on deposit in the principal and interest
account and certificate account that would have constituted part of the amount
available for distribution to holders of the securities for subsequent
remittance dates absent such purchase. The exercise of an optional termination
right will effect early retirement of the securities of that series, but the
right of the person entitled to effect the termination is subject to the
aggregate principal balance of the outstanding Mortgage Assets for the series at
the time of purchase being less than the percentage specified in the related
prospectus supplement of the aggregate principal balance of the Mortgage Assets
at the cut-off date for that series, which percentage will be between 25% and
0%.
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DESCRIPTION OF THE AGREEMENTS
Each series of certificates evidencing interests in a trust fund will be
issued in accordance with a pooling and servicing agreement among the depositor,
the servicer and the trustee named in the prospectus supplement. Each series of
notes evidencing indebtedness of a trust fund will be issued in accordance with
an indenture between the related issuer and the trustee named in the prospectus
supplement. The issuer of notes will be the depositor or an owner trust
established under an owner trust agreement between the depositor and the owner
trustee for the purpose of issuing a series of notes. Where the issuer is an
owner trust, the ownership of the trust fund will be evidenced by equity
certificates issued under the owner trust agreement. The provisions of each
agreement will vary depending upon the nature of the securities to be issued
thereunder and the nature of the related trust fund. Various forms of pooling
and servicing agreement, servicing agreement, owner trust agreement, trust
agreement and indenture have been filed as exhibits to the registration
statement of which this prospectus is a part. The following summaries describe
specific provisions which may appear in each agreement. The prospectus
supplement for a series of securities will describe any provision of the
agreement relating to a series that materially differs from the description of
the agreement contained in this prospectus. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the related agreements for each trust fund and the
related prospectus supplement.
ASSIGNMENT OF MORTGAGE ASSETS; REPURCHASES
At the time of issuance of any series of securities, the depositor will
cause the Mortgage Assets included in the related trust fund to be assigned to
the trustee, together with all principal and interest received by or on behalf
of the depositor on or with respect to the Mortgage Assets after the cut-off
date, other than the Depositor's Yield and amounts received after the cut-off
date in respect of interest accrued on or prior to the cut-off date. The trustee
will, concurrently with this assignment, deliver the securities to the depositor
in exchange for the Mortgage Assets and the other assets constituting the trust
fund for the series. Each Mortgage Asset will be identified in a schedule
appearing as an exhibit to the related agreement. The Mortgage Asset schedule
will include detailed information in respect of each Mortgage Asset included in
the related trust fund, including without limitation, the address of the related
mortgaged property, the interest rate and, if applicable, the index, margin,
adjustment date and any rate cap information, the original and remaining term to
maturity, the original and outstanding principal balance and balloon payment, if
any, the appraised value, the loan-to-value ratio as of the date indicated and
the scheduled payment of principal and interest.
With respect to each mortgage loan, the depositor will, unless otherwise
provided in the related prospectus supplement, deliver or cause to be delivered
to the trustee, or to the custodian acting on behalf of the trustee, certain
loan documents, including the following:
o the mortgage note endorsed, without recourse, in blank or to the order
of the trustee,
o the Mortgage with evidence of recording indicated thereon,
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o an assignment of the Mortgage to the trustee with evidence of
recording thereon (except as otherwise set forth in the prospectus
supplement and except for any such assignment of Mortgage not returned
from the public recording office, or one or more blanket certificates
attaching copies of one or more assignments of mortgage relating
thereto where the original assignment is not being delivered to the
trustee) or an assignment of the Mortgage from the last assignee of
the Mortgage in blank,
o evidence of title insurance,
o intervening assignments of Mortgage, except for any such assignment of
the Mortgage that has been lost or has not been returned from the
public recording office, and
o any assumption and modification agreements.
In the event that, with respect to any mortgage loan, the depositor cannot
deliver the Mortgage or any assignment with evidence of recording thereon
concurrently with the execution and delivery of the agreement for any series
because they have been lost or have not yet been returned by the public
recording office, the depositor will deliver or cause to be delivered to the
trustee a certified true photocopy of the Mortgage or assignment. The depositor
will deliver or cause to be delivered to the trustee any such Mortgage or
assignment with evidence of recording indicated thereon upon receipt thereof
from the public recording office. Except as otherwise set forth in the
prospectus supplement, assignments of the Mortgage Assets to the trustee will be
recorded in the appropriate public office for real property records.
As to each manufactured home contract or home improvement contract, the
depositor will, unless otherwise provided in the related prospectus supplement,
deliver or cause to be delivered to the trustee, or to the custodian acting on
behalf of the trustee, certain documents including the following:
o the original contract endorsed, without recourse, to the order of the
trustee,
o instruments related to the contract and the security interest in the
property securing the contract, and
o a blanket assignment to the trustee of all contracts, documents and
instruments in the related trust fund. In order to give notice of the
right, title and interest of the securityholders to the contracts, the
depositor will cause to be executed and delivered to the trustee a
UCC-1 financing statement identifying the trustee as the secured party
and identifying all contracts as collateral.
The trustee will review (or cause to be reviewed) the documents delivered
to it within 45 days after the initial issuance of the securities of each
series, unless otherwise provided in the related prospectus supplement, to
ascertain that all required documents have been executed and received. If the
trustee or the provider of credit support, if applicable under the related
agreement, during the process of reviewing the documents delivered to it finds
any document constituting a part of a
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trustee's file to be missing or defective in any material respect, the trustee
or the provider of credit support, as applicable, shall promptly so notify the
depositor. If within 60 days, or such other date set forth in the prospectus
supplement, after the trustee's notice to it respecting such defect the
depositor has not remedied the defect and the defect materially and adversely
affects the interest of the holders of securities in the related Mortgage Asset
or the interests of the provider of credit support if applicable, the depositor
will, on the next succeeding determination date, either (1) substitute in lieu
of such Mortgage Asset a mortgage loan, or loans, or contract or contracts,
which meet certain criteria set forth in the related agreement or (2) purchase
the Mortgage Asset at a price equal to the principal balance of the Mortgage
Asset as of the date of purchase, plus all accrued and unpaid interest thereon
through the due date for such Mortgage Asset in the Due Period most recently
ended prior to the determination date computed at the interest rate plus the
amount of any unreimbursed servicing advances made by the Servicer. The purchase
price shall be deposited in the principal and interest account. In addition, if
the then aggregate outstanding principal balance of a substitute Mortgage Assets
is less than the principal balance of the Mortgage Asset to be replaced as of
the date of substitution plus accrued and unpaid interest thereon, deliver to
the trustee the amount of the shortfall.
Unless otherwise specified in the related prospectus supplement, this
repurchase or substitution obligation constitutes the sole remedy available to
holders of securities or the trustee for omission of, or a material defect in, a
constituent document.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
With respect to each Mortgage Asset included in the related trust fund, the
depositor will make or assign certain representations and warranties, as of a
specified date covering, by way of example, the following types of matters:
o the accuracy of the information set forth for such Mortgage Asset on
the Mortgage Asset schedule;
o the existence of title insurance insuring the lien priority of the
Mortgage Asset;
o the authority of the depositor to sell the Mortgage Asset;
o the payment status of the Mortgage Asset and the status of payments of
taxes, assessments and other charges affecting the related mortgaged
property;
o the existence of customary provisions in the related mortgage note and
Mortgage to permit realization against the mortgaged property of the
benefit of the security of the Mortgage; and
o the existence of hazard insurance coverage on the mortgaged property.
Unless otherwise provided in the related prospectus supplement, in the
event of a breach of any such representation or warranty, the warranting party
will be obligated to cure the breach or repurchase or replace the affected
Mortgage Asset as described below. Since the representations and warranties may
not address events that may occur following the date as of which they were made,
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the warranting party will have a cure, repurchase or substitution obligation in
connection with a breach of such a representation and warranty only if the
relevant event that causes the breach occurs prior to that date. Such party will
have no repurchase obligations if the relevant event that causes the breach
occurs after the date. However, the depositor will not include any Mortgage
Asset in the trust fund for any series of securities if it knows that a
representation and warranty regarding that Mortgage Asset is not accurate and
complete in all material respects as of the date of initial issuance of the
related series of securities.
The related agreement will provide that the servicer and/or trustee will be
required to notify promptly the relevant warranting party of any breach of any
representation or warranty made by or on behalf of it in respect of a Mortgage
Asset that materially and adversely affects the value of the Mortgage Asset or
the interests therein of the securityholders. If the warranting party cannot
cure the breach within 60 days following the date on which the warranting party
discovered the breach or was notified of the breach, then the warranting party
will be obligated to, on the determination date next succeeding the end of the
60 day period, either (i) repurchase the Mortgage Asset from the trustee at the
Purchase Price therefor or (ii) replace such Mortgage Asset with one or more
qualified substitute Mortgage Assets, provided that, if a REMIC election has
been made with respect to the trust fund, such substitution must be made within
two years of the date of initial issuance of the securities, plus permissible
extensions. If the aggregate outstanding balance of a qualified substitute
Mortgage Asset is less than the outstanding principal balance of the defective
Mortgage Asset plus accrued and unpaid interest thereon, the warranting party
will also remit for distribution to the holders of securities an amount equal to
the shortfall. This repurchase or substitution obligation will constitute the
sole remedy available to holders of securities or the trustee for a breach of
representation by a warranting party.
Neither the depositor nor the servicer (except to the extent that it is the
warranting party) will be obligated to purchase or substitute for a Mortgage
Asset if a warranting party defaults on its obligation to do so, and no
assurance can be given that warranting parties will carry out such obligations
with respect to a Mortgage Asset.
A servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related agreement. Upon a breach of any representation of the servicer which
materially and adversely affects the interests of the securityholders, the
servicer will be obligated to cure the breach in all material respects.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT
The servicer will, as to each trust fund, establish and maintain or cause
to be established and maintained a principal and interest account for the
collection of payments on the related Mortgage Assets. Each principal and
interest account must be an eligible account which means it must be either (1)
an account or accounts maintained with an institution whose deposits are insured
by the FDIC, the unsecured and uncollateralized debt obligations of which shall
be rated "A" or better by Standard and Poor's, a Division of the McGraw-Hill
Companies, Inc., and A2 or better by Moody's Investors Service, Inc. and in one
of the two highest short-term rating categories by S&P and in the highest
short-term rating category by Moody's and which is either:
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o a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws,
o an institution duly organized, validly existing and in good standing
under the applicable banking laws of any state,
o a national banking association duly organized, validly existing and in
good standing under the federal banking laws,
o a principal subsidiary of a bank holding company, or
o if required by the related agreement, approved in writing by the
provider of credit support
or (2) a trust account or accounts maintained with the trust department of
a federal or state chartered depository institution or trust company, having
capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity. Amounts on deposit in the principal and interest account may be
invested in certain high quality permitted instruments. Unless otherwise
provided in the related prospectus supplement, any interest or other income
earned on funds in the principal and interest account will be paid to the
servicer or its designee as additional servicing compensation and the servicer
shall be responsible for any net losses thereon. The principal and interest
account may be maintained with an institution that is an affiliate of the
servicer, provided that such institution meets the standards set forth above. If
permitted by each rating agency and so specified in the related prospectus
supplement, a principal and interest account may contain funds relating to more
than one series of securities and may contain other funds respecting payments on
mortgage loans belonging to the servicer or serviced or master serviced by it on
behalf of others.
The servicer will deposit or cause to be deposited in the principal and
interest account for each trust fund within one business day of receipt of good
funds, unless otherwise provided in the agreement and described in the related
prospectus supplement, the following payments and collections received by the
servicer or on its behalf subsequent to the cut-off date:
(1) all payments on account of principal, including principal
prepayments and other excess payments of principal, on the Mortgage Assets,
net of the Depositor's Yield, if any;
(2) all payments on account of interest on the Mortgage Assets,
net of amounts received after the cut-off date in respect of interest
accrued on the Mortgage Assets on or prior to the cut-off date;
(3) all proceeds of the hazard insurance policies, other than
amounts to be applied to the restoration or repair of the property or
released to the mortgagor in accordance with the normal servicing
procedures of the servicer or the related sub-servicer, subject to the
terms and conditions of the related Mortgage and mortgage note,
(4) all proceeds from any FHA insurance,
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(5) any proceeds received in connection with the taking of an
entire mortgaged property by exercise of the power of eminent domain or
condemnation or any release of a part of the mortgaged property from the
lien of the related Mortgage, whether by partial condemnation, sale or
otherwise, and
(6) all amounts received and retained in connection with the
liquidation of defaulted Mortgage Assets, by foreclosure or otherwise net
of fees and advances reimbursable therefrom plus the net proceeds on a
monthly basis with respect to any mortgaged properties acquired for the
benefit of securityholders by foreclosure or by deed- in-lieu of
foreclosure or otherwise;
(7) all proceeds of any Mortgage Asset or property in respect
thereof purchased by the warranting party as described under "Description
of the Pooling and Servicing Agreements-- Assignment of Mortgage Loans;
Repurchases" and "--Representations and Warranties; Repurchases" in respect
of that Mortgage Asset;
(8) all payments required to be deposited in the principal and
interest account with respect to any deductible clause in any blanket
insurance policy described under "--Hazard Insurance Policies"; and
(9) any amount required to be deposited by the servicer in
connection with net losses realized on investments of funds held in the
principal and interest account in permitted instruments.
Unless otherwise specified in the related prospectus supplement, the
foregoing requirements for deposit in the principal and interest account may be
net of any portion thereof retained by the servicer as its servicing
compensation which need not, to the extent permitted by the related servicing
agreement, be deposited in the principal and interest account. See "Description
of the Pooling and Servicing Agreements--Servicing and Other Compensation and
Payment of Expenses".
DEPOSITS TO CERTIFICATE ACCOUNT
The trustee will, as to each trust fund, establish and maintain or
cause to be established and maintained a certificate account which must be an
eligible account.
The trustee will deposit or cause to be deposited in the certificate
account for each trust fund, unless otherwise provided in the servicing
agreement and described in the related prospectus supplement, the following
amounts received subsequent to the cut-off date:
(1) all amounts transferred to the trustee by the servicer from
the principal and interest account;
(2) any monthly advances and compensating interest remitted to
the trustee by the servicer as described under "Description of the
Certificates--Monthly Advances in respect of Delinquencies--Compensating
Interest";
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(3) any amounts paid under any instrument or drawn from any fund
that constitutes credit support for the related series of securities as
described under "Description of Credit Support";
(4) all income or gain from investments of funds on deposit in
the certificate account and any amount required to be deposited by the
servicer in connection with net losses realized on investments of funds in
the certificate account; and
(5) the purchase price received for the Mortgage Assets upon
termination of the trust fund.
PRE-FUNDING ACCOUNT
If so provided in the related prospectus supplement, the original principal
amount of a series of securities may exceed the principal balance of the
Mortgage Assets initially being delivered to the trustee. Cash in an amount
equal to such difference will be deposited into a separate trust account
maintained with the trustee. During the period set forth in the related
prospectus supplement, amounts on deposit in the pre-funding account may be used
to purchase additional Mortgage Assets for the related trust fund. Such
additional Mortgage Assets will be required to conform to the requirements set
forth in the related prospectus supplement and pooling and servicing agreement
or indenture. Any amounts remaining in the pre-funding account at the end of
such period will be distributed as a principal prepayment to the holders of the
related series of securities at the time and in the manner set forth in the
related prospectus supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
The servicer, directly or through sub-servicers, will make reasonable
efforts to collect all scheduled payments under the Mortgage Assets and will
follow or cause to be followed the collection procedures as it would follow with
respect to Mortgage Assets that are comparable to the Mortgage Assets and held
for its own account, provided these procedures are consistent with the related
servicing agreement and any related insurance policy, bankruptcy bond, letter of
credit or other insurance instrument described under "Description of Primary
Insurance Policies" or "Description of Credit Support".
The servicer will be required to perform the customary functions of a
servicer of comparable loans, including the following:
o collecting payments from mortgagors,
o maintaining hazard insurance policies as described herein and in any
related prospectus supplement and filing and settling claims
thereunder,
o maintaining escrow or impoundment accounts of mortgagors for payment
of taxes, insurance and other items required to be paid by any
mortgagor pursuant to the terms of the Mortgage Asset,
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o processing assumptions or substitutions, although, unless otherwise
specified in the related prospectus supplement, the servicer is
generally required to exercise due-on-sale clauses to the extent such
exercise is permitted by law and would not adversely affect insurance
coverage,
o attempting to cure delinquencies,
o supervising foreclosures, and
o maintaining accounting records relating to the Mortgage Assets.
The servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Assets.
Consistent with the foregoing, the servicer may at its own discretion waive any
late payment charge, prepayment charge, assumption fee or any penalty interest
in connection with the prepayment of a Mortgage Asset or any other fee or charge
which the servicer would be entitled to retain as servicing compensation and may
waive, vary or modify any term of any Mortgage Asset or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any mortgagor, subject to the limitations set forth in the related
servicing agreement. In the event the servicer consents to the deferment of the
due dates for payments due on a mortgage note, the servicer will nonetheless
make payment of any required monthly advances with respect to the payments so
extended to the same extent as if such installment were due, owing and
delinquent and had not been deferred.
Under a servicing agreement, a servicer will be granted some discretion to
extend relief to mortgagors whose payments become delinquent. A servicer may,
among other things, grant a period of temporary indulgence (generally up to four
months) to a mortgagor or may enter into a plan providing for repayment by such
mortgagor of delinquent amounts within a specified period (generally up to one
year) from the date of execution of the plan. However, unless otherwise
specified in the related prospectus supplement, the servicer must first
determine that any waiver or extension will not impair the coverage of any
related insurance policy or materially adversely affect the security for the
mortgage loan or contract. In addition, unless otherwise specified in the
related prospectus supplement, if a material default occurs or a payment default
is reasonably foreseeable, the servicer will be permitted, subject to any
specific limitations set forth in the related servicing agreement and described
in the related prospectus supplement, to modify, waive or amend any term of the
mortgage loan, including deferring payments, extending the stated maturity date
or otherwise adjusting the payment schedule, provided that such modification,
waiver or amendment (1) is reasonably likely to produce a greater recovery with
respect to such Mortgage Asset on a present value basis than would liquidation
and (2) will not adversely affect the coverage under any applicable credit
enhancement.
In the case of multifamily loans or commercial loans, a mortgagor's failure
to make scheduled payments may mean that operating income is insufficient to
service the mortgage debt, or may reflect the diversion of that income from the
servicing of the mortgage debt. In addition, a mortgagor under a multifamily
loan or a commercial loan that is unable to make scheduled payments may also be
unable to make timely payment of all required taxes and otherwise to maintain
and insure the related mortgaged property. In general, the servicer will be
required to monitor any multifamily loan or commercial loan that is in default,
evaluate whether the causes of
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the default can be corrected over a reasonable period without significant
impairment of the value of the related mortgaged property, initiate corrective
action in cooperation with the mortgagor if cure is likely, inspect the related
mortgaged property and take such other actions as are consistent with the
related servicing agreement. A significant period of time may elapse before the
servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the servicer can make the
initial determination of appropriate action, evaluate the success of corrective
action, develop additional initiatives, institute foreclosure proceedings and
actually foreclose (or accept a deed to a mortgaged property in lieu of
foreclosure) on behalf of the securityholders of the related series may vary
considerably depending on the particular multifamily loan or commercial loan,
the mortgaged property, the mortgagor, the presence of an acceptable party to
assume the multifamily loan or commercial loan and the laws of the jurisdiction
in which the mortgaged property is located.
If a mortgagor files a bankruptcy petition, the servicer may not be
permitted to accelerate the maturity of the related Mortgage Asset or to
foreclose on the mortgaged property for a considerable period of time. SEE
"LEGAL ASPECTS OF MORTGAGE ASSETS."
SERVICING ADVANCES
In the course of performing its servicing obligations, the servicer will,
unless otherwise specified in the related prospectus supplement, pay all
reasonable and customary "out of pocket" costs and expenses incurred in the
performance of its servicing obligations in accordance with the general
servicing standards described above, which costs and expenses may include the
cost of the following:
o the preservation, restoration and protection of mortgaged properties,
including advances in respect of real estate taxes and assessments and
insurance premiums on fire, hazard, flood and FHA insurance policies,
o any enforcement or judicial proceedings, including foreclosures,
o the management and liquidation of mortgaged property acquired in
satisfaction of the related Mortgage Asset and
o in connection with the liquidation of a Mortgage Asset, expenditures
relating to the purchase or maintenance of the first lien.
Each of these types of expenditures will constitute a "servicing advance".
Unless otherwise specified in the related prospectus supplement, the
servicer may recover servicing advances, if not theretofore recovered from the
mortgagor on whose behalf the servicing advance was made, from late collections
on the related Mortgage Asset, including Liquidation Proceeds, Released
Mortgaged Property Proceeds, Insurance Proceeds and such other amounts as may be
collected by the servicer from the mortgagor or otherwise relating to the
Mortgage Asset. To the extent the servicer, in its good faith business judgment,
determines that such servicing advances will not be ultimately recoverable from
late collections, Insurance Proceeds, Released Mortgaged Property Proceeds or
Liquidation Proceeds on the related Mortgage Assets, unless otherwise
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provided in the related prospectus supplement, the servicer may be reimbursed
from distributions of the amount available after distributions to the
securityholders. The servicer is not required to make any servicing advance
which it determines would be a nonrecoverable servicing advance.
SUB-SERVICERS
A servicer may delegate its servicing obligations in respect of the
Mortgage Assets to third-party servicers, but the servicer will remain obligated
under the related servicing agreement. The sub-servicing agreement between a
servicer and a sub-servicer will be consistent with the terms of the related
servicing agreement and will not result in a withdrawal or downgrading of the
rating of any class of securities issued pursuant to the servicing agreement or
indenture. Although each sub-servicing agreement will be a contract solely
between the servicer and the sub-servicer, the servicing agreement will provide
that, if for any reason the servicer for such series of securities is no longer
acting in such capacity, the trustee or any successor servicer must recognize
the sub-servicer's rights and obligations under the sub-servicing agreement.
The servicer will be solely liable for all fees owed by it to any
sub-servicer, whether or not the servicer's compensation pursuant to the related
servicing agreement is sufficient to pay such fees. Each sub-servicer will be
reimbursed by the servicer for certain expenditures which it makes, generally to
the same extent the servicer would be reimbursed under a servicing agreement.
See "--Servicing and Other Compensation and Payment of Expenses".
REALIZATION UPON DEFAULTED MORTGAGE LOANS AND CONTRACTS
The servicer will be required to foreclose upon or otherwise take title in
the name of the trustee on behalf of the securityholders of mortgaged properties
relating to defaulted Mortgage Assets as to which no satisfactory arrangements
can be made for collection of delinquent payments, but the servicer will not be
required to foreclose if it determines that foreclosure would not be in the best
interests of the securityholders or the provider of credit support, if any.
In connection with a foreclosure or other conversion, the servicer shall
perform collection and foreclosure procedures with the same degree of care and
skill as it would use under the circumstances in the conduct of its own affairs.
Realization on defaulted contracts may be accomplished through repossession
and subsequent resale of the underlying manufactured home or home improvement.
With respect to a defaulted home improvement contract, the servicer will decide
whether to foreclose upon the mortgaged property or write off the principal
balance of such home improvement contract as a bad debt or take an unsecured
note. In doing so, the servicer will estimate the expected proceeds and expenses
to determine whether a foreclosure proceeding or a repossession and resale is
appropriate. If a home improvement contract secured by a lien on a mortgaged
property is junior to another lien on the related mortgaged property, following
any default thereon, unless foreclosure proceeds for such home improvement
contract are expected to at least satisfy the related senior mortgage loan in
full and to pay foreclosure costs, it is likely that such home improvement
contract will be written off as bad debt with no foreclosure proceeding.
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The limitations imposed by the pooling and servicing agreement for a series
of certificates and the REMIC provisions of the Code (if a REMIC election has
been made with respect to the related trust fund) on the operations and
ownership of any mortgaged property acquired on behalf of the trust fund may
result in the recovery of an amount less than the amount that would otherwise be
recovered. See "Legal Aspects of Mortgage Assets--Foreclosure".
The servicer will be entitled to withdraw from the principal and interest
account out of the Liquidation Proceeds recovered on any defaulted Mortgage
Asset, prior to the distribution of such Liquidation Proceeds to
securityholders, amounts representing its normal servicing compensation on the
Mortgage Asset and unreimbursed servicing advances incurred with respect to the
Mortgage Asset. If the proceeds of any liquidation of the property securing the
defaulted Mortgage Loan are less than the outstanding principal balance of the
defaulted Mortgage Asset plus interest accrued thereon at the interest rate plus
the aggregate amount of those amounts reimbursable to the servicer, the trust
fund will realize a loss in the amount of such difference.
HAZARD INSURANCE POLICIES
Unless otherwise stated in the related prospectus supplement, each
servicing agreement will require the servicer to maintain or cause to be
maintained fire and hazard insurance with extended coverage customary in the
area where the mortgaged property is located in an amount which is at least
equal to the least of (1) the outstanding principal balance owing on the related
Mortgage Asset and any first lien, (2) the full insurable value of the premises
securing the Mortgage Asset and (3) the minimum amount required to compensate
for damage or loss on a replacement cost basis. Generally, if at the origination
of the Mortgage Asset or at any time during the term of the Mortgage Asset, the
servicer determines that the mortgaged property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available) and the
servicer determines that such insurance is necessary in accordance with accepted
mortgage servicing practices of prudent lending institutions, the servicer will
cause to be purchased a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the lesser of (1) the outstanding principal balance of the Mortgage Asset and
any first lien and (2) the maximum amount of insurance available under the
National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973
or the National Flood Insurance Act of 1994, as amended. The servicer will also
be required to maintain on REO Property, to the extent such insurance is
available, fire and hazard insurance in the applicable amounts described above,
liability insurance and, to the extent required and available under the National
Flood Insurance Act of 1994, as amended, and the servicer determines that such
insurance is necessary in accordance with accepted mortgage servicing practices
of prudent lending institutions, flood insurance in an amount equal to that
required above. Any amounts collected by the servicer under any such policies
(other than amounts to be applied to the restoration or repair of the mortgaged
property, or to be released to the mortgagor in accordance with customary
mortgage servicing procedures) will be deposited in the principal and interest
account.
If the servicer obtains and maintains a blanket policy insuring against
fire and hazards of extended coverage on all of the Mortgage Assets that names
the servicer as loss payee and provides coverage in an amount equal to the
aggregate unpaid principal balance on the Mortgage Assets
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without co-insurance, and otherwise complies with the preceding paragraph, the
servicer will be deemed to have satisfied its obligations with respect to fire
and hazard insurance coverage.
Since the amount of hazard insurance that mortgagors are required to
maintain on the improvements securing the home improvement contracts may decline
as the principal balances owing thereon decrease, and since residential
properties have historically appreciated in value over time, hazard insurance
proceeds could be insufficient to restore fully the damaged property in the
event of a partial loss.
DUE-ON-SALE PROVISIONS
When a mortgaged property has been or is about to be conveyed by the
mortgagor, the servicer, on behalf of the trustee, will be required under the
related servicing agreement, to the extent it has knowledge of such conveyance
or prospective conveyance, to enforce the rights of the trustee as the mortgagee
of record to accelerate the maturity of the related Mortgage Asset under any
"due-on-sale" clause contained in the related Mortgage or mortgage note, unless
the servicer reasonably believes that the "due-on-sale" clause is not
enforceable under applicable law or if the mortgage loan is an ARM Loan that by
its terms is assumable. In this event, the servicer will be required to enter
into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the mortgage note and, unless prohibited by applicable law
or the mortgage documents, the mortgagor remains liable thereon. The proposed
transferee of the related mortgaged property must establish to the servicer its
ability to repay the loan and that the security for the loan would not be
impaired by the assumption. If a mortgagor transfers the mortgaged property
subject to an ARM Loan without consent, that ARM Loan may be declared due and
payable. Any fee collected by or on behalf of the servicer for entering into an
assumption agreement will be retained by or on behalf of the servicer as
additional servicing compensation. In connection with any assumption, the terms
of the related mortgage loan may not be changed. The servicer may also be
authorized under the related servicing agreement, subject to certain approvals,
to enter into a substitution of liability agreement with such person, pursuant
to which the original mortgagor is released from liability and such person is
substituted as mortgagor and becomes liable under the mortgage note.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The servicer's primary servicing compensation with respect to a series of
securities will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset which amount will be set forth in the
prospectus supplement with respect to a series of securities. Since the
servicer's primary compensation is a percentage of the principal balance of each
Mortgage Asset, such amounts will decrease in accordance with the amortization
schedule of each Mortgage Loan. Unless otherwise provided in the related
prospectus supplement, the servicer may retain, as additional servicing
compensation, all assumption fees, modification fees and other administrative
fees, late payment charges, release fees, bad check charges, any other
servicing-related fees (other than the Depositor's Yield), net Liquidation
Proceeds not otherwise required to be deposited into the principal and interest
account pursuant to the related servicing agreement, interest or other income
which may be earned on funds held in the principal and interest account,
certificate account and any other account created under the related servicing
agreement. The servicing agreement and prospectus supplement with respect to a
series of securities will set forth any other amounts payable to the
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servicer. Any sub-servicer will receive a portion of the servicer's compensation
as its sub-servicing compensation.
In addition to amounts payable to any sub-servicer, the servicer or trustee
may, to the extent provided in the related prospectus supplement, pay certain
expenses incurred, including payment of the fees and disbursements of the
trustee and any credit support provider. The servicing agreement and prospectus
supplement with respect to a series of securities may provide that additional
accounts be established by the servicer or the trustee into which the servicer
or the trustee for the payment of fees.
ANNUAL EVIDENCE AS TO THE COMPLIANCE OF THE MASTER SERVICER
Each servicing agreement with respect to a series of securities, will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related cut-off date, a firm of
independent public accountants will furnish a statement to the trustee to the
effect that, on the basis of the examination by the firm conducted substantially
in compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for Freddie Mac, the
servicing by or on behalf of the servicer of mortgage loans under servicing
agreements substantially similar to each other, including the related pooling
and servicing agreement or servicing agreement, was conducted in compliance with
the terms of those agreements except for any significant exceptions or errors in
records that, in the opinion of the firm, either the Audit Program for Mortgages
serviced for Freddie Mac, or paragraph 4 of the Uniform Single Attestation
Program for Mortgage Bankers, requires it to report. In rendering its statement
the accounting firm may rely, as to matters relating to the direct servicing of
mortgage loans by sub-servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
Freddie Mac, rendered within one year of the statement, of firms of independent
public accountants with respect to the related sub-servicer.
Each servicing agreement will also provide for delivery to the trustee, on
or before a specified date in each year, of an annual statement signed by two
officers of the servicer to the effect that the servicer has fulfilled its
obligations under the related agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the servicer may be obtained by securityholders without charge upon written
request to the servicer at the address set forth in the related prospectus
supplement.
MATTERS REGARDING THE SERVICER AND THE DEPOSITOR
The servicer under each servicing agreement will be named in the related
prospectus supplement. The entity serving as servicer may be the depositor or an
affiliate of the depositor and may have other normal business relationships with
the depositor or the depositor's affiliates.
Each servicing agreement will provide that the servicer may not resign from
its obligations and duties under the related agreement except by mutual consent
of the servicer, the depositor, any credit support provider, the trustee and the
majority securityholders and only if its resignation, and
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the appointment of a successor, will not result in a downgrading of any class of
securities, or upon a determination that its duties under the related agreement
are no longer permissible under applicable law. No resignation will become
effective until the trustee or a successor servicer has assumed the servicer's
obligations and duties under the related agreement.
Each servicing agreement will further provide that neither the servicer,
the depositor nor any director, officer, employee, or agent of the servicer or
the depositor will be under any liability to the related trust fund or
securityholders for any action taken, or for refraining from the taking of any
action, in good faith pursuant to the related agreement, or for errors in
judgment, but that neither the servicer, the depositor nor any such person will
be protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. Each pooling and servicing agreement and each servicing agreement
will further provide that the servicer, the depositor and any director, officer,
employee or agent of the servicer or the depositor will be entitled to
indemnification by the related trust fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the related agreement or the securities, other than any loss, liability or
expense that is related to any specific mortgage loan or mortgage loans, unless
that loss, liability or expense is otherwise reimbursable pursuant to the
related agreement, and other than any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. In addition, each pooling and servicing agreement and each
servicing agreement will provide that neither the servicer nor the depositor
will be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective responsibilities under the related
agreement and which in its opinion may involve it in any expense or liability.
The servicer or the depositor may, however, in its discretion undertake any such
action which it may deem necessary or desirable with respect to the related
agreement and the rights and duties of the parties thereto and the interests of
the securityholders thereunder. In that event, the legal expenses and costs of
the action and any liability resulting therefrom will be expenses, costs and
liabilities of the securityholders, and the servicer or the depositor, as the
case may be, will be entitled to be reimbursed therefor and to charge the trust
fund. Distributions to securityholders will be reduced to pay for the
reimbursement as set forth in the related prospectus supplement and servicing
agreement.
Any person into which the servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the servicer is a
party, or any person succeeding to the business of the servicer, will be the
successor of the servicer under each agreement, provided that such person is
qualified to sell mortgage loans to, and service mortgage loans on behalf of,
Fannie Mae or Freddie Mac.
EVENTS OF DEFAULT UNDER THE GOVERNING AGREEMENT AND RIGHTS UPON EVENTS OF
DEFAULT
POOLING AND SERVICING AGREEMENT FOR CERTIFICATES
Unless otherwise provided in the related prospectus supplement for a series
of certificates, events of default under each pooling and servicing agreement
will consist of:
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o any failure by the servicer to distribute or cause to be
distributed to securityholders, or to remit to the trustee for
distribution to securityholders, any required payment that
continues unremedied for one business day after the giving of
written notice of the failure to the servicer by the trustee or
the depositor, or to the servicer, the depositor and the trustee
by any certificateholder;
o any failure by the servicer to make any required servicing
advance, to the extent such failure materially and adversely
affects the interests of certificateholders, or any required
monthly advance to the extent of the full amount in each case
which continues unremedied after the date upon which written
notice of such failure, requiring the same to be remedied, shall
have been given to the servicer by the trustee or the depositor,
or to the servicer, the depositor and the trustee by any
certificateholder;
o any failure by the servicer duly to observe or perform in any
material respect any of its other covenants or obligations under
the agreement which continues unremedied for sixty days, after
the giving of written notice of the failure to the servicer by
the trustee, the provider of credit support, if applicable, or
the depositor, or to the servicer, the depositor and the trustee
by any certificateholder; and
o events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and actions by or on
behalf of the servicer indicating its insolvency or inability to
pay its obligations.
Unless otherwise provided in the prospectus supplement for a series of
certificates, so long as an event of default under a pooling and servicing
agreement remains unremedied, the depositor or the trustee may, and at the
direction of holders of certificates evidencing not less than 51% of the voting
rights, the trustee shall, terminate all of the rights and obligations of the
servicer under the pooling and servicing agreement relating to the trust fund
and in and to the Mortgage Assets, whereupon the trustee will succeed to all of
the responsibilities, duties and liabilities of the servicer under the agreement
and will be entitled to similar compensation arrangements. If the trustee is
prohibited by law from obligating itself to make advances regarding delinquent
Mortgage Assets, then the trustee will not be so obligated. If the trustee is
unwilling or unable so to act, it may or, at the written request of the holders
of certificates entitled to at least 51% of the voting rights, it shall appoint,
or petition a court of competent jurisdiction for the appointment of, a loan
servicing institution acceptable to the rating agency with a net worth at the
time of the appointment of at least $15,000,000 to act as successor to the
servicer under the agreement. Pending the appointment of a successor, the
trustee is obligated to act in the capacity of servicer. The trustee and any
successor servicer may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the servicer under
the related agreement.
The trustee is under no obligation to exercise any of the trusts or powers
vested in it by any pooling and servicing agreement or to make any investigation
of matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of certificates covered by the agreement, unless the
certificateholders
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have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred.
SERVICING AGREEMENT FOR NOTES
Unless otherwise provided in the related prospectus supplement for a series
of notes, a "servicing default" under the related servicing agreement generally
will include:
o any failure by the servicer to make a required deposit to
the distribution account or, if the servicer is so required,
to distribute to the holders of any class of notes or equity
certificates of the series any required payment which
continues unremedied for five business days (or other period
of time described in the related prospectus supplement)
after the giving of written notice of the failure to the
servicer by the trustee or the issuer;
o any failure by the servicer duly to observe or perform in
any material respect any other of its covenants or
agreements in the servicing agreement with respect to the
series of notes which continues unremedied for 60 days after
the giving of written notice of the failure to the servicer
by the trustee or the issuer;
o events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the
servicer and actions by the servicer indicating its
insolvency or inability to pay its obligations and
o any other servicing default as set forth in the servicing
agreement.
So long as a servicing default remains unremedied, either the depositor or
the trustee may, by written notification to the servicer and to the issuer or
the trustee, as applicable, terminate all of the rights and obligations of the
servicer under the servicing agreement, other than any right of the servicer as
noteholder or as holder of the equity certificates and other than the right to
receive servicing compensation and expenses for servicing the Mortgage Assets
during any period prior to the date of the termination. Upon termination of the
servicer, the trustee will succeed to all responsibilities, duties and
liabilities of the servicer under the servicing agreement, other than the
obligation to repurchase Mortgage Assets, and will be entitled to similar
compensation arrangements. In the event that the trustee would be obligated to
succeed the servicer but is unwilling so to act, it may appoint, or if it is
unable so to act, it shall appoint, or petition a court of competent
jurisdiction for the appointment of an approved mortgage servicing institution
with a net worth of at least $1,000,000 to act as successor to the servicer
under the servicing agreement. Pending the appointment of a successor, the
trustee is obligated to act in the capacity of servicer. The trustee and the
successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation to the initial servicer under the
servicing agreement.
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INDENTURE
An event of default under the indenture generally will include:
o a default for five days or more in the payment of any principal of or
interest on any note of the series;
o failure to perform any other covenant of the depositor or the issuer
in the indenture which continues for a period of 60 days after notice
of failure is given in accordance with the procedures described in the
related prospectus supplement;
o any representation or warranty made by the depositor or the issuer in
the indenture or in any related certificate or other writing having
been incorrect in a material respect as of the time made, and the
breach is not cured within 30 days after notice of breach is given in
accordance with the procedures described in the related prospectus
supplement;
o events of bankruptcy, insolvency, receivership or liquidation of the
depositor or the issuer; or
o any other event of default provided with respect to notes of that
series.
If an event of default with respect to the notes of any series occurs and
is continuing, the trustee or the holders of a majority of the then aggregate
outstanding amount of the notes of the series may declare the principal amount,
or, if the notes of that series are Accrual Securities, the portion of the
principal amount as may be specified in the terms of that series, as provided in
the related prospectus supplement, of all the notes of the series to be due and
payable immediately. Such declaration may, under some circumstances, be
rescinded and annulled by the holders of a majority in aggregate outstanding
amount of the related notes.
If following an event of default with respect to any series of notes, the
notes of the series have been declared to be due and payable, the trustee may,
in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of the series and to continue to
apply payments on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of the series as they would
have become due if there had not been a declaration. In addition, the trustee
may not sell or otherwise liquidate the collateral securing the notes of a
series following an event of default, unless
o the holders of 100% of the then aggregate outstanding amount of the notes
of the series consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay in full the
principal of and accrued interest, due and unpaid, on the outstanding notes
of the series at the date of the sale, or
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o the trustee determines that the collateral would not be sufficient on an
ongoing basis to make all payments on the notes as the payments would have
become due if the notes had not been declared due and payable, and the
trustee obtains the consent of the holders of 66 2/3% of the then aggregate
outstanding amount of the notes of the series.
If the trustee liquidates the collateral in connection with an event of
default, the indenture may provide that the trustee will have a prior lien on
the proceeds of any liquidation for unpaid fees and expenses. As a result, upon
the occurrence of an event of default, the amount available for payments to the
noteholders would be less than would otherwise be the case. However, the trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the indenture
for the benefit of the noteholders after the occurrence of an event of default.
If the principal of the notes of a series is declared due and payable, as
described above, the holders of any such notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of the discount that is unamortized.
No noteholder or holder of an equity certificate generally will have any
right under an owner trust agreement or indenture to institute any proceeding
with respect to the agreement unless:
o the holder previously has given to the trustee written notice of
default and the default is continuing,
o the holders of notes or equity certificates of any class evidencing
not less than 25% of the aggregate percentage interests constituting
the class (1) have made written request upon the trustee to institute
a proceeding in its own name as trustee thereunder and (2) have
offered to the trustee reasonable indemnity,
o the trustee has neglected or refused to institute a proceeding for 60
days after receipt of the request and indemnity, and
o no direction inconsistent with the written request has been given to
the trustee during the 60 day period by the holders of a majority of
the note balances of the class. However, the trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the
applicable agreement or to institute, conduct or defend any litigation
at the request of any of the holders of notes or equity certificates
covered by the agreement, unless such holders have offered to the
trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred.
AMENDMENT OF THE GOVERNING AGREEMENTS
With respect to each series of certificates, each related pooling and
servicing agreement or trust agreement may be amended by the depositor, the
servicer, if any, and the trustee, by written agreement, upon written consent of
any credit support provider, without notice to or the consent of any of the
holders of certificates covered by the agreement, to cure any ambiguity, to
correct, modify or supplement any provision in the agreement which may be
inconsistent with any other provisions
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of the agreement, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the agreement
which are not inconsistent with the provisions of the agreement, provided that
the action will not, as evidenced by an opinion of counsel delivered to the
trustee,
o adversely affect in any material respect the interests of any holder
of certificates covered by the agreement,
o reduce in any manner the amount of or delay the timing of, payments
received on Mortgage Assets which are required to be distributed on
any certificate without the consent of the holder of the certificate,
or
o change the rights or obligations of any other party without the
consent of that party.
However, with respect to any series of certificates as to which a REMIC
election is to be made, the trustee will not consent to any amendment of the
agreement unless it shall first have received an opinion of counsel to the
effect that the amendment will not cause the trust fund to fail to qualify as a
REMIC at any time that the related certificates are outstanding.
With respect to each series of notes, each related servicing agreement or
indenture may be amended by the parties thereto without the consent of any of
the holders of the notes covered by the agreement, to cure any ambiguity, to
correct, modify or supplement any provision in the agreement, or to make any
other provisions with respect to matters or questions arising under the
agreement which are not inconsistent with the provisions of the agreement,
provided that such action will not adversely affect in any material respect the
interests of any holder of notes covered by the agreement. Each agreement may
also be amended by the parties thereto with the consent of the holders of notes
evidencing not less than 66% of the voting rights, for any purpose, but that no
amendment may
o reduce in any manner the amount of or delay the timing of, payments
received on trust fund assets which are required to be distributed on any
note without the consent of the holder of that note,
o adversely affect in any material respect the interests of the holders of
any class of notes in a manner other than as described in the preceding
bullet point, without the consent of the holders of notes of that class
evidencing not less than 66% of the aggregate voting rights of that class,
or
o reduce the percentage of voting rights required by the preceding bullet
point for the consent to any such amendment without the consent of the
holders of all notes covered by the agreement then outstanding. The voting
rights evidenced by any note will be the portion of the voting rights of
all of the notes in the related series allocated in the manner described in
the related prospectus supplement.
OPTIONAL PURCHASE BY THE SERVICER OF DEFAULTED MORTGAGE LOANS
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The servicer under the related servicing agreement will have the option to
purchase from the trust fund any Mortgage Asset 90 days or more delinquent at a
purchase price generally equal to the outstanding principal balance of the
delinquent Mortgage Asset as of the date of purchase, plus all accrued and
unpaid interest on that principal balance.
DUTIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency
of any agreement, the securities or any Mortgage Asset or related document and
is not accountable for the use or application by or on behalf of the servicer of
any funds paid to the servicer or its designee in respect of the securities or
the Mortgage Assets, or deposited into or withdrawn from the principal and
interest account or any other account by or on behalf of the servicer. If no
event of default has occurred and is continuing, the trustee is required to
perform only those duties specifically required under the related agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the trustee is required to examine the documents
and to determine whether they conform to the requirements of the related
agreement.
DESCRIPTION OF THE TRUSTEE
The trustee or indenture trustee, each referred to as the "trustee", under
each pooling and servicing agreement, trust agreement or indenture will be named
in the related prospectus supplement. The owner trustee for each series of notes
will be named in the related prospectus supplement. The commercial bank,
national banking association or trust company serving as trustee or owner
trustee may have normal banking relationships with the depositor and its
affiliates and with the servicer and its affiliates. The trustee may resign at
any time in the manner set forth in the related agreement, in which event the
servicer will be obligated to appoint a successor trustee. The trustee may be
removed if it ceases to be eligible to continue as such under the related
agreement or if it becomes insolvent. Any resignation or removal of the trustee
and appointment of a successor trustee will not become effective until the
acceptance of appointment by a successor trustee. The trustee may appoint
separate trustees and co-trustees to the extent provided in the related
agreement.
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DESCRIPTION OF CREDIT SUPPORT
For any series of securities, credit support may be provided with respect
to one or more classes thereof or the related Mortgage Assets. Credit support
may be in the form of the subordination of one or more classes to other classes
in a series of securities, letters of credit, insurance policies, surety bonds,
guarantees, the establishment of one or more reserve funds, cross-
collateralization, overcollateralization or another method of credit support
described in the related prospectus supplement, or any combination of the
foregoing. If so provided in the related prospectus supplement, any form of
credit support may be structured so as to be drawn upon by more than one series
of securities.
The credit support provided for a series of securities will in most cases
not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the securities and interest
thereon. If losses or shortfalls occur that exceed the amount covered by credit
support or that are not covered by credit support, securityholders will bear
their allocable share of deficiencies. Moreover, if a form of credit support
covers more than one pool of Mortgage Assets in a trust fund or more than one
series of securities, holders of securities evidencing interests in any of the
covered pools or covered trusts will be subject to the risk that the credit
support will be exhausted by the claims of other covered pools or covered trusts
prior to that covered pool or covered trust receiving any of its intended share
of the coverage.
If credit support is provided with respect to one or more classes of
securities of a series, or the related Mortgage Assets, the related prospectus
supplement will include a description of
o the nature and amount of coverage under such credit support,
o any conditions to payment thereunder not otherwise described in this
prospectus,
o the conditions under which the amount of coverage under the credit
support may be reduced, terminated or replaced, and
o the material provisions relating to the credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the credit support provider, including:
o a brief description of its principal business activities,
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business,
o if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business, and
o its total assets and its stockholders' or policyholders' surplus, if
applicable, as of the date specified in the prospectus supplement.
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SUBORDINATE CERTIFICATES
One or more classes of securities of a series may be subordinate
securities. The rights of the holders of subordinate securities to receive
distributions of principal and interest from the certificate account on any
remittance date will be subordinated to the rights of the holders of senior
securities to the extent specified in the related prospectus supplement. The
subordination of a class may apply only in the event of, or may be limited to,
certain types of losses or shortfalls. The related prospectus supplement will
set forth information concerning the amount of subordination of a class or
classes of subordinate securities in a series and the circumstances in which
such subordination will be applied. If one or more classes of subordinate
securities of a series are offered securities, the related prospectus supplement
will provide information as to the sensitivity of distributions on those
securities based on certain default assumptions.
CROSS-SUPPORT PROVISIONS
If so provided in the related prospectus supplement, the Mortgage Assets
for a series of securities may be divided into separate groups, each supporting
a separate class or classes of securities of a series, and credit support may be
provided by cross-support provisions requiring that distributions be made on
certain classes of securities evidencing interests in one group of Mortgage
Assets prior to distributions on other classes of securities evidencing
interests in a different group of Mortgage Assets. The prospectus supplement for
a series that includes a cross-support provision will describe the manner and
conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE MORTGAGE ASSETS
The prospectus supplement for a series of securities may provide that the
Mortgage Assets in the related trust fund will be covered for various default
risks by insurance policies, including FHA insurance or guarantees. A copy of
any material instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the securities of the related series.
LETTER OF CREDIT
Deficiencies in amounts otherwise payable on one or more classes of
securities in a series of securities may be covered by one or more letters of
credit, issued by a bank or financial institution specified in the related
prospectus supplement. Under a letter of credit, the letter of credit bank will
be obligated to honor draws in respect of such deficiencies in an amount
specified in the related prospectus supplement upon presentation of documents
required under the letter of credit. If so specified in the related prospectus
supplement, the letter of credit may permit draws in the event of only certain
types of losses. The amount available under the letter of credit will, in all
cases, be reduced to the extent of the unreimbursed payments thereunder and
otherwise as described in the related prospectus supplement. The obligations of
the letter of credit bank under the letter of credit for each series of
securities will expire at the earlier of the date specified in the related
prospectus supplement or the termination of the trust fund. A copy of any such
letter of credit for a series will be filed with the Commission as an exhibit to
a Current Report on Form 8-K to be filed within 15 days of issuance of the
securities of the related series.
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INSURANCE POLICIES AND SURETY BONDS WITH RESPECT TO THE SECURITIES
Deficiencies in amounts otherwise payable on one or more classes of
securities of a series will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. These instruments may
cover timely distributions of interest only, timely distributions of interest
and ultimate distribution of principal or timely distributions of interest and
distributions of principal on the basis of a schedule of principal distributions
set forth in, or determined in the manner specified in, the related prospectus
supplement. A copy of any such instrument for a series will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the securities of the related series.
RESERVE FUNDS OR SPREAD ACCOUNT
Deficiencies in amounts otherwise payable on one or more classes of
securities of a series may be covered by one or more reserve funds in which
cash, a letter of credit, permitted investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in the related prospectus
supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Mortgage Assets. A reserve fund for a series of securities which is
funded over time by depositing therein a portion of the interest payment on each
Mortgage Asset will be referred to as a "spread account" in the related
prospectus supplement and the pooling and servicing agreement or indenture.
Amounts on deposit in any reserve fund for a series of securities, together
with the reinvestment income thereon, if any, will be applied for the purposes,
in the manner, and to the extent specified in the related prospectus supplement.
A reserve fund may be provided to increase the likelihood of timely
distributions of principal of or interest on the securities. If so specified in
the related prospectus supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each remittance date amounts in a reserve fund in excess of any amount
required to be maintained therein may be released from the reserve fund under
the conditions and to the extent specified in the related prospectus supplement
and will not be available for further application to the securities.
Moneys deposited in any reserve funds will be invested in permitted
instruments, except as otherwise specified in the related prospectus supplement.
Reinvestment income or other gain from these investments may be credited to the
related reserve fund for the series, and any loss resulting from such
investments will be charged to the reserve fund. However, this income may be
payable to the servicer or another service provider as additional compensation.
Additional information concerning any reserve fund will be set forth in the
related prospectus supplement, including the following:
o initial balance of the reserve fund,
o the balance required to be maintained in the reserve fund,
o the manner in which the required balance may decrease over time,
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o the manner of funding the reserve fund,
o the purposes for which funds in the reserve fund may be applied to
make distributions to securityholders,
o the use of any investment earnings and payment of any investment
losses in respect of the reserve fund, and
o whether or not the reserve fund will be a part of the Trust Fund or
any REMIC.
OVERCOLLATERALIZATION
If so provided in the prospectus supplement for a series of securities, a
portion of the interest payment on each Mortgage Asset may be applied as an
additional distribution in respect of principal to reduce the principal balance
of one or more classes of securities and, thus, accelerate the rate of payment
of principal on such class or classes of securities relative to payments of
principal on the related Mortgage Assets. Any excess of the principal balance of
the Mortgage Assets over the principal balance of the related class of
securities is referred to as "overcollateralization".
DESCRIPTION OF PRIMARY INSURANCE POLICIES
Each mortgage loan will be covered by a primary hazard insurance policy
and, if so specified in the prospectus supplement, a primary mortgage insurance
policy.
PRIMARY MORTGAGE INSURANCE POLICIES
Although the terms and conditions of primary mortgage insurance policies
differ, each primary mortgage insurance policy will generally cover losses up to
an amount equal to the excess of the unpaid principal amount of a defaulted
mortgage loan, plus accrued and unpaid interest thereon and some approved
expenses, over a specified percentage of the value of the related mortgaged
property.
As conditions to the filing or payment of a claim under a primary mortgage
insurance policy, the insured will typically be required, in the event of
default by the borrower, to:
o advance or discharge (1) hazard insurance premiums and (2) as
necessary and approved in advance by the insurer, real estate taxes,
property protection expenses and foreclosure and related costs,
o in the event of any physical loss or damage to the mortgaged property,
have the mortgaged property restored to at least its condition at the
effective date of the primary mortgage insurance policy (ordinary wear
and tear excepted), and
o tender to the insurer good and merchantable title to, and possession
of, the mortgaged property.
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PRIMARY HAZARD INSURANCE POLICIES
Each servicing agreement will require the servicer to cause the borrower on
each mortgage loan to maintain a primary hazard insurance policy providing for
coverage of the standard form of fire insurance policy with extended coverage
customary in the state in which the mortgaged property is located. The primary
hazard coverage will be in general in an amount equal to the lesser of the
principal balance owing on the mortgage loan and the amount necessary to fully
compensate for any damage or loss to the improvements on the mortgaged property
on a replacement cost basis, but in either case not less than the amount
necessary to avoid the application of any co-insurance clause contained in the
hazard insurance policy. The ability of the servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured under any primary hazard insurance policy and
under any flood insurance policy referred to in the paragraph below, and upon
the borrower furnishing information to the servicer in respect of a claim.
All amounts collected by the servicer under any primary hazard insurance policy,
except for amounts to be applied to the restoration or repair of the mortgaged
property or released to the borrower in accordance with the servicer's normal
servicing procedures, and subject to the terms and conditions of the related
Mortgage and mortgage note, will be deposited in the certificate account. The
agreement will provide that the servicer may satisfy its obligation to cause
each borrower to maintain a hazard insurance policy by the servicer's
maintaining a blanket policy insuring against hazard losses on the mortgage
loans. If the blanket policy contains a deductible clause, the servicer will
deposit in the certificate account all sums that would have been deposited in
the certificate account but for that clause. The servicer also is required to
maintain a fidelity bond and errors and omissions policy with respect to its
officers and employees that provides coverage against losses that may be
sustained as a result of an officer's or employee's misappropriation of funds or
errors and omissions in failing to maintain insurance, subject to some
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the mortgage loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most hazard insurance policies typically do not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement, including earthquakes, landslides
and mudflows, nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in some cases, vandalism. This list is merely
indicative of some kinds of uninsured risks and is not intended to be
all-inclusive. When a mortgaged property is located at origination in a
federally designated flood area and flood insurance is available, each agreement
will require the servicer to cause the borrower to acquire and maintain flood
insurance in an amount equal in general to the lesser of (1) the amount
necessary to fully compensate for any damage or loss to the improvements which
are part of the mortgaged property on a replacement cost basis and (2) the
maximum amount of insurance available under the federal flood insurance program,
whether or not the area is participating in the program.
The hazard insurance policies covering the mortgaged properties typically
contain a co-insurance clause that in effect requires the insured at all times
to carry insurance of a specified
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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, the
co-insurance clause generally provides that the insurer's liability in the event
of partial loss does not exceed the lesser of (1) the replacement cost of the
improvements less physical depreciation and (2) the proportion of the loss as
the amount of insurance carried bears to the specified percentage of the full
replacement cost of the improvements.
The servicer will not require that a hazard or flood insurance policy be
maintained for any cooperative loan. Generally, the cooperative is responsible
for maintenance of hazard insurance for the property owned by the cooperative,
and the tenant-stockholders of that cooperative do not maintain individual
hazard insurance policies. However, if a cooperative and the related borrower on
a cooperative note do not maintain hazard insurance or do not maintain adequate
coverage or any insurance proceeds are not applied to the restoration of the
damaged property, damage to the related borrower's cooperative apartment or the
cooperative's building could significantly reduce the value of the collateral
securing the cooperative note.
Since the amount of hazard insurance the servicer will cause to be
maintained on the improvements securing the mortgage loans declines as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds collected
in connection with a partial loss may be insufficient to restore fully the
damaged property. The terms of the mortgage loans provide that borrowers are
required to present claims to insurers under hazard insurance policies
maintained on the mortgaged properties. The servicer, on behalf of the trustee
and securityholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on mortgaged
properties. However, the ability of the servicer to present or cause to be
presented such claims is dependent upon the extent to which information in this
regard is furnished to the servicer by borrowers.
FHA INSURANCE
The Federal Housing Administration is responsible for administering various
federal programs, including mortgage insurance, authorized under The Housing Act
and the United States Housing Act of 1937, as amended. If so provided in the
related prospectus supplement, some of the mortgage loans will be insured by the
FHA.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans made
for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The servicer will be obligated to purchase any
debenture
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issued in satisfaction of a defaulted FHA insured mortgage loan serviced by it
for an amount equal to the principal amount of any such debenture.
The servicer will be required to take steps as are reasonably necessary to
keep FHA insurance in full force and effect.
Some of the mortgage loans contained in a trust fund may be Title I loans
as described below and in the related prospectus supplement. The regulations,
rules and procedures promulgated by the FHA under Title I contain the
requirements under which lenders approved for participation in the Title I
Program may obtain insurance against a portion of losses incurred with respect
to eligible loans that have been originated and serviced in accordance with FHA
regulations, subject to the amount of insurance coverage available in such Title
I lender's FHA reserve, as described below and in the related prospectus
supplement. In general, an insurance claim against the FHA may be denied or
surcharged if the Title I loan to which it relates does not strictly satisfy the
requirements of the National Housing Act and FHA regulations but FHA regulations
permit the Secretary of the Department of Housing and Urban Development, subject
to statutory limitations, to waive a Title I Lender's noncompliance with FHA
regulations if enforcement would impose an injustice on the lender.
Unless otherwise specified in the related prospectus supplement, the
servicer will either serve as or contract with the person specified in the
prospectus supplement to serve as the administrator for FHA claims pursuant to
an FHA claims administration agreement. The FHA claims administrator will be
responsible for administering, processing and submitting FHA claims with respect
to the Title I loans. The securityholders will be dependent on the FHA claims
administrator to (1) make claims on the Title I loans in accordance with FHA
regulations and (2) remit all FHA insurance proceeds received from the FHA in
accordance with the related agreement. The securityholders' rights relating to
the receipt of payment from and the administration, processing and submission of
FHA claims by any FHA claims administrator is limited and governed by the
related agreement and the FHA claims administration agreement and these
functions are obligations of the FHA claims administrator, but not the FHA.
Under Title I, the FHA maintains an FHA insurance coverage reserve account
for each Title I lender. The amount in each Title I lender's FHA reserve is a
maximum of 10% of the amounts disbursed, advanced or expended by a Title I
lender in originating or purchasing eligible loans registered with the FHA for
Title I insurance, with certain adjustments permitted or required by FHA
regulations. The balance of such FHA reserve is the maximum amount of insurance
claims the FHA is required to pay to the related Title I lender. Mortgage loans
to be insured under Title I will be registered for insurance by the FHA.
Following either the origination or transfer of loans eligible under Title I,
the Title I lender will submit such loans for FHA insurance coverage within its
FHA reserve by delivering a transfer of note report or by an electronic
submission to the FHA in the form prescribed under the FHA regulations. The
increase in the FHA insurance coverage for such loans in the Title I lender's
FHA reserve will occur on the date following the receipt and acknowledgment by
the FHA of the transfer of note report for such loans. The insurance available
to any trust fund will be subject to the availability, from time to time, of
amounts in each Title I lender's FHA reserve, which will initially be limited to
the amount specified in the related prospectus supplement.
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If so provided in the related prospectus supplement the trustee or FHA
claims administrator may accept an assignment of the FHA reserve for the related
Title I loans, notify FHA of such assignment and request that the portion of the
depositor's FHA reserves allocable to the Title I loans be transferred to the
trustee or the FHA claims administrator on the closing date. Alternatively, in
the absence of such provision, the FHA reserves may be retained by the depositor
and, upon an insolvency and receivership of the depositor, the related trustee
will notify FHA and request that the portion of the depositor's FHA reserves
allocable to the Title I loans be transferred to the trustee or the FHA claims
administrator. Although each trustee will request such a transfer of reserves,
FHA is not obligated to comply with such a request, and may determine that it is
not in FHA's interest to permit a transfer of reserves. In addition, FHA has not
specified how insurance reserves would be allocated in a transfer, and there can
be no assurance that any reserve amount, if transferred to the trustee or the
FHA claims administrator, as the case may be, would not be substantially less
than 10% of the outstanding principal amount of the related Title I loans. It is
likely that the depositor, the trustee or the FHA claims administrator would be
the lender of record on other Title I loans, so that any FHA reserves that are
retained, or permitted to be transferred, would become commingled with FHA
reserves available for other Title I loans. FHA also reserves the right to
transfer reserves with "earmarking" (segregating reserves so that they will not
be commingled with the reserves of the transferee) if it is in FHA's interest to
do so.
Under Title I, the FHA will reduce the insurance coverage available in a
Title I lender's FHA reserve with respect to loans insured under that Title I
lender's contract of insurance by (1) the amount of FHA insurance claims
approved for payment related to those loans and (2) the amount of reduction of
the Title I lender's FHA reserve by reason of the sale, assignment or transfer
of loans registered under the Title I lender's contract of insurance. The FHA
insurance coverage also may be reduced for any FHA insurance claims previously
disbursed to the Title I lender that are subsequently rejected by the FHA.
Unlike certain other government loan insurance programs, loans under Title
I (other than loans in excess of $25,000) are not subject to prior review by the
FHA. The FHA disburses insurance proceeds with respect to defaulted loans for
which insurance claims have been filed by a Title I lender prior to any review
of those loans. A Title I lender is required to repurchase a Title I loan from
the FHA that is determined to be ineligible for insurance after insurance claim
payments for such loan have been paid to the lender. Under the FHA regulations,
if the Title I lender's obligation to repurchase the Title I loan is
unsatisfied, the FHA is permitted to offset the unsatisfied obligation against
future insurance claim payments owed by the FHA to such lender. FHA regulations
permit the FHA to disallow an insurance claim with respect to any loan that does
not qualify for insurance for a period of up to two years after the claim is
made and to require the Title I lender that has submitted the insurance claim to
repurchase the loan.
The proceeds of loans under the Title I Program may be used only for
permitted purposes, including the alteration, repair or improvement of
residential property, the purchase of a manufactured home or lot (or cooperative
interest therein) on which to place the home or the purchase of both a
manufactured home and the lot (or cooperative interest therein) on which the
home is placed.
Subject to certain limitations described below, eligible Title I loans are
generally insured by the FHA for 90% of an amount equal to the sum of
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o the net unpaid principal amount and the uncollected interest earned to
the date of default,
o interest on the unpaid loan obligation from the date of default to the
date of the initial submission of the insurance claim, plus 15
calendar days (the total period not to exceed nine months) at a rate
of 7% per annum,
o uncollected court costs,
o title examination costs,
o fees for required inspections by the lenders or its agents, up to $75,
and
o origination fees up to a maximum of 5% of the loan amount.
Accordingly if sufficient insurance coverage is available in such FHA
reserve, then the Title I lender bears the risk of losses on a Title I loan for
which a claim for reimbursement is paid by the FHA of at least 10% of the unpaid
principal, uncollected interest earned to the date of default, interest from the
date of default to the date of the initial claim submission and certain
expenses.
In general, the FHA will insure home improvement contracts up to $25,000
for a Single Family Property, with a maximum term of 20 years. The FHA will
insure loans of up to $17,500 for manufactured homes which qualify as real
estate under applicable state law and loans of up to $12,000 per unit for a
$48,000 limit for four units for owner-occupied multifamily homes. If the loan
amount is $15,000 or more, the FHA requires a drive-by appraisal, the current
tax assessment value, or a full Uniform Residential Appraisal Report dated
within 12 months of the closing to verify the property's value. The maximum loan
amount on transactions requiring an appraisal is the amount of equity in the
property shown by the market value determination of the property.
With respect to Title I loans, the FHA regulations do not require that a
borrower obtain title or fire and casualty insurance. However, if the related
mortgaged property is located in a flood hazard area, flood insurance in an
amount at least equal to the loan amount is required. In addition, the FHA
regulations do not require that the borrower obtain insurance against physical
damage arising from earth movement (including earthquakes, landslides and
mudflows). Accordingly, if a mortgaged property that secures a Title I loan
suffers any uninsured hazard or casualty losses, holders of the related series
of securities that are secured in whole or in part by such Title I loan may bear
the risk of loss to the extent that such losses are not recovered by foreclosure
on the defaulted loans or from any FHA insurance proceeds. Such loss may be
otherwise covered by amounts available from the credit enhancement provided for
the related series of securities, if specified in the related prospectus
supplement.
Following a default on a Title I loan insured by the FHA, the servicer may,
subject to certain conditions and mandatory loss mitigation procedures, either
commence foreclosure proceedings against the improved property securing the
loan, if applicable, or submit a claim to FHA, but may submit a claim to FHA
after proceeding against the improved property only with the prior approval of
the Secretary of HUD. The availability of FHA Insurance following a default on a
Title I loan is subject to a number of conditions, including strict compliance
with FHA regulations in originating
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and servicing the Title I loan. Failure to comply with FHA regulations may
result in a denial of or surcharge on the FHA insurance claim. Prior to
declaring a Title I loan in default and submitting a claim to FHA, the servicer
must take certain steps to attempt to cure the default, including personal
contact with the borrower either by telephone or in a meeting and providing the
borrower with 30 days' written notice prior to declaration of default. FHA may
deny insurance coverage if the borrower's nonpayment is related to a valid
objection to faulty contractor performance. In such event, the servicer or other
entity as specified in the related prospectus supplement will seek to obtain
payment by or a judgment against the borrower, and may resubmit the claim to FHA
following such a judgment.
VA GUARANTEES
The United States Department of Veterans Affairs is an Executive Branch
Department of the United States, headed by the Secretary of Veterans Affairs.
The VA currently administers a variety of federal assistance programs on behalf
of eligible veterans and their dependents and beneficiaries. The VA administers
a loan guaranty program pursuant to which the VA guarantees a portion of loans
made to eligible veterans. If so provided in the prospectus supplement, some of
the mortgage loans will be guaranteed by the VA.
Under the VA loan guaranty program, a VA loan may be made to any eligible
veteran by an approved private sector mortgage lender. The VA guarantees payment
to the holder of that loan of a fixed percentage of the loan indebtedness, up to
a maximum dollar amount, in the event of default by the veteran borrower. When a
delinquency is reported to the VA and no realistic alternative to foreclosure is
developed by the loan holder or through the VA's supplemental servicing of the
loan, the VA determines, through an economic analysis, whether the VA will (1)
authorize the holder to convey the property securing the VA loan to the
Secretary of Veterans Affairs following termination or (2) pay the loan guaranty
amount to the holder. The decision as to disposition of properties securing
defaulted VA loans is made on a case-by-case basis using the procedures set
forth in 38 U.S.C. Section 3732(c), as amended.
The servicer will be required to take steps as are reasonably necessary to
keep the VA guarantees in full force and effect.
LEGAL ASPECTS OF MORTGAGE ASSETS
The following discussion contains general summaries of legal aspects of
loans secured by residential properties. Because these legal aspects are
governed in part by applicable state law, which laws may differ substantially
from state to state, 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 security for the Mortgage Assets is situated.
MORTGAGE LOANS
The Single-Family Loans, multifamily loans, commercial loans and mixed use
loans will be secured by either mortgages, deeds of trust, security deeds or
deeds to secure debt depending upon
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the type of security instrument customary to grant a security interest according
to the prevailing practice in the state in which the mortgaged property subject
to that mortgage loan is located. The filing of a mortgage or a deed of trust
creates a lien upon or conveys title to the real property encumbered by such
instrument and represents the security for the repayment of an obligation that
is customarily evidenced by a promissory note. It is not prior to the lien for
real estate taxes and assessments. Priority with respect to mortgages and deeds
of trust depends on their terms and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage, the mortgagor, who is the borrower/homeowner or the land trustee, and
the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, title to the property is held by a land trustee under a land trust
agreement, while the borrower/homeowner is the beneficiary of the land trust; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust normally has three parties, the trustor, similar to a
mortgagor, who may or may not be the borrower, the beneficiary, similar to a
mortgagee, who is the lender, and the trustee, a third-party grantee. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure payment
of the obligation. A security deed and a deed to secure debt are special types
of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until the time as the underlying debt is repaid. The
mortgagee's authority under a mortgage and the trustee's authority under a deed
of trust, security deed or deed to secure debt are governed by the law of the
state in which the real property is located, the express provisions of the
mortgage, deed of trust, security deed or deed to secure debt and, in some
cases, the directions of the beneficiary.
MANUFACTURED HOME CONTRACTS
Under the laws of most states, manufactured housing that is not permanently
affixed to its site constitutes personal property and is subject to the motor
vehicle registration laws of the state or other jurisdiction in which the unit
is located. In a few states, where certificates of title are not required for
manufactured homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC which has been adopted by all
states. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department, or a similar entity, of the state. In the states that have
enacted certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion as to
become a fixture, is generally perfected by the recording of the interest on the
certificate of title to the unit in the appropriate motor vehicle registration
office or by delivery of the required documents and payment of a fee to such
office, depending on state law.
The servicer will be required under the related servicing agreement to
effect the notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any manufactured home is registered. If the servicer fails,
due to clerical errors or otherwise, to effect the notation or delivery, or
files the security interest under the wrong law, for example, under a motor
vehicle title statute rather than under the
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UCC, in a few states, the trustee may not have a first priority security
interest in the manufactured home securing a manufactured housing contract. As
manufactured homes have become larger and often have been attached to their
sites without any apparent intention by the borrowers to move them, courts in
many states have held that manufactured homes may, under some circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, manufactured housing contracts will contain provisions
prohibiting the obligor from permanently attaching the manufactured home to its
site. So long as the obligor does not violate this agreement, a security
interest in the manufactured home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to maintain
the priority of the security interest in the manufactured home. If, however, a
manufactured home is permanently attached to its site, other parties could
obtain an interest in the manufactured home that is prior to the security
interest originally retained by the depositor.
The depositor will assign or cause to be assigned a security interest in
the manufactured homes to the trustee, on behalf of the securityholders. Neither
the depositor, the servicer nor the trustee will amend the certificates of title
to identify the trustee, on behalf of the securityholders, as the new secured
party and, accordingly, the depositor will continue to be named as the secured
party on the certificates of title relating to the manufactured homes. In most
states, an assignment is an effective conveyance of a security interest in a
manufactured home without amendment of any lien noted on the related certificate
of title and the new secured party succeeds to the depositor's rights as the
secured party. However, in some states there exists a risk that, in the absence
of an amendment to the certificate of title, the assignment of the security
interest might not be held effective against creditors of the depositor or
mortgage loan seller.
In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of the depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
a manufactured home or subsequent lenders who take a security interest in the
manufactured home. If there are any manufactured homes as to which the depositor
has failed to perfect or cause to be perfected the security interest assigned to
the trust fund, the security interest would be subordinate to subsequent
purchasers for value of manufactured homes and holders of perfected security
interests. There also exists a risk in not identifying the trustee, on behalf of
the securityholders, as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the trustee could be
released.
If the owner of a manufactured home moves it to a state other than the
state in which the manufactured home initially is registered, under the laws of
most states, the perfected security interest in the manufactured home would
continue for four months after the relocation and thereafter until the owner
re-registers the manufactured home in such state. If the owner were to relocate
a manufactured home to another state and re-register the manufactured home in
the new state, and if
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the depositor did not take steps to re-perfect its security interest in the new
state, the security interest in the manufactured home would cease to be
perfected. A majority of states generally require surrender of a certificate of
title to re-register a manufactured home. Accordingly, the depositor must
surrender possession if it holds the certificate of title to the manufactured
home or, in the case of manufactured homes registered in states that provide for
notation of lien, the depositor would receive notice of surrender if the
security interest in the manufactured home is noted on the certificate of title.
Accordingly, the depositor would have the opportunity to re-perfect its security
interest in the manufactured home in the state of relocation. In states that do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. Similarly, when an obligor under a
manufactured housing conditional sales contract sells a manufactured home, the
obligee must surrender possession of the certificate of title or it will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under each related
servicing agreement, the servicer will be obligated to take such steps, at the
servicer's expense, as are necessary to maintain perfection of security
interests in the manufactured homes.
Under the laws of most states, liens for repairs performed on a
manufactured home take priority even over a perfected security interest. The
depositor will obtain the representation of the mortgage loan seller that it has
no knowledge of any such liens with respect to any manufactured home securing a
manufactured home loan. However, liens could arise at any time during the term
of a manufactured home loan. No notice will be given to the trustee or
securityholders in the event a lien for repairs arises.
HOME IMPROVEMENT CONTRACTS
The home improvement contracts, other than those home improvement contracts
that are unsecured or secured by mortgages on real estate generally are "chattel
paper" or constitute "purchase money security interests", each as defined in the
UCC. Pursuant to the UCC, the sale of chattel paper is treated in a manner
similar to perfection of a security interest in chattel paper. Under the related
agreement, the depositor will transfer physical possession of the contracts to
the trustee or a designated custodian or may retain possession of the contracts
as custodian for the trustee. In addition, the depositor will make an
appropriate filing of a UCC-1 financing statement in the appropriate states to
give notice of the trustee's ownership of the contracts. The contracts will not
be stamped or otherwise marked to reflect their assignment from the depositor to
the trustee. Therefore, if through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the contracts without notice
of such assignment, the trustee's interest in the contracts could be defeated.
The contracts that are secured by the home improvements financed thereby
grant to the originator of the contracts a purchase money security interest in
such home improvements to secure all or part of the purchase price of the home
improvements and related services. A financing statement generally is not
required to be filed to perfect a purchase money security interest in consumer
goods. Such purchase money security interests are assignable. In general, a
purchase money security interest grants to the holder a security interest that
has priority over a conflicting security interest in the same collateral and the
proceeds of such collateral. However, to the extent that the collateral subject
to a purchase money security interest becomes a fixture, in order for the
related purchase money security interest to take priority over a conflicting
interest in the fixture, the
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holder's interest in such home improvement must generally be perfected by a
timely fixture filing. In general, under the UCC, a security interest does not
exist under the UCC in ordinary building material incorporated into an
improvement on land. Home improvement contracts that finance lumber, bricks,
other types of ordinary building material or other goods that are deemed to lose
such characterization, upon incorporation of the materials into the related
property, will not be secured by a purchase money security interest in the home
improvement being financed.
So long as the home improvement has not become subject to the real estate
law, a creditor can repossess a home improvement securing a contract by
voluntary surrender, "self-help" repossession that is "peaceful", i.e., without
breach of the peace, or, in the absence of voluntary surrender and the ability
to repossess without breach of the peace, judicial process. The holder of a
contract must give the debtor a number of days' notice, which varies from 10 to
30 days or more depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states restrict
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the
related property so that the debtor may redeem it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equity principles, may limit or delay the ability of
a lender to repossess and resell collateral or enforce a deficiency judgment.
FORECLOSURE ON MORTGAGES
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available remedies under the mortgage.
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 of record in the real property. Delays in completion of the foreclosure
may occasionally result from difficulties in locating necessary parties
defendant. Judicial foreclosure proceedings are often not contested by any of
the parties defendant. However, when the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure, the court would
issue a judgment of foreclosure and would generally appoint a referee or other
court officer to conduct the sale of the property.
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 upon any default by the borrower under the
terms of the note or deed of trust. In some states, prior to the sale, 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, prior to the sale, the trustee in some states
must provide notice to any other individual having an interest in the real
property, including any junior lienholder. The trustor, borrower, or any person
having a
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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 law controls the amount
of foreclosure expenses and costs, including attorneys' fees, that may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property, recorded and sent
to all parties having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage and in the mortgaged
property. It is regulated by statutes and rules and subject throughout to the
court's equitable powers. Generally, a mortgagor is bound by the terms of the
mortgage note and the mortgage as made and cannot be relieved from its own
default. However, since a foreclosure action is equitable in nature and is
addressed to a court of equity, the court may relieve a mortgagor of a default
and deny the mortgagee foreclosure on proof that the mortgagor's default was
neither willful nor in bad faith and that the mortgagee's action was such as to
establish a waiver, or fraud, bad faith, oppressive or unconscionable conduct as
to warrant a court of equity to refuse affirmative relief to the mortgagee. In
some cases a court of equity may relieve the mortgagor from an entirely
technical default where the default was not willful.
A foreclosure action or sale pursuant to a power of sale is subject to most
of the delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring up to several years to complete. Moreover,
recent judicial decisions suggest that a non-collusive, regularly conducted
foreclosure sale or sale pursuant to a power of sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and the sale occurred while
the mortgagor was insolvent and within one year, or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law, of the filing of bankruptcy. Similarly, a suit
against the debtor on the mortgage note may take several years.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty potential third party purchasers at the sale
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust plus accrued and unpaid interest and the expenses of foreclosure.
Generally, state law controls the amount of foreclosure costs and expenses,
including attorney's and trustee's fees, which may be recovered by a lender. In
some states there is a statutory minimum purchase price which the lender may
offer for the property. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume the burdens of ownership, including obtaining casualty insurance, paying
taxes and making repairs at its own expense as are necessary to render the
property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of any mortgage insurance proceeds.
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A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages if the mortgagor is in
default thereunder. In either event the amounts expended will be added to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, if the foreclosure of a junior mortgage triggers
the enforcement of a "due-on-sale" clause in a senior mortgage, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those mortgage loans which are
junior mortgage loans, if the lender purchases the property, the lender's title
will be subject to all senior liens and claims and some governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale, real estate taxes and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceedings.
If the servicer were to foreclose on any junior lien it would do so subject
to any related senior lien. In order for the debt related to the junior mortgage
loan to be paid in full at the sale, a bidder at the foreclosure sale of the
junior mortgage loan would have to bid an amount sufficient to pay off all sums
due under the junior mortgage loan and the senior lien or purchase the mortgaged
property subject to the senior lien. If proceeds from a foreclosure or similar
sale of the mortgaged property are insufficient to satisfy all senior liens and
the junior mortgage loan in the aggregate, the trust fund as the holder of the
junior lien and, accordingly, holders of one or more classes of related
securities bear (1) the risk of delay in distributions while a deficiency
judgment against the borrower is obtained and (2) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may not
be available in some jurisdictions. In addition, liquidation expenses with
respect to defaulted junior mortgage loans do not vary directly with the
outstanding principal balance of the loans at the time of default. Therefore,
assuming that the servicer took the same steps in realizing upon a defaulted
junior mortgage loan having a small remaining principal balance as it would in
the case of a defaulted junior mortgage loan having a large remaining principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small junior mortgage
loan than would be the case with the defaulted junior mortgage loan having a
large remaining principal balance.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its 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
a lender to
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foreclose if the default under the mortgage instrument is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of 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 minimums. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust, or under a mortgage having a power of
sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
With respect to a trust fund for which a REMIC election has been made, the
servicer, under the REMIC provisions of the Code and the pooling and servicing
agreement, may be required to hire an independent contractor to operate any REO
Property. The costs of such operation may be significantly greater than the cost
of direct operation by the servicer.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See
"--Anti-Deficiency Legislation and Other Limitations on Lenders" below.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the trust fund for which a REMIC election has been made with
respect to its acquisition (by foreclosure or otherwise) and disposition of REO
Property, and any taxes or fees imposed may reduce Liquidation Proceeds with
respect to such REO Property, as well as distributions payable to the
securityholders.
FORECLOSURE ON MORTGAGED PROPERTIES LOCATED IN THE COMMONWEALTH OF PUERTO RICO
Under the laws of the Commonwealth of Puerto Rico the foreclosure of a real
estate mortgage usually follows an ordinary "civil action" filed in the Superior
Court for the district where the mortgaged property is located. If the defendant
does not contest the action filed, a default judgment is rendered for the
plaintiff and the mortgaged property is sold at public auction, after
publication of the sale for two weeks, by posting written notice in three public
places in the municipality where the auction will be held, in the tax collection
office and in the public school of the municipality where the mortgagor resides,
if known. If the residence of the mortgagor is not known, publication in one of
the newspapers of general circulation in the Commonwealth of Puerto Rico must be
made at least once a week for two weeks. There may be as many as three public
sales of the mortgaged property. If the defendant contests the foreclosure, the
case may be tried and judgment rendered based on the merits of the case.
There are no redemption rights after the public sale of a foreclosed
property under the laws of the Commonwealth of Puerto Rico. Commonwealth of
Puerto Rico law provides for a summary proceeding for the foreclosure of a
mortgage, but it is very seldom used because of concerns regarding the validity
of these actions. The process may be expedited if the mortgagee can obtain the
consent of the defendant to the execution of a deed in lieu of foreclosure.
Under Commonwealth of Puerto Rico law, in the case of the public sale upon
foreclosure of a mortgaged property that (1) is subject to a mortgage loan that
was obtained for a purpose other
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than the financing or refinancing of the acquisition, construction or
improvement of the property and (2) is occupied by the mortgagor as his
principal residence, the mortgagor of the property has a right to be paid the
first $1,500 from the proceeds obtained on the public sale of the property. The
mortgagor can claim this sum of money from the mortgagee at any time prior to
the public sale or up to one year after the sale. Such payment would reduce the
amount of sales proceeds available to satisfy the mortgage loan and may increase
the amount of the loss.
REPOSSESSION WITH RESPECT TO MANUFACTURED HOME CONTRACTS
Repossession of manufactured housing is governed by state law. A few states
have enacted legislation that requires that the debtor be given an opportunity
to cure its default (typically 30 days to bring the account current) before
repossession can commence. Unless a manufactured home has become so attached to
real estate that it would be treated as a part of the real estate under the law
of the state where it is located, repossession of the manufactured home in the
event of a default by the obligor will generally be governed by the UCC. Article
9 of the UCC provides the statutory framework for the repossession of
manufactured housing. While the UCC as adopted by the various states may vary in
some minimal ways, the general repossession procedure established by the UCC is
as follows:
o Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon
default without prior notice. Repossession may be effected either
through self-help pursuant to a peaceable retaking without court
order, voluntary repossession or through judicial process by means of
repossession pursuant to court-issued writ of replevin. The self-help
or voluntary repossession methods are more commonly employed, and are
accomplished simply by retaking possession of the manufactured home.
In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate
state court, and the manufactured home must then be repossessed in
accordance with that order. Whether the method employed is self- help,
voluntary repossession or judicial repossession, the repossession can
be accomplished either by an actual physical removal of the
manufactured home to a secure location for refurbishment and resale or
by removing the occupants and their belongings from the manufactured
home and maintaining possession of the manufactured home on the
location where the occupants were residing. Various factors may affect
whether the manufactured home is physically removed or left on
location, such as the nature and term of the lease of the site on
which it is located and the condition of the unit. In many cases,
leaving the manufactured home on location is preferable if the home is
already set up because the expenses of retaking and redelivery will be
saved. However, in those cases where the home is left on location,
expenses for site rentals will usually be incurred.
o Once repossession has been achieved, preparation for the subsequent
disposition of the manufactured home can commence. The disposition may
be by public or private sale provided the method, manner, time, place
and terms of the sale are commercially reasonable.
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o Sale proceeds are to be applied first to repossession expenses such as
those expenses incurred in retaking, storage, preparing for sale
including refurbishing costs and selling, and then to satisfaction of
the indebtedness. While some states impose prohibitions or limitations
on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, the remainder may be sought from
the debtor in the form of a deficiency judgment in those states that
do not prohibit or limit deficiency judgments. The deficiency judgment
is a personal judgment against the debtor for the shortfall.
Occasionally, after resale of a manufactured home and payment of all
expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the party suing for the deficiency judgment to remit
the surplus to the debtor. Because the defaulting owner of a
manufactured home generally has very little capital or income
available following repossession, a deficiency judgment may not be
sought in many cases or, if obtained, will be settled at a significant
discount in light of the defaulting owner's strained financial
condition.
JUNIOR MORTGAGES
Some of the mortgage loans may be secured by junior mortgages or deeds of
trust, which are junior to senior mortgages or deeds of trust which are not part
of the trust fund. The rights of the securityholders as the holders of a junior
deed of trust or a junior mortgage are subordinate in lien priority and in
payment priority to those of the holder of the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive and
apply hazard insurance and condemnation proceeds and, upon default of the
mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the defaulted
senior loan or asserts its subordinate interest in a property in foreclosure
proceedings. SEE "--FORECLOSURE ON MORTGAGES".
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. If there is a
conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends sums, these sums will generally
have priority over all sums due under the junior mortgage.
RIGHTS OF REDEMPTION
MORTGAGE LOANS. In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the trustor or mortgagor and some foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. The right of redemption should be distinguished from the
equity of redemption, which is a nonstatutory right that must be exercised prior
to the foreclosure sale. In some states, redemption may occur only upon payment
of the entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The
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effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The right of redemption would defeat the
title of any purchaser acquired at a public sale. Consequently, the practical
effect of a right of redemption is to force the lender to retain the property
and pay the expenses of ownership and maintenance of the property until the
redemption period has expired. In some states, there is no right to redeem
property after a trustee's sale under a deed of trust.
MANUFACTURED HOME CONTRACTS. While state laws do not usually require notice
to be given to debtors prior to repossession, many states do require delivery of
a notice of default and of the debtor's right to cure defaults before
repossession of a manufactured home. The law in most states also requires that
the debtor be given notice of sale prior to the resale of the home so that the
owner may redeem at or before resale. In addition, the sale must comply with the
requirements of the UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY, MULTIFAMILY AND COMMERCIAL PROPERTIES. Some states have
imposed statutory prohibitions that limit the remedies of a beneficiary under a
deed of trust or a mortgagee under a mortgage. In some states, statutes limit
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 is a personal judgment against the former borrower equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other 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. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following a
judicial 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 judicial sale.
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 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 of collection of a
debt. Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 13 rehabilitative plan to cure a monetary default
with respect to 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
property had yet occurred) prior to the filing of the debtor's Chapter 13
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 if
the borrower has filed a petition under Chapter 13. These courts have suggested
that the modifications may include reducing the amount
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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 bankruptcy law and limited case law indicate that the foregoing
modifications could not be applied to the terms of a loan secured by property
that is the principal residence of the debtor. In all cases, the secured
creditor is entitled to the value of its security plus post-petition interest,
attorneys' fees and costs to the extent the value of the security exceeds the
debt.
The Bankruptcy Reform Act of 1994 established the National Bankruptcy
Review Commission for purposes of analyzing the nation's bankruptcy laws and
making recommendations to Congress for legislative changes to the bankruptcy
laws. A similar commission was involved in developing the Bankruptcy Code. The
NBRC delivered its report to Congress, the President of the United States and
the Chief Justice of the Supreme Court on October 20, 1997. Among other topics,
high leverage loans were addressed in the NBRC's report. Despite some
ambiguities, the NBRC's report appears to recommend that Congress amend
Bankruptcy Code section 1322(b)(2) by treating a claim secured only by a junior
security interest in a debtor's principal residence as protected only to the
extent that the claim was secured when the security interest was made if the
value of the property securing the junior security interest is less than such
amount. However, the express language of the report implies that a claim secured
only by a junior security interest in a debtor's principal residence may not be
modified to reduce the claim below the appraised value of the property at the
time the security interest was made. A strong dissent by some members of the
NBRC recommends that the protections of Bankruptcy Code section 1322(b)(2) be
extended to creditors principally secured by the debtor's principal residence.
Additionally, the NBRC's report recommends that a creditor's secured claim in
real property should be determined by the property's fair market value, less
hypothetical costs of sale. The standard advocated by this recommendation would
not apply to mortgages on the primary residence of a Chapter 11 or 13 debtor who
retains the residence if the mortgages are protected from modification such as
those senior mortgages not subject to modification pursuant to Bankruptcy Code
Sections 1322(b)(2) and 1123(b)(5). The final NBRC report may ultimately lead to
substantive changes to the existing Bankruptcy Code, such as reducing
outstanding loan balances to the appraised value of a debtor's principal
residence at the time the security interest in the property was taken, which
could affect the mortgage loans included in a trust fund and the enforcement of
rights therein.
In the case of income-producing multifamily properties and commercial
properties, federal bankruptcy law may also have the effect of interfering with
or affecting the ability of the secured lender to enforce the borrower's
assignment of rents and leases related to the mortgaged property. Under Section
362 of the Bankruptcy Code, the lender will be stayed from enforcing the
assignment, and the legal proceedings necessary to resolve the issue could be
time-consuming, with resulting delays in the lender's receipt of the rents.
Some tax liens arising under the Code, may in some circumstances provide
priority over the lien of a mortgage or deed of trust. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of single family mortgage loans by numerous
federal and some state consumer protection laws. These laws include the Federal
Truth-in-Lending Act, Regulation Z, Real Estate Settlement Procedures Act,
Regulation X, Equal Credit Opportunity Act, Regulation B, Fair Credit Billing
Act, Fair Housing Act, Fair Credit Reporting Act and related statutes. These
federal laws impose specific statutory liabilities upon
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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. In particular, the originators' failure to comply with certain
requirements of the Federal Truth-in-Lending Act, as implemented by Regulation
Z, could subject both originators and assignees of the obligations to monetary
penalties and could result in obligors' rescinding loans against either
originators or assignees.
In addition, some of the mortgage loans included in a trust fund may also
be subject to the Home Ownership and Equity Protection Act of 1994, if the
mortgage loans were originated on or after October 1, 1995, are not mortgage
loans made to finance the purchase of the mortgaged property and have interest
rates or origination costs in excess of certain prescribed levels. The
Homeownership Act requires certain additional disclosures, specifies the timing
of the disclosures and limits or prohibits inclusion of certain provisions in
mortgages subject to the Homeownership Act. Remedies available to the mortgagor
include monetary penalties, as well as recission rights if the appropriate
disclosures were not given as required or if the particular mortgage includes
provisions prohibited by law. The Homeownership Act also provides that any
purchaser or assignee of a mortgage covered by the Homeownership Act is subject
to all of the claims and defenses to loan payment, whether under the Federal
Truth-in-Lending Act, as amended by the Homeownership Act or other law, which
the borrower could assert against the original lender unless the purchaser or
assignee did not know and could not with reasonable diligence have determined
that the mortgage loan was subject to the provisions of the Homeownership Act.
The maximum damages that may be recovered under the Homeownership Act from an
assignee is the remaining amount of indebtedness plus the total amount paid by
the borrower in connection with the mortgage loan.
MANUFACTURED HOUSING CONTRACTS. In addition to the laws limiting or
prohibiting deficiency judgments, numerous other statutory provisions, including
federal bankruptcy laws and related state laws, may interfere with or affect the
ability of a lender to realize upon collateral and/or enforce a deficiency
judgment. For example, in a Chapter 13 proceeding under the federal bankruptcy
law, a court may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
CONSUMER PROTECTION LAWS WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS AND HOME
IMPROVEMENT CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity Act,
Regulation B, the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act, Regulation X, the Fair Housing Act and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to comply
with their provisions. In some cases, this liability may affect an assignee's
ability to enforce a contract. In particular, the originators' failure to comply
with certain requirements of the Federal Truth-in- Lending Act, as implemented
by Regulation Z, could subject both originators and assignees of the obligations
to monetary penalties and could result in obligors' rescinding the contracts
against either the originators or assignees. Further, if the manufactured
housing contracts or home improvement contracts are deemed high cost loans
within the meaning of the Homeownership Act, they would be
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subject to the same provisions of the Homeownership Act as mortgage loans as
described in "--Anti- Deficiency Legislation and Other Limitations on Lenders"
above.
Manufactured housing contracts and home improvement contracts often contain
provisions obligating the obligor to pay late charges if payments are not timely
made. In some cases, federal and state law may specifically limit the amount of
late charges that may be collected. Unless the prospectus supplement indicates
otherwise, under the related servicing agreement, late charges will be retained
by the servicer as additional servicing compensation, and any inability to
collect these amounts will not affect payments to securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
has the effect of subjecting a seller, and some related creditors and their
assignees, in a consumer credit transaction and any assignee of the creditor to
all claims and defenses which the debtor in the transaction could assert against
the seller of the goods. Liability under the FTC Rule is limited to the amounts
paid by a debtor on the contract, and the holder of the contract may also be
unable to collect amounts still due thereunder.
Most of the manufactured housing contracts and home improvement contracts
in a trust fund will be subject to the requirements of the FTC Rule.
Accordingly, the trustee, as holder of the manufactured housing contracts, will
be subject to any claims or defenses that the purchaser of the related
manufactured home may assert against the seller of the manufactured home,
subject to a maximum liability equal to the amounts paid by the obligor on the
manufactured housing contract or home improvement contract. If an obligor is
successful in asserting any such claim or defense, and if the mortgage loan
seller had or should have had knowledge of such claim or defense, the servicer
will have the right to require the mortgage loan seller to repurchase the
manufactured housing contract or home improvement contract because of a breach
of its mortgage loan seller's representation and warranty that no claims or
defenses exist that would affect the obligor's obligation to make the required
payments under the manufactured housing contract or home improvement contract.
The mortgage loan seller would then have the right to require the originating
dealer to repurchase the manufactured housing contract from it and might also
have the right to recover from the dealer for any losses suffered by the
mortgage loan seller with respect to which the dealer would have been primarily
liable to the obligor.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions including federal bankruptcy laws and
related state laws may interfere with or
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affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding under the federal
bankruptcy law, a court may prevent a lender from repossessing a home, and as
part of the rehabilitation plan reduce the amount of the secured indebtedness to
the market value of the home at the time of bankruptcy, as determined by the
court, leaving the party providing financing as a general unsecured creditor for
the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
ENFORCEABILITY OF PROVISIONS
The mortgage loans in a trust fund will in most cases 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 without the prior
consent of the lender. The enforceability of these clauses has been impaired in
various ways in some states by statute or decisional law. The ability of lenders
and their assignees and transferees to enforce due-on-sale clauses was addressed
by the Garn-St Germain Depository Institutions Act of 1982. This legislation,
subject to certain exceptions, preempts state constitutional, statutory and case
law that prohibits the enforcement of due-on-sale clauses. The Garn-St Germain
Act does "encourage" lenders to permit assumptions of loans at the original rate
of interest or at some other rate less than the average of the original rate and
the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act, including federal savings
and loan associations and federal savings banks, may not exercise a due-on-sale
clause, even though a transfer of the property may have occurred. These 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 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 related to a series and the number of mortgage loans
that may be outstanding until maturity.
TRANSFER OF MANUFACTURED HOMES UNDER MANUFACTURED HOUSING CONTRACTS
Generally, manufactured housing contracts contain provisions prohibiting
the sale or transfer of the related manufactured homes without the consent of
the obligee on the contract and permitting the acceleration of the maturity of
the contract by the obligee on the contract upon any sale or transfer that is
not consented to. The servicer will, to the extent it has knowledge of the
conveyance or proposed conveyance, exercise or cause to be exercised its rights
to accelerate the maturity of the related manufactured housing contract through
enforcement of due-on-sale clauses, subject to applicable state law. In some
cases, the transfer may be made by a delinquent obligor in order to avoid a
repossession proceeding with respect to a manufactured home.
In the case of a transfer of a manufactured home as to which the servicer
desires to accelerate the maturity of the related manufactured housing contract,
the servicer's ability to do so will depend
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on the enforceability under state law of the due-on-sale clause. The Garn-St
Germain Act preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of due-on-sale clauses applicable to the manufactured
homes. Consequently, in some cases the servicer may be prohibited from enforcing
a due-on-sale clause in respect of some manufactured homes.
PREPAYMENT CHARGES AND PREPAYMENTS
The regulations of the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage to a refinancing lender.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, and, unless rents are to be paid directly to the
lender, retains a revocable license to collect the rents for so long as there is
no default. If the borrower defaults, the license terminates and the lender is
entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the borrower, the lender's ability
to collect the rents may be adversely affected. In the event of borrower
default, the amount of rent the lender is able to collect from the tenants can
significantly affect the value of the lender's security interest.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor, as junior loans often do, and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that 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
mortgagor 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 an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan or
any junior loan or both, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceeds by the senior lender.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 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 authorized any
state to reimpose interest rate limits by adopting before April 1, 1983 a law or
constitutional provision that 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. Some states have taken action to reimpose
interest rate limits or to limit discount points or other charges.
The depositor has been advised by counsel that a court interpreting Title V
would hold that mortgage loans originated on or after January 1, 1980 are
subject to federal preemption. Therefore, in a state that has not taken the
requisite action to reject application of Title V or to adopt a provision
limiting discount points or other charges prior to origination of the mortgage
loans, any such limitation under the state's usury law would not apply to the
mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no mortgage
loans originated after the date of such state action will be eligible for
inclusion in a trust fund if the mortgage loans bear interest or provide for
discount points or charges in excess of permitted levels. No mortgage loan
originated prior to January 1, 1980 will bear interest or provide for discount
points or charges in excess of permitted levels.
Title V also provides that state usury limitations do not apply to any loan
that is secured by a first lien on certain kinds of manufactured housing if
certain conditions are met, including the terms of any prepayments, late charges
and deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit. Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
manufactured housing contract which imposes finance charges or provides for
discount points or charges in excess of permitted levels has been included in
the trust fund.
ALTERNATIVE MORTGAGE INSTRUMENTS
ARM Loans originated by non-federally chartered lenders have historically
been subject to a variety of restrictions. These restrictions differed from
state to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender complied
with applicable law. These difficulties were simplified substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act. Title VIII
provides that notwithstanding
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any state law to the contrary, (1) state-chartered banks may originate
"alternative mortgage instruments", including ARM Loans, in accordance with
regulations promulgated by the Comptroller of the Currency with respect to
origination of alternative mortgage instruments by national banks, (2)
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions and (3) all other non-federally chartered housing
creditors, including, without limitation, state-chartered savings and loan
associations, savings banks and mutual savings banks and mortgage banking
companies may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII
further provides that any state may reject applicability of the provisions of
Title VIII by adopting prior to October 15, 1985 a law or constitutional
provision expressly rejecting the applicability of such provisions. Some states
have taken this type of action.
The depositor has been advised by counsel that a court interpreting Title
VIII would hold that ARM Loans that were originated by state-chartered lenders
before the date of enactment of any state law or constitutional provision
rejecting applicability of Title VIII would not be subject to state laws
imposing restrictions or prohibitions on the ability of state-chartered lenders
to originate alternative mortgage instruments.
All of the ARM Loans in a trust fund that were originated by a
state-chartered lender after the enactment of a state law or constitutional
provision rejecting the applicability of Title VIII will have complied with
applicable state law. All of the ARM Loans in a trust fund that were originated
by federally chartered lenders or that were originated by state-chartered
lenders prior to enactment of a state law or constitutional provision rejecting
the applicability of Title VIII will have been originated in compliance with all
applicable federal regulations.
FORMALDEHYDE LITIGATION WITH RESPECT TO MANUFACTURED HOMES
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials including components of manufactured housing such as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The depositor is aware of a limited number
of cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any loan or contract secured by a manufactured home with
respect to which a formaldehyde claim has been successfully asserted may be
liable to the obligor for the amount paid by the obligor on the related loan or
contract and may be unable to collect amounts still due under the loan or
contract. The successful assertion of such claim will constitute a breach of a
representation or warranty of the mortgage loan seller, and the securityholders
would suffer a loss only to the extent that (1) the mortgage loan seller
breached its obligation to repurchase the loan or contract in the event an
obligor is successful in asserting the claim, and (2) the mortgage loan seller,
the depositor or the trustee were unsuccessful in asserting any claim of
contribution or subrogation on behalf of the securityholders against the
manufacturer or other persons who were directly liable to
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the plaintiff for the damages. Typical products liability insurance policies
held by manufacturers and component suppliers of manufactured homes may not
cover liabilities arising from formaldehyde in manufactured housing, with the
result that recoveries from the manufacturers, suppliers or other persons may be
limited to their corporate assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a borrower who enters military service after the origination of that
borrower's mortgage loan, including a borrower who was in reserve status and is
called to active duty after origination of the mortgage loan, may not be charged
interest, including fees and charges, above an annual rate of 6% during the
period of that borrower's active duty status unless a court orders otherwise
upon application of the lender. The Relief Act applies to borrowers who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard, and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to borrowers who enter military
service, including reservists who are called to active duty, after origination
of the related mortgage loan no information can be provided as to the number of
loans that may be affected by the Relief Act. Application of the Relief Act
would adversely affect, for an indeterminate period of time, the ability of the
servicer to collect full amounts of interest on the applicable mortgage loans.
Any shortfalls in interest collections resulting from the application of the
Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of securities, and would not be covered by
advances or, unless specified in the related prospectus supplement, any form of
credit support provided in connection with the securities. In addition, the
Relief Act imposes limitations that would impair the ability of the servicer to
foreclose on an affected mortgage loan or enforce rights under a manufactured
housing contract or home improvement contract during the borrower's period of
active duty status and under some circumstances during an additional three month
period thereafter. Thus, if the Relief Act applies to any Mortgage Asset which
goes into default, there may be delays in payment on the related securities. Any
other interest shortfalls, deferrals or forgiveness of payments on the Mortgage
Assets resulting from similar legislation or regulations may result in delays in
payment or losses to securityholders if credit support has been exhausted or is
no longer in effect or does not cover such shortfall.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and under some state laws, a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable for the
costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict as well as joint and several
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA. This
exemption exempts from the definition of owners and operators those who without
participating in the management of a facility hold indicia of ownership
primarily to protect a security interest in the facility. What constitutes
sufficient participation in the management of a property securing a loan or the
business of a borrower to render
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the exemption unavailable to a lender has been a matter of interpretation by the
courts. CERCLA has been interpreted to impose liability on a secured party even
absent foreclosure where the party participated in the financial management of
the borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and become
owners of collateral property courts are inconsistent as to whether that
ownership renders the secured creditor exemption unavailable. Other federal and
state laws may impose liability on a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates a
mortgaged property on which contaminants other than CERCLA hazardous substances
are present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead-based paint. Such cleanup costs may be substantial. It
is possible that the cleanup costs could become a liability of a trust fund and
reduce the amounts otherwise distributable to the holders of the related series
of securities. Moreover, some federal statutes and some states by statute impose
an environmental lien for any cleanup costs incurred by the state on the
property that is the subject of the cleanup costs. All subsequent liens on a
property generally are subordinated to an environmental lien and in some states
even prior recorded liens are subordinated to environmental liens. In the latter
states, the security interest of the trust fund in a related parcel of real
property that is subject to an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, the servicer has not made
and will not make such evaluations prior to the origination of the mortgage
loans. Neither the servicer nor any replacement servicer will be required by any
servicing agreement to undertake any environmental evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. The servicer will not
make any representations or warranties or assume any liability with respect to
the absence or effect of contaminants on any related real property or any
casualty resulting from the presence or effect of contaminants. The servicer
will not be obligated to foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on a property. A failure so to foreclose may
reduce the amounts otherwise available to securityholders of the related series.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations statute can be seized by the government if the property
was used in or purchased with the proceeds of these crimes. Under procedures
contained in the Comprehensive Crime Control Act of 1984 the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was at the
time of execution of the mortgage "reasonably without cause to believe" that the
property was used in or purchased with the proceeds of illegal drug or RICO
activities.
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NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First Circuit,
held that state restrictions on the compounding of interest are not preempted by
the provisions of the Depository Institutions Deregulation and Monetary Control
Act of 1980 and as a result, a mortgage loan that provided for negative
amortization violated New Hampshire's requirement that first mortgage loans
provide for computation of interest on a simple interest basis. The holding was
limited to the effect of DIDMC on state laws regarding the compounding of
interest and the court did not address the applicability of the Alternative
Mortgage Transaction Parity Act of 1982, which authorizes lender to make
residential mortgage loans that provide for negative amortization. The First
Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
INSTALLMENT CONTRACTS
The trust fund may also consist of installment sales contracts. Under an
installment sales contract the seller, referred to in this section as the
"lender", retains legal title to the property and enters into an agreement with
the purchaser, referred to in this section as the "borrower", for the payment of
the purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the installment contract is the lender
obligated to convey title to the property to the purchaser. As with mortgage or
deed of trust financing, during the effective period of the installment contract
the borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing or able pursuant to state statute to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated and the
buyer's equitable interest in the property is forfeited. The lender in such a
situation is not required to foreclose in order to obtain title to the property,
although in some cases a quiet title action is pursued if the borrower has filed
the installment contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under such statutes a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally the lender's procedures for obtaining possession and
clear title under an installment contract in a given state are simpler and less
time consuming and costly than are the procedures for foreclosing and obtaining
clear title to a property subject to one or more liens.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is the opinion of Thacher Proffitt & Wood, counsel
to the depositor, with respect to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of the securities
offered under this prospectus and the prospectus supplement as it relates to
matters of law or legal conclusions. This discussion is directed solely to
securityholders that hold the securities as capital assets within the meaning of
Section 1221 of the Code and does not purport to discuss all federal income tax
consequences that may be applicable to the individual circumstances of banks,
insurance companies, foreign investors, tax-exempt organizations, dealers in
securities or currencies, mutual funds, real estate investment trusts, natural
persons, cash method taxpayers, S corporations, estates and trusts,
securityholders that hold the securities as part of a hedge, straddle or, an
integrated or conversion transaction, or securityholders whose "functional
currency" is not the United States dollar.
The authorities on which this discussion and the opinion referred to below
are based are subject to change or differing interpretations which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS will
not take contrary positions. Taxpayers and preparers of tax returns should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (1) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (2) is directly relevant to the determination of an
entry on a tax return. Accordingly, it is suggested that taxpayers consult their
own tax advisors and tax return preparers regarding the preparation of any item
on a tax return, even where the anticipated tax treatment has been discussed in
this prospectus. In addition to the federal income tax consequences described in
this prospectus, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of the
securities. See "State and Other Tax Consequences."
The following discussion addresses securities of four general types:
o REMIC Certificates representing interests in a trust fund, or a
portion thereof, that the Trustee will elect to have treated as a
REMIC under the REMIC Provisions of the Code,
o Notes constituting indebtedness for federal income tax purposes.
o Grantor Trust Certificates representing interests in a Grantor Trust
Fund as to which no REMIC election will be made,
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o Partnership Certificates representing interests in a Partnership Trust
Fund which is treated as a partnership for federal income tax
purposes, and
The prospectus supplement for each series of certificates will indicate whether
one or more REMIC elections will be made for the related trust fund and will
identify all regular interests and residual interests in the REMIC or REMICs.
For purposes of this tax discussion, references to a securityholder or a holder
are to the beneficial owner of a security.
The following discussion is based in part upon the OID Regulations and in
part upon REMIC Regulations. The OID Regulations do not adequately address
issues relevant to the offered securities. In some instances the OID Regulations
provide that they are not applicable to securities like the offered securities.
REMICS
CLASSIFICATION OF REMICS. On or prior to the date of the related prospectus
supplement with respect to the issuance of each series of REMIC Certificates, in
the opinion of counsel to the depositor, assuming compliance with all provisions
of the related pooling and servicing agreement, for federal income tax purposes
the related trust fund or each applicable portion of the related trust fund will
qualify as a REMIC and the offered REMIC Certificates will be considered to
evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates
in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for status as a REMIC during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for that year and for later years. In that event, the entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described under "Taxation
of Owners of REMIC Regular Certificates" and "Taxation of Owners of REMIC
Residual Certificates". Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination of
REMIC status, these regulations have not been issued. If these regulations are
issued, relief in the event of an inadvertent termination may be accompanied by
sanctions, which may include the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for
status as a REMIC are not satisfied. The pooling and servicing agreement with
respect to each REMIC will include provisions designed to maintain the trust
fund's status as a REMIC under the REMIC Provisions. It is not anticipated that
the status of any trust fund as a REMIC will be inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general, the
REMIC Certificates will be real estate assets within the meaning of Section
856(c)(4)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code in the same proportion as the assets of the REMIC underlying the
certificates. If 95% or more of the assets of the REMIC qualify for either of
the treatments described in the previous sentence at all times during a calendar
year, the REMIC Certificates will qualify for the corresponding status in their
entirety for that calendar
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year. Interest, including original issue discount, on the REMIC Regular
Certificates and income allocated to the class of REMIC Residual Certificates
will be interest described in Section 856(c)(3)(B) of the Code to the extent
that the certificates are treated as real estate assets within the meaning of
Section 856(c)(4)(A) of the Code. In addition, the REMIC Regular Certificates
will be qualified mortgages within the meaning of Section 860G(a)(3) of the Code
if transferred to another REMIC on its startup day in exchange for regular or
residual interests of that REMIC. The determination as to the percentage of the
REMIC's assets that constitute assets described in these sections of the Code
will be made for each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during the calendar quarter. The
Trustee will report those determinations to certificateholders in the manner and
at the times required by Treasury regulations.
The assets of the REMIC will include mortgage loans, payments on mortgage
loans held prior to the remittance of these payments to the REMIC Certificates
and any property acquired by foreclosure held prior to the sale of this
property, and may include amounts in reserve accounts. It is unclear whether
property acquired by foreclosure held prior to the sale of this property and
amounts in reserve accounts would be considered to be part of the mortgage
loans, or whether these assets otherwise would receive the same treatment as the
mortgage loans for purposes of all of the Code sections discussed in the
immediately preceding paragraph. The related prospectus supplement will describe
the mortgage loans that may not be treated entirely as assets described in the
sections of the Code discussed in the immediately preceding paragraph. The REMIC
Regulations do provide, however, that cash received from payments on mortgage
loans held pending remittance is considered part of the mortgage loans for
purposes of Section 856(c)(4)(A) of the Code. Furthermore, foreclosure property
will qualify as real estate assets under Section 856(c)(4)(A) of the Code.
TIERED REMIC STRUCTURES. For some series of REMIC Certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs for federal income tax purposes, creating a tiered REMIC
structure. As to each series of REMIC Certificates, in the opinion of counsel to
the depositor, assuming compliance with all provisions of the related pooling
and servicing agreement, each of the REMICs in that series will qualify as a
REMIC and the REMIC Certificates issued by these REMICs will be considered to
evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates
in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
real estate assets within the meaning of Section 856(c)(4)(A) of the Code, and
loans secured by an interest in real property under Section 7701(a)(19)(C) of
the Code, and whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code, all of the REMICs in that series will be
treated as one REMIC.
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TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
GENERAL. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that ordinarily report income
under a cash method of accounting will be required to report income for REMIC
Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. A REMIC Regular Certificate may be issued with
original issue discount within the meaning of Section 1273(a) of the Code. Any
holder of a REMIC Regular Certificate issued with original issue discount
generally will be required to include original issue discount in income as it
accrues, in accordance with the constant yield method, in advance of the receipt
of the cash attributable to that income. In addition, Section 1272(a)(6) of the
Code provides special rules applicable to REMIC Regular Certificates and some
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a reasonable Prepayment Assumption be used for
mortgage loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of that discount to
reflect differences between the actual prepayment rate and the Prepayment
Assumption. The Prepayment Assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The committee report accompanying the Tax Reform Act of 1986 indicates that the
regulations will provide that the Prepayment Assumption used for a REMIC Regular
Certificate must be the same as that used in pricing the initial offering of the
REMIC Regular Certificate. The Prepayment Assumption used in reporting original
issue discount for each series of REMIC Regular Certificates will be consistent
with this standard and will be disclosed in the related prospectus supplement.
However, none of the depositor, the master servicer or the trustee will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold, excluding sales to bond houses, brokers and underwriters. If
less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the closing date, the issue price
for that class will be the fair market value of that class on the closing date.
Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on the certificate
other than qualified stated interest. "Qualified stated interest" is interest
that is unconditionally payable at least annually during the entire term of the
instrument at a single fixed rate, a qualified floating rate, an objective rate,
a combination of a single fixed rate and one or more qualified floating rates or
one qualified inverse floating rate, or a combination of qualified floating
rates that does not operate in a manner that accelerates or defers interest
payments on the REMIC Regular Certificate.
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In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
the REMIC Regular Certificates. If the original issue discount rules apply to
the certificates in a particular series, the related prospectus supplement will
describe the manner in which these rules will be applied with respect to the
certificates in that series that bear an adjustable interest rate in preparing
information returns to the certificateholders and the IRS.
The first interest payment on a REMIC Regular Certificate may be made more
than one month after the date of issuance, which is a period longer than the
subsequent monthly intervals between interest payments. Assuming the accrual
period for original issue discount is each monthly period that ends on the day
prior to each remittance date, in some cases, as a consequence of this long
first accrual period, some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
If the accrued interest to be paid on the first remittance date is computed
with respect to a period that begins prior to the closing date, a portion of the
purchase price paid for a REMIC Regular Certificate will reflect the accrued
interest. In these cases, information returns to the certificateholders and the
IRS will take the position that the portion of the purchase price paid for the
interest accrued for periods prior to the closing date is part of the overall
cost of the REMIC Regular Certificate, and not a separate asset the cost of
which is recovered entirely out of interest received on the next remittance
date), and that portion of the interest paid on the first remittance date in
excess of interest accrued for a number of days corresponding to the number of
days from the closing date to the first remittance date should be included in
the stated redemption price of the REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of the accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first remittance date. It is unclear how an election to do
so would be made under the OID Regulations and whether this election could be
made unilaterally by a certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of a REMIC Regular Certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the REMIC Regular Certificate, by multiplying (1) the number of
complete years from the issue date until that payment is expected to be made,
presumably taking into account the Prepayment Assumption, by (2) a fraction, the
numerator of which is the amount of the payment, and the denominator of which is
the stated redemption price at maturity of the REMIC Regular Certificate. Under
the OID Regulations, original issue discount of only a de minimis amount, other
than de minimis original issue discount attributable to a teaser interest rate
or an initial
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interest holiday, will be included in income as each payment of stated principal
is made, based on the product of the total amount of the de minimis original
issue discount attributable to that certificate and a fraction, the numerator of
which is the amount of the principal payment and the denominator of which is the
outstanding stated principal amount of the REMIC Regular Certificate. The OID
Regulations also would permit a certificateholder to elect to accrue de minimis
original issue discount into income currently based on a constant yield method.
See "Taxation of Owners of REMIC Regular Certificates--Market Discount" for a
description of this election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of the certificate must include in ordinary gross
income the sum of the daily portions of original issue discount for each day
during its taxable year on which it held the REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as described in the following
paragraph.
As to each "accrual period," that is, each period that ends on a date that
corresponds to the day prior to each remittance date and begins on the first day
following the immediately preceding accrual period, except the first accrual
period, which begins on the closing date, a calculation will be made of the
portion of the original issue discount that accrued during the accrual period.
The portion of original issue discount that accrues in any accrual period will
equal the excess, if any, of (1) the sum of (a) the present value, as of the end
of the accrual period, of all of the remittances remaining to be made on the
REMIC Regular Certificate, if any, in future periods and (b) the remittances
made on the REMIC Regular Certificate during the accrual period of amounts
included in the stated redemption price, over (2) the adjusted issue price of
the REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining remittances referred to in the preceding sentence
will be calculated (1) assuming that remittances on the REMIC Regular
Certificate will be received in future periods based on the mortgage loans being
prepaid at a rate equal to the Prepayment Assumption, (2) using a discount rate
equal to the original yield to maturity of the certificate and (3) taking into
account events, including actual prepayments, that have occurred before the
close of the accrual period. For these purposes, the original yield to maturity
of the certificate will be calculated based on its issue price and assuming that
remittances on the certificate will be made in all accrual periods based on the
mortgage loans being prepaid at a rate equal to the Prepayment Assumption. The
adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of the certificate, increased by the
aggregate amount of original issue discount that accrued with respect to the
certificate in prior accrual periods, and reduced by the amount of any
remittances made on the certificate in prior accrual periods of amounts included
in the stated redemption price. The original issue discount accruing during any
accrual period will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for that day.
A subsequent purchaser of a REMIC Regular Certificate that purchases a
certificate that is treated as having been issued with original issue discount
at a cost, excluding any portion of the cost attributable to accrued qualified
stated interest, less than its remaining stated redemption
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price will also be required to include in gross income the daily portions of any
original issue discount for the certificate. However, each daily portion will be
reduced, if the cost of the certificate is in excess of its adjusted issue price
in proportion to the ratio the excess bears to the aggregate original issue
discount remaining to be accrued on the REMIC Regular Certificate. The "adjusted
issue price" of a REMIC Regular Certificate on any given day equals the sum of
(1) the adjusted issue price or, in the case of the first accrual period, the
issue price, of the certificate at the beginning of the accrual period which
includes that day and (2) the daily portions of original issue discount for all
days during the accrual period prior to that day.
MARKET DISCOUNT. A certificateholder that purchases a REMIC Regular
Certificate at a market discount will recognize gain upon receipt of each
remittance representing stated redemption price. A REMIC Regular Certificate
issued without original issue discount will have market discount if purchased
for less than its remaining stated principal amount and a REMIC Regular
Certificate issued with original issue discount will have market discount if
purchased for less than its adjusted issue price. Under Section 1276 of the
Code, a certificateholder that purchases a REMIC Regular Certificate at a market
discount generally will be required to allocate the portion of each remittance
representing stated redemption price first to accrued market discount not
previously included in income, and to recognize ordinary income to that extent.
A certificateholder may elect to include market discount in income currently as
it accrues rather than including it on a deferred basis. If made, the election
will apply to all market discount bonds acquired by the certificateholder on or
after the first day of the first taxable year to which the election applies. In
addition, the OID Regulations permit a certificateholder to elect to accrue all
interest and discount in income as interest, and to amortize premium, based on a
constant yield method. If such an election were made with respect to a REMIC
Regular Certificate with market discount, the certificateholder would be deemed
to have made an election to include currently market discount in income with
respect to all other debt instruments having market discount that the
certificateholder acquires during the taxable year of the election or later
taxable years, and possibly previously acquired instruments. Similarly, a
certificateholder that made this election for a certificate that is acquired at
a premium would be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that the
certificateholder owns or acquires. SEE "Taxation of Owners of REMIC Regular
Certificates--Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a certificate on a constant yield method or
as interest would be irrevocable, except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if the
market discount is less than 0.25% of the remaining stated redemption price of
the REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular Certificates--
Original Issue
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Discount" above. This treatment would result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, the rules
described in the committee report apply. The committee report indicates that in
each accrual period market discount on REMIC Regular Certificates should accrue,
at the certificateholder's option: (1) on the basis of a constant yield method,
(2) in the case of a REMIC Regular Certificate issued without original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the REMIC Regular Certificate
as of the beginning of the accrual period, or (3) in the case of a REMIC Regular
Certificate issued with original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the original issue discount
accrued in the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the accrual
period. Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect these regulations might have
on the tax treatment of a REMIC Regular Certificate purchased at a discount in
the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic remittances throughout their term, the effect of these rules may be to
require market discount to be includible in income at a rate that is not
significantly slower than the rate at which the discount would accrue if it were
original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of these methods,
less any accrued market discount previously reported as ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule applies. Any such deferred interest
expense would not exceed the market discount that accrues during the taxable
year and is, in general, allowed as a deduction not later than the year in which
the market discount is includible in income. If a holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the holder in that taxable year or later taxable years,
the interest deferral rule will not apply.
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PREMIUM. A REMIC Regular Certificate purchased at a cost, excluding any
portion of the cost attributable to accrued qualified stated interest, greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of a REMIC Regular Certificate may elect under Section 171
of the Code to amortize the premium under the constant yield method over the
life of the certificate. If made, the election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, rather than as a separate interest deduction. The
OID Regulations also permit certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the certificateholder as having made the election to amortize premium
generally. See "Taxation of Owners of REMIC Regular Certificates--Market
Discount" above. The committee report states that the same rules that apply to
accrual of market discount, which rules will require use of a Prepayment
Assumption in accruing market discount with respect to REMIC Regular
Certificates without regard to whether the certificates have original issue
discount, will also apply in amortizing bond premium under Section 171 of the
Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire the certificates 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 certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until the holder's certificate
becomes wholly worthless, i.e., until its outstanding principal balance has been
reduced to zero, and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to the certificate, without
giving effect to any reduction in remittances attributable to defaults or
delinquencies on the mortgage loans or the certificate underlying the REMIC
Certificates, as the case may be, until it can be established the reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a REMIC Regular Certificate could exceed
the amount of economic income actually realized by that holder in the period.
Although the holder of a REMIC Regular Certificate eventually will recognize a
loss or reduction in income attributable to previously accrued and included
income that as the result of a realized loss ultimately will not be realized,
the law is unclear with respect to the timing and character of this loss or
reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and some other transactions. See "--Prohibited
Transactions Tax and Other Taxes" below. Rather, the taxable income or net loss
of a REMIC is generally taken into account by the holder of the REMIC Residual
Certificates. Accordingly, the REMIC Residual Certificates will be subject to
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tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the mortgage loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that the holder owned the REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a 30 days per month/90 days per
quarter/360 days per year convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on that day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash remittances by the REMIC. Ordinary income
derived from REMIC Residual Certificates will be portfolio income for purposes
of the taxation of taxpayers subject to limitations under Section 469 of the
Code on the deductibility of passive losses.
A holder of a REMIC Residual Certificate that purchased the certificate
from a prior holder of that certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income, or net loss, of the REMIC for each day that it holds the REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss. The committee report indicates that some modifications of
the general rules may be made, by regulations, legislation or otherwise to
reduce, or increase, the income of a REMIC Residual Certificateholder that
purchased the REMIC Residual Certificate from a prior holder of the certificate
at a price greater than, or less than, the adjusted basis, the REMIC Residual
Certificate would have had in the hands of an original holder of the
certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of the REMIC Residual Certificate will be taken
into account in determining the income of the holder for federal income tax
purposes. Although it appears likely that any of these payments would be
includible in income immediately upon its receipt, the IRS might assert that
these payments should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of these payments, holders of REMIC
Residual Certificates should consult their tax advisors concerning the treatment
of these payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report, or the tax liability associated with the income, may exceed the amount
of cash remittances received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions
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against which income may be offset, subject to the rules relating to excess
inclusions, and noneconomic residual interests discussed at "-Noneconomic REMIC
Residual Certificates". The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
remittances received by the REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect the REMIC Residual
Certificateholders' after-tax rate of return. This disparity between income and
remittances may not be offset by corresponding losses or reductions of income
attributable to the REMIC Residual Certificateholder until subsequent tax years
and, then, may not be completely offset due to changes in the Code, tax rates or
character of the income or loss.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will equal the
income from the mortgage loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest, including original issue discount and reduced by any premium on
issuance, on the REMIC Regular Certificates, whether or not offered by the
prospectus, amortization of any premium on the mortgage loans, bad debt losses
with respect to the mortgage loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates, or if a class of REMIC Certificates is not sold
initially, their fair market values. The aggregate basis will be allocated among
the mortgage loans and the other assets of the REMIC in proportion to their
respective fair market values. The issue price of any offered REMIC Certificates
will be determined in the manner described above under "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount." The issue price of a REMIC
Certificate received in exchange for an interest in the mortgage loans or other
property will equal the fair market value of the interests in the mortgage loans
or other property. Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Trustee may be required to estimate the
fair market value of the interests in order to determine the basis of the REMIC
in the mortgage loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to mortgage loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates. However, a REMIC that acquires loans at a market discount must
include the market discount in income currently, as it accrues, on a constant
yield basis. See "--Taxation of Owners of REMIC Regular Certificates" above,
which describes a method for accruing discount income that is analogous to that
required to be used by a REMIC as to mortgage loans with market discount that it
holds.
A mortgage loan will be deemed to have been acquired with either discount
or premium to the extent that the REMIC's basis in the mortgage loan is either
less than or greater than its stated redemption price. Any discount will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to the income, under a method similar to the method
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described above for accruing original issue discount on the REMIC Regular
Certificates. It is anticipated that each REMIC will elect under Section 171 of
the Code to amortize any premium on the mortgage loans. Premium on any mortgage
loan to which the election applies may be amortized under a constant yield
method, presumably taking into account a Prepayment Assumption. This election
would not apply to any mortgage loan originated on or before September 27, 1985,
premium on which should be allocated among the principal payments on that
mortgage loan and be deductible by the REMIC as those payments become due or
upon the prepayment of the mortgage loan.
A REMIC will be allowed deductions for interest, including original issue
discount, on the REMIC Regular Certificates, whether or not offered by this
prospectus, equal to the deductions that would be allowed if these REMIC Regular
Certificates were indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount," except that the
de minimis rule and the adjustments for subsequent holders of these REMIC
Regular Certificates will not apply.
If a class of REMIC Regular Certificates is issued with issue premium, the
net amount of interest deductions that are allowed the REMIC in each taxable
year for the REMIC Regular Certificates of that class will be reduced by an
amount equal to the portion of the issue premium that is considered to be
amortized or repaid in that year. "Issue premium" is the excess of the issue
price of a REMIC Regular Certificate over its stated redemption price. Although
the matter is not entirely clear, it is likely that issue premium would be
amortized under a constant yield method in a manner analogous to the method of
accruing original issue discount described above under "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code, allowing these deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income, will not be applied at the REMIC level and the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. These expenses will be allocated as a separate
item to the holders of REMIC Certificates, subject to the limitation of Section
67 of the Code. SEE "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, the excess will be the net loss for the REMIC for
that calendar quarter.
BASIS RULES, NET LOSSES AND REMITTANCES. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for the REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased, but not below zero, by remittances made, and by
net losses allocated, to the REMIC Residual Certificateholder.
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A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent the net loss exceeds the REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of the calendar quarter, determined without regard to the net loss.
Any loss that is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and, subject to the
same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any remittance on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in the REMIC Residual Certificate. To the extent a remittance on
a REMIC Residual Certificate exceeds this adjusted basis, it will be treated as
gain from the sale of the REMIC Residual Certificate. Holders of REMIC Residual
Certificates may be entitled to remittances early in the term of the related
REMIC under circumstances in which their bases in the REMIC Residual
Certificates will not be sufficiently large that the remittances will be treated
as nontaxable returns of capital. Their bases in the REMIC Residual Certificates
will initially equal the amount paid for the REMIC Residual Certificates and
will be increased by the REMIC Residual Certificateholders' allocable shares of
taxable income of the REMIC. However, these bases increases may not occur until
the end of the calendar quarter, or perhaps the end of the calendar year, with
respect to which the REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent the REMIC Residual Certificateholders' initial
bases are less than the remittances to the REMIC Residual Certificateholders,
and increases in initial bases either occur after the remittances or, together
with their initial bases, are less than the amount of the remittances, gain will
be recognized by the REMIC Residual Certificateholders on these remittances and
will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through remittances, through the deduction of any net losses of the REMIC
or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of the REMIC Residual Certificate to the REMIC Residual
Certificateholder and the adjusted basis the REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. Any excess inclusions with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events. In general, the
"excess inclusions" with respect to a REMIC Residual Certificate for any
calendar quarter will be the excess, if any, of (1) the daily portions of REMIC
taxable income allocable to the REMIC Residual Certificate over (2) the sum of
the daily accruals for each day during the quarter that the REMIC Residual
Certificate was held by the REMIC Residual Certificateholder. The "daily
accruals" of a REMIC Residual Certificateholder will be determined by allocating
to each day during a calendar quarter its
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ratable portion of the product of the adjusted issue price of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the long-term
Federal rate in effect on the closing date. For this purpose, the adjusted issue
price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased,
but not below zero, by any remittances made with respect to the REMIC Residual
Certificate before the beginning of that quarter. The issue price of a REMIC
Residual Certificate is the initial offering price to the public, excluding bond
houses and brokers, at which a substantial amount of the REMIC Residual
Certificates were sold. The "long-term Federal 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. Although it has not done so, the
Treasury has authority to issue regulations that would treat the entire amount
of income accruing on a REMIC Residual Certificate as an excess inclusion if the
REMIC Residual Certificates are considered to have significant value.
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as unrelated business taxable income to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on remittances to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess inclusions
will not be permitted to be offset by the alternative tax net operating loss
deduction and alternative minimum taxable income may not be less than the
taxpayer's excess inclusions. The latter rule has the effect of preventing
nonrefundable tax credits from reducing the taxpayer's income tax to an amount
lower than the alternative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the REMIC
Residual Certificates, as reduced, but not below zero, by the real estate
investment trust taxable income, will be allocated among the shareholders of the
trust in proportion to the dividends received by the shareholders from the
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Certificate as if held directly by the shareholder.
"Real estate investment trust taxable income" is defined by Section 857(b)(2) of
the Code, and as used in the prior sentence does not include any net capital
gain. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and cooperatives; the REMIC
Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of noneconomic REMIC Residual Certificates will be disregarded for all
federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax." If the
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on the noneconomic
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REMIC Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is "noneconomic" unless, based on the Prepayment Assumption and on
any required or permitted clean up calls, or required liquidation provided for
in the REMIC's organizational documents, (1) the present value of the expected
future remittances, discounted using the applicable Federal rate for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, on the REMIC
Residual Certificate equals at least the present value of the expected tax on
the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive remittances with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to restrictions under the terms of the
related pooling and servicing agreement that are intended to reduce the
possibility of any such transfer being disregarded. These restrictions will
require each party to a transfer to provide an affidavit that no purpose of the
transfer is to impede the assessment or collection of tax, including
representations as to the financial condition of the prospective transferee, for
which the transferor is also required to make a reasonable investigation to
determine the transferee's historic payment of its debts and ability to continue
to pay its debts as they come due in the future. Prior to purchasing a REMIC
Residual Certificate, prospective purchasers should consider the possibility
that a purported transfer of the REMIC Residual Certificate by such a purchaser
to another purchaser at some future date may be disregarded in accordance with
the rule described in the first sentence of this paragraph, which would result
in the retention of tax liability by the purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered noneconomic residual interests under the
REMIC Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will not be considered noneconomic will be based upon assumptions,
and the depositor will make no representation that a REMIC Residual Certificate
will not be considered noneconomic for purposes of the above-described rules.
See "--Foreign Investors in REMIC Certificates--REMIC Residual Certificates"
below for additional restrictions applicable to transfers of REMIC Residual
Certificates to foreign persons.
MARK-TO-MARKET RULES. In general, all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment, must be marked to market in accordance with the applicable Code
provision and the related regulations. However, the IRS recently issued
regulations which provide that for purposes of this mark-to-market requirement,
a REMIC Residual Certificate acquired after January 4, 1995 is not treated as a
security and thus may not be marked to market. Prospective purchasers of a REMIC
Residual Certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to REMIC Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of these fees and expenses should be
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allocated to the holders of the related REMIC Regular Certificates. Except as
stated in the related prospectus supplement, these fees and expenses will be
allocated to holders of the related REMIC Residual Certificates in their
entirety and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a pass-through entity beneficially owned by one or more individuals,
estates or trusts, (1) an amount equal to the individual's, estate's or trust's
share of the fees and expenses will be added to the gross income of the holder
and (2) the individual's, estate's or trust's share of the fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits these deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (1) 3% of the excess
of the individual's adjusted gross income over that amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by REMIC Certificateholders that
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a pass-through entity beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for the holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of the fees and other
deductions will be included in the holder's gross income. Accordingly, these
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Prospective investors should consult with their
own tax advisors prior to making an investment in the certificates.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of the REMIC Regular Certificate to the certificateholder, increased by income
reported by such certificateholder with respect to the REMIC Regular
Certificate, including original issue discount and market discount income, and
reduced, but not below zero, by remittances on the REMIC Regular Certificate
received by the certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described under
"--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net Losses
and Remittances." Except as provided in the following four paragraphs, any such
gain or loss will be capital gain or loss, provided the REMIC Certificate is
held as a capital asset within the meaning of Section 1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent the gain does not
exceed the excess, if any, of (1) the amount that would have been includible in
the seller's income with respect to the REMIC
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Regular Certificate assuming that income had accrued thereon at a rate equal to
110% of the applicable Federal rate, determined as of the date of purchase of
the REMIC Regular Certificate, over (2) the amount of ordinary income actually
includible in the seller's income prior to the sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount will be taxable as ordinary
income in an amount not exceeding the portion of the discount that accrued
during the period the REMIC Certificate was held by the holder, reduced by any
market discount included in income under the rules described above under
"--Taxation of Owners of REMIC Regular Certificates--Market Discount" and
"--Premium."
REMIC Certificates will be evidences of indebtedness within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a REMIC Certificate by a bank or thrift institution to which this section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that the certificate is held as part of a conversion transaction within the
meaning of Section 1258 of the Code. A "conversion transaction" generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in the transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate applicable Federal rate at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include the net capital
gain in total net investment income for the taxable year, for purposes of the
rule that limits the deduction of interest on indebtedness incurred to purchase
or carry property held for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires the REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a taxable mortgage pool, as defined in Section 7701(i) of the Code,
during the period beginning six months before, and ending six months after, the
date of the sale, such sale will be subject to the wash sale rules of Section
1091 of the Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead will be added
to the REMIC Residual Certificateholder's adjusted basis in the newly-acquired
asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. In the event a
REMIC engages in a prohibited transaction, the Code imposes a 100% tax on the
income derived by the REMIC from the prohibited transaction. In general, subject
to specified exceptions, a prohibited transaction means the disposition of a
mortgage loan, the receipt of income from a source other than a mortgage loan or
other permitted investments, the receipt of compensation for services, or
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gain from the disposition of an asset purchased with the payments on the
mortgage loans for temporary investment pending remittance on the REMIC
Certificates. It is not anticipated that any REMIC will engage in any prohibited
transactions in which it would recognize a material amount of net income.
In addition, a contribution to a REMIC made after the day on which the
REMIC issues all of its interests could result in the imposition on the REMIC of
a tax equal to 100% of the value of the contributed property. Each pooling and
servicing agreement will include provisions designed to prevent the acceptance
of any contributions that would be subject to this tax.
REMICs also are subject to federal income tax at the highest corporate rate
on net income from foreclosure property, determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
It is not anticipated that any REMIC will recognize net income from foreclosure
property subject to federal income tax.
To the extent permitted by then applicable laws, any tax resulting from a
prohibited transaction, tax resulting from a contribution made after the closing
date, tax on net income from foreclosure property or state or local income or
franchise tax that may be imposed on the REMIC will be borne by the related
master servicer or trustee in either case out of its own funds, provided that
the master servicer or the trustee, as the case may be, has sufficient assets to
do so, and provided further that the tax arises out of a breach of the master
servicer's or the trustee's obligations, as the case may be, under the related
pooling and servicing agreement and in respect of compliance with applicable
laws and regulations. Any of these taxes not borne by the master servicer or the
trustee will be charged against the related trust fund resulting in a reduction
in amounts payable to holders of the related REMIC Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS. If a REMIC Residual Certificate is transferred to a disqualified
organization, a tax would be imposed in an amount equal to the product of (1)
the present value, discounted using the applicable Federal rate for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, of the total
anticipated excess inclusions with respect to the REMIC Residual Certificate for
periods after the transfer and (2) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must be determined
as of the date that the REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of the transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where the transfer is through an agent for a disqualified
organization, the tax would instead be imposed on the agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for the
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,
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the transferor does not have actual knowledge that the affidavit is false.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (1) residual interests in the entity are
not held by disqualified organizations and (2) information necessary for the
application of the tax described herein will be made available. Restrictions on
the transfer of REMIC Residual Certificates and other provisions that are
intended to meet this requirement will be included in the pooling and servicing
agreement, and will be discussed more fully in any prospectus supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a pass-through entity includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization is
the record holder of an interest in the entity, then a tax will be imposed on
the entity equal to the product of (1) the amount of excess inclusions on the
REMIC Residual Certificate that are allocable to the interest in the
pass-through entity held by the disqualified organization and (2) the highest
marginal federal income tax rate imposed on corporations. A pass-through entity
will not be subject to this tax for any period, however, if each record holder
of an interest in the pass-through entity furnishes to the pass-through entity
(1) the holder's social security number and a statement under penalties of
perjury that the social security number is that of the record holder or (2) a
statement under penalties of perjury that the record holder is not a
disqualified organization. Notwithstanding the preceding two sentences, in the
case of a REMIC Residual Certificate held by an electing large partnership, as
defined in Section 775 of the Code, all interests in the partnership shall be
treated as held by disqualified organizations, without regard to whether the
record holders of the partnership furnish statements described in the preceding
sentence, and the amount that is subject to tax under the second preceding
sentence is excluded from the gross income of the partnership allocated to the
partners, in lieu of allocating to the partners a deduction for the tax paid by
the partnership.
For these purposes, a "disqualified organization" means:
o the United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentality of the foregoing (but would not include
instrumentalities described in Section 168(h)(2)(D) of the Code or the
Federal Home Loan Mortgage Corporation,
o any organization (other than a cooperative described in Section 521 of
the Code) that is exempt from federal income tax, unless it is subject
to the tax imposed by Section 511 of the Code or
o any organization described in Section 1381(a)(2)(C) of the Code.
For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to the interest, be treated as a pass-through entity.
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TERMINATION. A REMIC will terminate immediately after the remittance date
following receipt by the REMIC of the final payment in respect of the mortgage
loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last remittance on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual certificate, if the last remittance on the REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in the Certificate, the REMIC Residual Certificateholder should,
but may not, be treated as realizing a loss equal to the amount of the
difference, and the loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
The Trustee or other party specified in the related prospectus supplement will
file REMIC federal income tax returns on behalf of the related REMIC, and under
the terms of the related Agreement, will either (1) be irrevocably appointed by
the holders of the largest percentage interest in the related REMIC Residual
Certificates as their agent to perform all of the duties of the tax matters
person with respect to the REMIC in all respects or (2) will be designated as
and will act as the tax matters person with respect to the related REMIC in all
respects and will hold at least a nominal amount of REMIC Residual Certificates.
The Trustee, as the tax matters person or as agent for the tax matters
person, subject to notice requirements and various restrictions and limitations,
generally will have the authority to act on behalf of the REMIC and the REMIC
Residual Certificateholders in connection with the administrative and judicial
review of items of income, deduction, gain or loss of the REMIC, as well as the
REMIC's classification. REMIC Residual Certificateholders generally will be
required to report such REMIC items consistently with their treatment on the
REMIC's tax return and may in some circumstances be bound by a settlement
agreement between the Trustee, as either tax matters person or as agent for the
tax matters person, and the IRS concerning any such REMIC item. Adjustments made
to the REMIC tax return may require a REMIC Residual Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of a
REMIC Residual Certificateholder's return. Any person that holds a REMIC
Residual Certificate 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 the person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC regular interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and some other non-individuals will be provided interest and
original issue discount income information and the information set forth in the
following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
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disclose on its face the amount of original issue discount and the issue date,
and requiring the information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, Treasury regulations only require
that information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the Trustee or other party designated in the related prospectus
supplement.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the backup withholding tax under Section 3406 of
the Code at a rate of 31% if recipients of the payments fail to furnish to the
payor certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from the backup withholding tax. Any
amounts deducted and withheld from a remittance to a recipient would be allowed
as a credit against the recipient's federal income tax. Furthermore, penalties
may be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular Certificateholder
that is not a United States Person and is not subject to federal income tax as a
result of any direct or indirect connection to the United States in addition to
its ownership of a REMIC Regular Certificate will not be subject to United
States federal income or withholding tax in respect of a remittance on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary
with identification requirements, including delivery of a statement, signed by
the certificateholder under penalties of perjury, certifying that the
certificateholder is not a United States Person and providing the name and
address of the certificateholder. It is possible that the IRS may assert that
the foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, remittances of interest, including
remittances in respect of accrued original issue discount, to the holder may be
subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder's allocable portion of the interest income received by the
controlled foreign corporation.
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Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, it is suggested that certificateholders who
are non-resident alien individuals consult their tax advisors concerning this
question.
Except as stated in the related prospectus supplement, transfers of REMIC
Residual Certificates to investors that are not United States Persons will be
prohibited under the related pooling and servicing agreement.
NEW WITHHOLDING REGULATIONS
The IRS has issued new regulations which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The new regulations attempt to unify certification requirements and modify
reliance standards. These regulations will generally be effective for payments
made after December 31, 2000. Prospective investors are urged to consult their
tax advisors regarding these regulations.
NOTES
On or prior to the date of the related prospectus supplement with respect
to the proposed issuance of each series of notes, in the opinion of counsel to
the depositor, assuming compliance with all provisions of the indenture, owner
trust agreement and other related documents, for federal income tax purposes (1)
the notes will be treated as indebtedness and (2) the Issuer, as created
pursuant to the terms and conditions of the owner trust agreement, will not be
characterized as an association, or publicly traded partnership, taxable as a
corporation or as a taxable mortgage pool. For purposes of this tax discussion,
references to a noteholder or a holder are to the beneficial owner of a note.
STATUS AS REAL PROPERTY LOANS
(1) Notes held by 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); and (2) notes held by a real estate
investment trust will not constitute real estate assets within the meaning of
Code section 856(c)(4)(A) and interest on notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (1)
income reportable on the notes is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (2) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the notes. See "--REMICs
- --Taxation of Owners of REMIC Regular Certificates" and "-- Sales of REMIC
Certificates."
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GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS
On or prior to the date of the related prospectus supplement with respect
to the proposed issuance of each series of Grantor Trust Certificates, in the
opinion of counsel to the depositor, assuming compliance with all provisions of
the related pooling and servicing agreement, the related Grantor Trust Fund will
be classified as a grantor trust under subpart E, part I of subchapter J of
Chapter 1 of the Code and not as a partnership or an association taxable as a
corporation.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, except as disclosed in the related
prospectus supplement, in the opinion of counsel to the depositor, Grantor Trust
Fractional Interest Certificates will represent interests in (1) "loans . . .
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code; (2) "obligation[s] (including any participation
or certificate of beneficial ownership therein) which . . .[are] principally
secured by an interest in real property" within the meaning of Section
860G(a)(3) of the Code; and (3) real estate assets within the meaning of Section
856(c)(4)(A) of the Code. In addition, counsel to the depositor will deliver an
opinion that interest on Grantor Trust Fractional Interest Certificates will to
the same extent be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may include buydown
mortgage loans. The characterization of an investment in buydown mortgage loans
will depend upon the precise terms of the related buydown agreement, but to the
extent that such buydown mortgage loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. No directly applicable precedents exist
with respect to the federal income tax treatment or the characterization of
investments in buydown mortgage loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes buydown mortgage loans.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and real estate assets within the meaning
of Section 856(c)(4)(A) of the Code, and the interest on the mortgage loans is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and income from the Grantor Trust Certificates will be
characterized the same way. However, the policies underlying these sections, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts, may suggest that this characterization
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is appropriate. Counsel to the depositor will not deliver any opinion on these
questions. It is suggested that prospective purchasers to which the
characterization of an investment in Grantor Trust Strip Certificates is
material consult their tax advisors regarding whether the Grantor Trust Strip
Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or certificate of beneficial ownership therein) which . . .[are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the mortgage loans, including amounts used to
pay reasonable servicing fees and other expenses, and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable on the same
certificate representing interest on the mortgage loans. Under Section 67 of the
Code, an individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through some pass-through entities will be allowed a
deduction for the reasonable servicing fees and expenses only to the extent that
the aggregate of the holder's miscellaneous itemized deductions exceeds two
percent of the holder's adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (1) 3% of the excess of the individual's adjusted gross
income over the amount or (2) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest Certificates who are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, certificateholders other than corporations subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining the holder's alternative minimum taxable income. Although it is not
entirely clear, it appears that in transactions in which multiple classes of
Grantor Trust Certificates, including Grantor Trust Strip Certificates, are
issued, the fees and expenses should be allocated among the classes of Grantor
Trust Certificates using a method that recognizes that each such class benefits
from the related services. In the absence of statutory or administrative
clarification as to the method to be used, it is intended to base information
returns or reports to the IRS and certificateholders on a method that allocates
the expenses among classes of Grantor Trust Certificates with respect to each
period on the remittances made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
stripped bond rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains, for its own account or for
purposes of resale, a right to receive a specified portion of the interest
payable on the mortgage loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
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retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established safe harbors. The servicing fees paid
with respect to the mortgage loans for a series of Grantor Trust Certificates
may be higher than those safe harbors and, accordingly, may not constitute
reasonable servicing compensation. The related prospectus supplement will
include information regarding servicing fees paid to the master servicer, any
subservicer or their respective affiliates necessary to determine whether the
safe harbor rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with original issue discount within the meaning of Section 1273(a) of the
Code, subject, however, to the discussion in the sixth following paragraph
regarding the treatment of some stripped bonds as market discount bonds and the
discussion regarding de minimis market discount. See "--Taxation of Owners of
Grantor Trust Fractional Interest Certificates-- Discount" below. Under the
stripped bond rules, the holder of a Grantor Trust Fractional Interest
Certificate, whether a cash or accrual method taxpayer, will be required to
report interest income from its Grantor Trust Fractional Interest Certificate
for each month in an amount equal to the income that accrues on the certificate
in that month calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of the certificate's stated redemption price over
its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by the purchaser
for the Grantor Trust Fractional Interest Certificate. The stated redemption
price of a Grantor Trust Fractional Interest Certificate will be the sum of all
payments to be made on the certificate, other than qualified stated interest, if
any, as well as the certificate's share of reasonable servicing fees and other
expenses. See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates-- Stripped Bond Rules Do Not Apply" for a definition of qualified
stated interest. In general, the amount of the income that accrues in any month
would equal the product of the holder's adjusted basis in the Grantor Trust
Fractional Interest Certificate at the beginning of the month, see "Sales of
Grantor Trust Certificates", and the yield of the Grantor Trust Fractional
Interest Certificate to the holder. This yield would be computed at the rate,
compounded based on the regular interval between remittance dates, that, if used
to discount the holder's share of future payments on the mortgage loans, would
cause the present value of those future payments to equal the price at which the
holder purchased the certificate. In computing yield under the stripped bond
rules, a certificateholder's share of future payments on the mortgage loans will
not include any payments made in respect of any ownership interest in the
mortgage loans retained by the depositor, the master servicer, any subservicer
or their respective affiliates, but will include the certificateholder's share
of any reasonable servicing fees and other expenses.
To the extent the Grantor Trust Fractional Interest Certificates represent
an interest in any pool of debt instruments the yield on which may be affected
by reason of prepayments, Section 1272(a)(6) of the Code requires (1) the use of
a reasonable Prepayment Assumption in accruing original issue discount and (2)
adjustments in the accrual of original issue discount when
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prepayments do not conform to the Prepayment Assumption. It is unclear whether
those provisions would be applicable to the Grantor Trust Fractional Interest
Certificates that do not represent an interest in any pool of debt instruments
the yield on which may be affected by reason of prepayments, or whether use of a
reasonable Prepayment Assumption may be required or permitted without reliance
on these rules. It is also uncertain, if a Prepayment Assumption is used,
whether the assumed prepayment rate would be determined based on conditions at
the time of the first sale of the Grantor Trust Fractional Interest Certificate
or, for a particular holder, at the time of purchase of the Grantor Trust
Fractional Interest Certificate by that holder. It is suggested that
Certificateholders consult their own tax advisors concerning reporting original
issue discount with respect to Grantor Trust Fractional Interest Certificates
and, in particular, whether a Prepayment Assumption should be used in reporting
original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to the
certificate, the use of a Prepayment Assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a price less than or greater than the principal amount of the
certificate, that is, at a discount or a premium, the use of a reasonable
Prepayment Assumption would increase or decrease the yield, and thus accelerate
or decelerate, respectively, the reporting of income.
If a Prepayment Assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder's
interest in the mortgage loan. If a Prepayment Assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
It is intended to base information reports or returns to the IRS and
certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, none of the depositor,
the master servicer or the trustee will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or any other rate and certificateholders should bear in mind that the
use of a representative initial offering price will mean that the information
returns or reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial certificateholders of each series
who bought at that price.
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Under Treasury regulation Section 1.1286-1, some stripped bonds are to be
treated as market discount bonds and any purchaser of a stripped bond treated as
a market discount bond is to account for any discount on the bond as market
discount rather than original issue discount. This treatment only applies,
however, if immediately after the most recent disposition of the bond by a
person stripping one or more coupons from the bond and disposing of the bond or
coupon (1) there is no, or only a de minimis amount of, original issue discount
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan, before subtracting any servicing fee or any stripped
coupon. If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the mortgage loans, the related prospectus supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the mortgage loans, then that original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Characteristics of
Investments in Grantor Trust Certificates-- If Stripped Bond Rules Do Not Apply"
and "--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
the certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in mortgage loans issued with original issue
discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of the mortgage loans and their
issue price. Under the OID Regulations, the stated redemption price is equal to
the total of all payments to be made on the mortgage loan other than qualified
stated interest. "Qualified stated interest" is interest that is unconditionally
payable at least annually at a single fixed rate, a qualified floating rate, an
objective rate, a combination of a single fixed rate and one or more qualified
floating rates or one qualified inverse floating rate, or a combination of
qualified floating rates that does not operate in a manner that accelerates or
defers interest payments on the mortgage loan. In general, the issue price of a
mortgage loan will be the amount received by the borrower from the lender under
the terms of the mortgage loan, less any points paid by the borrower, and the
stated redemption price of a mortgage loan will equal its principal amount,
unless the mortgage loan provides for an initial below-market rate of interest
or the acceleration or the deferral of interest payments. The determination as
to whether original issue discount will be considered to be de minimis will be
calculated using the same test described in the REMIC discussion. See
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount"
above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which the
rules will be applied with respect to
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those mortgage loans by the master servicer or the trustee in preparing
information returns to the certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. Section
1272(a)(6) of the Code requires that a Prepayment Assumption be made in
computing yield with respect to any pool of debt instruments the yield on which
may be affected by reason of prepayments. Accordingly, for certificates backed
by these pools, it is intended to base information reports and returns to the
IRS and certificateholders on the use of a Prepayment Assumption. However, in
the case of certificates not backed by these pools, it currently is not intended
to base the reports and returns on the use of a Prepayment Assumption. It is
suggested that certificateholders consult their own tax advisors concerning
whether a Prepayment Assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related prospectus supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to mortgage loans in the series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases the Grantor Trust Fractional Interest Certificate at a cost less than
the certificate's allocable portion of the aggregate remaining stated redemption
price of the mortgage loans held in the related trust fund will also be required
to include in gross income the certificate's daily portions of any original
issue discount with respect to the mortgage loans. However, each such daily
portion will be reduced, if the cost of the Grantor Trust Fractional Interest
Certificate to the purchaser is in excess of the certificate's allocable portion
of the aggregate adjusted issue prices of the mortgage loans held in the related
trust fund, approximately in proportion to the ratio the excess bears to the
certificate's allocable portion of the aggregate original issue discount
remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of (1) the adjusted issue price,
or, in the case of the first accrual period, the issue price, of the mortgage
loan at the beginning of the accrual period that includes that day and (2) the
daily portions of original issue discount for all days during the accrual period
prior to that day. The adjusted issue price of a mortgage loan at the beginning
of any accrual period will equal the issue price of the mortgage loan, increased
by the aggregate amount of original issue discount with respect to the mortgage
loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on the mortgage loan in prior accrual periods of amounts included
in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee,
except as provided in the related prospectus supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
the holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have
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been purchased at a market discount, that is, in the case of a mortgage loan
issued without original issue discount, at a purchase price less than its
remaining stated redemption price, or in the case of a mortgage loan issued with
original issue discount, at a purchase price less than its adjusted issue price.
If market discount is in excess of a de minimis amount, the holder generally
will be required to include in income in each month the amount of the discount
that has accrued through the month that has not previously been included in
income, but limited, in the case of the portion of the discount that is
allocable to any mortgage loan, to the payment of stated redemption price on the
mortgage loan that is received by, or, in the case of accrual basis
certificateholders, due to, the trust fund in that month. A certificateholder
may elect to include market discount in income currently as it accrues under a
constant yield method based on the yield of the certificate to the holder rather
than including it on a deferred basis under rules similar to those described in
"--Taxation of Owners of REMIC Regular Certificates--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, some rules
described in the committee report will apply. Under those rules, in each accrual
period market discount on the mortgage loans should accrue, at the
certificateholder's option: (1) on the basis of a constant yield method, (2) in
the case of a mortgage loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the mortgage loan as of the beginning of the accrual period, or
(3) in the case of a mortgage loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
Prepayment Assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a Prepayment Assumption could be to accelerate the reporting of the
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect the regulations might
have on the tax treatment of a mortgage loan purchased at a discount in the
secondary market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, the market discount may be required to be included in income
at a rate that is not significantly slower than the rate at which the discount
would be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" with the exception that it is less likely
that a Prepayment Assumption will be used for purposes of these rules with
respect to the mortgage loans.
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Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the mortgage loans.
PREMIUM. If a certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, the certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of the premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as these payments are made, or, for a certificateholder using the
accrual method of accounting, when the payments of stated redemption price are
due.
It is unclear whether a Prepayment Assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a Prepayment Assumption and a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the difference between
the portion of the prepaid principal amount of the mortgage loan that is
allocable to the certificate and the portion of the adjusted basis of the
certificate that is allocable to the mortgage loan. If a Prepayment Assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a Prepayment Assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the Prepayment
Assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The stripped coupon
rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "Characterization of Investments in
Grantor Trust Certificates--If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued and some
uncertainty exists as to how it will be applied to securities such as the
Grantor Trust Strip Certificates. Accordingly, it is suggested that holders of
Grantor Trust Strip Certificates consult their own tax advisors concerning the
method to be used in reporting income or loss with respect to the certificates.
The OID Regulations do not apply to stripped coupons, although they provide
general guidance as to how the original issue discount sections of the Code will
be applied. In addition,
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the discussion below is subject to the discussion under "-- Application of
Contingent Payment Rules" and assumes that the holder of a Grantor Trust Strip
Certificate will not own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of the holder's adjusted basis in the Grantor Trust
Strip Certificate at the beginning of that month and the yield of the Grantor
Trust Strip Certificate to the holder. The yield would be calculated based on
the price paid for that Grantor Trust Strip Certificate by its holder and the
payments remaining to be made thereon at the time of the purchase, plus an
allocable portion of the servicing fees and expenses to be paid with respect to
the mortgage loans. See "Characterization of Investments in Grantor Trust
Certificates-- Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a Prepayment
Assumption be used in computing the accrual of original issue discount with
respect to some categories of debt instruments, and that adjustments be made in
the amount and rate of accrual of the discount when prepayments do not conform
to the Prepayment Assumption. To the extent the Grantor Trust Strip Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, those provisions apply to Grantor Trust Strip
Certificates. It is unclear whether those provisions would be applicable to the
Grantor Trust Strip Certificates that do not represent an interest in any such
pool, or whether use of a Prepayment Assumption may be required or permitted in
the absence of these provisions. It is also uncertain, if a Prepayment
Assumption is used, whether the assumed prepayment rate would be determined
based on conditions at the time of the first sale of the Grantor Trust Strip
Certificate or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a Prepayment Assumption is permitted to be made than if
yield is computed assuming no prepayments. It currently is intended to base
information returns or reports to the IRS and certificateholders on the
Prepayment Assumption disclosed in the related prospectus supplement and on a
constant yield computed using a representative initial offering price for each
class of certificates. However, none of the depositor, the master servicer or
the trustee will make any representation that the mortgage loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at any other rate
and certificateholders should bear in mind that the use of a representative
initial offering price will mean that the information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate
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is treated as a single instrument rather than an interest in discrete mortgage
loans and the effect of prepayments is taken into account in computing yield
with respect to the Grantor Trust Strip Certificate, it appears that no loss may
be available as a result of any particular prepayment unless prepayments occur
at a rate faster than the Prepayment Assumption. However, if a Grantor Trust
Strip Certificate is treated as an interest in discrete mortgage loans, or if
the Prepayment Assumption is not used, then, when a mortgage loan is prepaid,
the holder of a Grantor Trust Strip Certificate should be able to recognize a
loss equal to the portion of the adjusted issue price of the Grantor Trust Strip
Certificate that is allocable to the mortgage loan.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations were
promulgated on June 14, 1996, regarding contingent payment debt instruments (the
"Contingent Payment Regulations"), but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code as
described above, or due to their similarity to other mortgage-backed securities
(such as REMIC regular interests and debt instruments subject to Section
1272(a)(6) of the Code) that are expressly excepted from the application of the
Contingent Payment Regulations, are or may be excepted from these regulations.
Like the OID Regulations, the Contingent Payment Regulations do not specifically
address securities, such as the Grantor Trust Strip Certificates, that are
subject to the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply the noncontingent bond method. Under the noncontingent bond method, the
issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the projected yield of the Grantor Trust
Strip Certificate.
The projected amount of each payment is determined so that the projected
payment schedule reflects the projected yield. The projected amount of each
payment must reasonably reflect the relative expected values of the payments to
be received by the holder of a Grantor Trust Strip Certificate. The projected
yield referred to above is a reasonable rate, not less than the applicable
Federal rate that, as of the issue date, reflects general market conditions, the
credit quality of the issuer, and the terms and conditions of the mortgage
loans. The holder of a Grantor Trust Strip Certificate would be required to
include as interest income in each month the adjusted issue price of the Grantor
Trust Strip Certificate at the beginning of the period multiplied by the
projected yield, and would add to, or subtract from, the income any variation
between the payment actually received in that month and the payment originally
projected to be made in that month.
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Assuming that a Prepayment Assumption were used, if the Contingent Payment
Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis recognized on the sale or exchange of a
Grantor Trust Certificate by an investor who holds the Grantor Trust Certificate
as a capital asset will be capital gain or loss, except to the extent of accrued
and unrecognized market discount, which will be treated as ordinary income, and,
in the case of banks and other financial institutions, except as provided under
Section 582(c) of the Code. The adjusted basis of a Grantor Trust Certificate
generally will equal its cost, increased by any income reported by the seller,
including original issue discount and market discount income, and reduced, but
not below zero, by any previously reported losses, any amortized premium and by
any remittances with respect to the Grantor Trust Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in some circumstances. Gain attributable to
accrued and unrecognized market discount will be treated as ordinary income, as
will gain or loss recognized by banks and other financial institutions subject
to Section 582(c) of the Code. Furthermore, a portion of any gain that might
otherwise be capital gain may be treated as ordinary income to the extent that
the Grantor Trust Certificate is held as part of a conversion transaction within
the meaning of Section 1258 of the Code. A "conversion transaction" generally is
one in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in the transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate applicable Federal rate at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction. Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include the
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING. The master servicer or the trustee will furnish to
each holder of a Grantor Trust Fractional Interest Certificate with each
remittance a statement setting forth the amount of the remittance allocable to
principal on the underlying mortgage loans and to interest thereon at the
related pass-through rate. In addition, the master servicer or the trustee will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Grantor Trust Certificate who was a holder at any time during that
year, information regarding the amount of any servicing compensation received by
the master servicer and subservicer and any other customary factual information
as the master servicer or the trustee deems necessary or desirable
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to enable holders of Grantor Trust Certificates to prepare their tax returns and
will furnish comparable information to the IRS as and when required by law to do
so. Because the rules for accruing discount and amortizing premium with respect
to the Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the trust fund's information reports of these
items of income and expense. Moreover, these information reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders that bought their certificates at the
representative initial offering price used in preparing the reports.
Except as disclosed in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the master servicer or the trustee.
BACKUP WITHHOLDING. In general, the rules described in "--REMICS--Backup
Withholding with Respect to REMIC Certificates" will also apply to Grantor Trust
Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC Regular
Certificates in "REMICS--Foreign Investors in REMIC Certificates" applies to
Grantor Trust Certificates except that Grantor Trust Certificates will, except
as disclosed in the related prospectus supplement, be eligible for exemption
from U.S. withholding tax, subject to the conditions described in the
discussion, only to the extent the related mortgage loans were originated after
July 18, 1984 and only to the extent such mortgage loans have not been converted
to real property.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
certificateholder's trade or business in the United States, the Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
non-resident alien individual.
PARTNERSHIP TRUST FUNDS
CLASSIFICATION OF PARTNERSHIP TRUST FUNDS. With respect to each series of
Partnership Certificates, in the opinion of counsel to the depositor, the trust
fund will not be a taxable mortgage pool or an association, or publicly traded
partnership, taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the related pooling
and servicing agreement and related documents will be complied with, and on
counsel's conclusions that the nature of the income of the trust fund will
exempt it from the rule that certain publicly traded partnerships are taxable as
corporations.
If the trust fund were taxable as a corporation for federal income tax
purposes, the trust fund would be subject to corporate income tax on its taxable
income. The trust fund's taxable income would include all its income on the
related mortgage loans, possibly reduced by its interest expense on any
outstanding debt securities. Any corporate income tax could materially reduce
cash available to make remittances on the Partnership Certificates and
certificateholders could be liable for any tax that is unpaid by the trust fund.
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CHARACTERIZATION OF INVESTMENTS IN PARTNERSHIP CERTIFICATES. For federal
income tax purposes, (1) Partnership Certificates 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); (2) Partnership Certificates held by a real estate investment
trust will constitute real estate assets within the meaning of Code Section
856(c)(4)(A) and interest on Partnership Certificates will 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), based on the
real estate investments trust's proportionate interest in the assets of the
Partnership Trust Fund based on capital accounts; and (3) Partnership
Certificates held by a regulated investment company will not constitute
Government securities within the meaning of Code Section 851(b)(3)(A)(i).
TAXATION OF OWNERS OF PARTNERSHIP CERTIFICATES
TREATMENT OF THE PARTNERSHIP TRUST FUND AS A PARTNERSHIP. If specified in
the prospectus supplement, the depositor will agree, and the certificateholders
will agree by their purchase of Certificates, to treat the Partnership Trust
Fund as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets of
the partnership being the assets held by the Partnership Trust Fund, the
partners of the partnership being the certificateholders, including the
depositor. However, the proper characterization of the arrangement involving the
Partnership Trust Fund, the Partnership Certificates and the depositor is not
clear, because there is no authority on transactions closely comparable to that
contemplated in the prospectus.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Certificates have certain
features characteristic of debt, the Partnership Certificates might be
considered debt of the depositor or the Partnership Trust Fund. Any alternative
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Partnership Certificates as equity in a partnership, described below. The
following discussion assumes that the Partnership Certificates represent equity
interests in a partnership.
PARTNERSHIP TAXATION. As a partnership, the Partnership Trust Fund will not
be subject to federal income tax. Rather, each Certificateholder will be
required to separately take into account the holder's allocated share of income,
gains, losses, deductions and credits of the Partnership Trust Fund. It is
anticipated that the Partnership Trust Fund's income will consist primarily of
interest earned on the mortgage loans, including appropriate adjustments for
market discount, original issue discount and bond premium, as described above
under "-- Grantor Trust Funds -- Taxation of Owners of Grantor Trust Fractional
Interest Certificates - If Stripped Bond Ruled Do Not Apply--", "-- Market
Discount" and "--Premium", and any gain upon collection or disposition of
mortgage loans. The Partnership Trust Fund's deductions will consist primarily
of interest accruing with respect to any outstanding debt securities, servicing
and other fees, and losses or deductions upon collection or disposition of any
outstanding debt securities.
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The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement, which will
include a pooling and servicing agreement and related documents. The pooling and
servicing agreement will provide, in general, that the Certificateholders will
be allocated taxable income of the Partnership Trust Fund for each due period
equal to the sum of (1) the interest that accrues on the Partnership
Certificates in accordance with their terms for due period, including interest
accruing at the applicable pass-through rate for such due period and interest on
amounts previously due on the Partnership Certificates but not yet distributed;
(2) any Partnership Trust Fund income attributable to discount on the mortgage
loans that corresponds to any excess of the principal amount of the Partnership
Certificates over their initial issue price; and (3) any other amounts of income
payable to the certificateholders for the due period. The allocation will be
reduced by any amortization by the Partnership Trust Fund of premium on mortgage
loans that corresponds to any excess of the issue price of Partnership
Certificates over their principal amount. All remaining taxable income of the
Partnership Trust Fund will be allocated to the depositor. Based on the economic
arrangement of the parties, this approach for allocating Partnership Trust Fund
income should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to certificateholders. Moreover, even under that method of
allocation, certificateholders may be allocated income equal to the entire
pass-through rate plus the other items described under that method even though
the Trust Fund might not have sufficient cash to make current cash remittances
of these amounts. Thus, cash basis holders will in effect be required to report
income from the Partnership Certificates on the accrual basis and
certificateholders may become liable for taxes on Partnership Trust Fund income
even if they have not received cash from the Partnership Trust Fund to pay these
taxes.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity,
including an individual retirement account, will constitute unrelated business
taxable income generally taxable to that holder under the Code.
A share of expenses of the Partnership Trust Fund, including fees of the
master servicer but not interest expense, allocable to an individual, estate or
trust certificateholder would be miscellaneous itemized deductions subject to
the limitations described above under "--Grantor Trust Funds -- Taxation of
Owners of Grantor Trust Fractional Interest Certificates." Accordingly,
deductions for these expenses might be disallowed to the individual in whole or
in part and might result in that holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the holder over the life of
the Partnership Trust Fund.
Discount income or premium amortization with respect to each mortgage loan
would be calculated in a manner similar to the description under "-- Grantor
Trust Funds -- Taxation of Owners of Grantor Trust Fractional Interest
Certificates - If Stripped Bond Rules Do Not Apply." Notwithstanding this
description, it is intended that the Partnership Trust Fund will make all tax
calculations relating to income and allocations to certificateholders on an
aggregate basis for all mortgage loans held by the Partnership Trust Fund rather
than on a mortgage loan-by-mortgage loan basis. If the IRS were to require that
these calculations be made separately for each
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mortgage loan, the Partnership Trust Fund might be required to incur additional
expense, but it is believed that there would not be a material adverse effect on
certificateholders.
DISCOUNT AND PREMIUM. Unless indicated otherwise in the applicable
prospectus supplement, it is not anticipated that the mortgage loans will have
been issued with original issue discount and, therefore, the Partnership Trust
Fund should not have original issue discount income. However, the purchase price
paid by the Partnership Trust Fund for the mortgage loans may be greater or less
than the remaining principal balance of the mortgage loans at the time of
purchase. If so, the mortgage loans will have been acquired at a premium or
discount, as the case may be. See "--Grantor Trust Funds -- Taxation of Owners
of Grantor Trust Fractional Interest Certificates -- Market Discount" and
"Premium." As stated in the previous paragraph, the Partnership Trust Fund
intends to make any calculation of original issue discount on an aggregate
basis, but might be required to recompute it on a mortgage loan-by-mortgage loan
basis.
If the Partnership Trust Fund acquires the mortgage loans at a market
discount or premium, the Partnership Trust Fund will elect to include any
discount in income currently as it accrues over the life of the mortgage loans
or to offset any premium against interest income on the mortgage loans. As
stated in the second preceding paragraph, a portion of the market discount
income or premium deduction may be allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Partnership
Trust Fund will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the Partnership Trust Fund are sold
or exchanged within a 12-month period. A 50% or greater transfer would cause a
deemed contribution of the assets of a Partnership Trust Fund, the old
partnership, to a new Partnership Trust Fund, the new partnership, in exchange
for interests in the new partnership. These interests would be deemed
distributed to the partners of the old partnership in liquidation thereof, which
would not constitute a sale or exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Partnership Certificates in an amount equal to the
difference between the amount realized and the seller's tax basis in the
Partnership Certificates sold. A certificateholder's tax basis in an Partnership
Certificate will generally equal the holder's cost increased by the holder's
share of Partnership Trust Fund income includible in income and decreased by any
remittances received with respect to the Partnership Certificate. In addition,
both the tax basis in the Partnership Certificates and the amount realized on a
sale of an Partnership Certificate would include the holder's share of any
liabilities of the Partnership Trust Fund. A holder acquiring Partnership
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Partnership Certificates, and, upon sale or other
disposition of some of the Partnership Certificates, allocate a portion of the
aggregate tax basis to the Partnership Certificates sold, rather than
maintaining a separate tax basis in each Partnership Certificate for purposes of
computing gain or loss on a sale of that Partnership Certificate.
Any gain on the sale of an Partnership Certificate attributable to the
holder's share of unrecognized accrued market discount on the mortgage loans
would generally be treated as ordinary income to the holder and would give rise
to special tax reporting requirements. The
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Partnership Trust Fund does not expect to have any other assets that would give
rise to such special reporting considerations. Thus, to avoid those special
reporting requirements, the Partnership Trust Fund will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income, not including income attributable to disallowed itemized deductions,
over the life of the Partnership Certificates that exceeds the aggregate cash
remittances with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the Partnership Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Partnership Trust Fund's taxable income and losses will be determined each due
period and the tax items for a particular due period will be apportioned among
the certificateholders in proportion to the principal amount of Partnership
Certificates owned by them as of the close of the last day of such due period.
As a result, a holder purchasing Partnership Certificates may be allocated tax
items which will affect its tax liability and tax basis attributable to periods
before the actual transaction.
The use of a due period convention may not be permitted by existing
regulations. If a due period convention is not allowed or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the Partnership Trust Fund might be reallocated among the certificateholders.
The depositor will be authorized to revise the Partnership Trust Fund's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
SECTION 731 REMITTANCES. In the case of any remittance to a
certificateholder, no gain will be recognized to that certificateholder to the
extent that the amount of any money distributed with respect to such Partnership
Certificate exceeds the adjusted basis of the certificateholder's interest in
the Partnership Certificate. To the extent that the amount of money distributed
exceeds the certificateholder's adjusted basis, gain will be currently
recognized. In the case of any remittance to a certificateholder, no loss will
be recognized except upon a remittance in liquidation of a certificateholder's
interest. Any gain or loss recognized by a certificateholder will be capital
gain or loss.
SECTION 754 ELECTION. In the event that a certificateholder sells its
Partnership Certificates at a profit, the purchasing certificateholder will have
a higher basis in the Partnership Certificates than the selling
certificateholder had. An opposite result will follow if the Partnership
Certificate is sold at a loss. The tax basis of the Partnership Trust Fund's
assets would not be adjusted to reflect that higher or lower basis unless the
Partnership Trust Fund were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous information
reporting requirements, the Partnership Trust Fund will not make such election.
As a result, a certificateholder might be allocated a greater or lesser amount
of Partnership Trust Fund income than would be appropriate based on their own
purchase price for Partnership Certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the Partnership Trust Fund. Such books will be
maintained for financial reporting and
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tax purposes on an accrual basis and the fiscal year of the Partnership Trust
Fund will be the calendar year. The trustee will file a partnership information
return, IRS Form 1065, with the IRS for each taxable year of the Partnership
Trust Fund and will report each certificateholder's allocable share of items of
Partnership Trust Fund income and expense to holders and the IRS on Schedule
K-1. The trustee will provide the Schedule K-1 information to nominees that fail
to provide the Partnership Trust Fund with the information statement described
below and the nominees will be required to forward this information to the
beneficial owners of the Partnership Certificates. Generally, holders must file
tax returns that are consistent with the information return filed by the
Partnership Trust Fund or be subject to penalties unless the holder notifies the
IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Certificates as a nominee at any time during a calendar year is required to
furnish the Partnership Trust Fund with a statement containing information on
the nominee, the beneficial owners and the Partnership Certificates so held.
Such information includes (1) the name, address and taxpayer identification
number of the nominee and (2) as to each beneficial owner (x) the name, address
and identification number of that person, (y) whether that person is a United
States Person, a tax-exempt entity or a foreign government, an international
organization, or any wholly-owned agency or instrumentality of either of the
foregoing, and (z) certain information on Partnership Certificates that were
held, bought or sold on behalf of that person throughout the year. In addition,
brokers and financial institutions that hold Partnership Certificates through a
nominee are required to furnish directly to the trustee information as to
themselves and their ownership of Partnership Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
information statement to the Partnership Trust Fund. The information referred to
above for any calendar year must be furnished to the Partnership Trust Fund on
or before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Partnership Trust Fund with the information described
above may be subject to penalties.
The depositor will be designated as the tax matters partner in the pooling
and servicing agreement and will be responsible for representing the
certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Partnership Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
certificateholders, and, under certain circumstances, a certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
Partnership Trust Fund. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the Partnership Trust Fund.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether the
Partnership Trust Fund would be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes with respect to
non-United States Persons, because there is no clear authority dealing with that
issue under facts substantially similar to those in this case. Although it is
not expected that the Partnership Trust Fund would be engaged in a trade or
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business in the United States for these purposes, the Partnership Trust Fund
will withhold as if it were so engaged in order to protect the Partnership Trust
Fund from possible adverse consequences of a failure to withhold. The
Partnership Trust Fund expects to withhold on the portion of its taxable income
that is allocable to foreign certificateholders pursuant to Section 1446 of the
Code as if this income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Amounts withheld will be deemed distributed to
the foreign certificateholders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Partnership
Trust Fund to change its withholding procedures. In determining a holder's
withholding status, the Partnership Trust Fund may rely on IRS Form W-8, IRS
Form W-9 or the holder's certification of nonforeign status signed under
penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the branch
profits tax, on its share of the Partnership Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Partnership Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled to
file with the IRS a claim for refund with respect to taxes withheld by the
Partnership Trust Fund, taking the position that no taxes were due because the
Partnership Trust Fund was not engaged in a U.S. trade or business. However,
interest payments made or accrued to a certificateholder who is a foreign person
generally will be considered guaranteed payments to the extent such payments are
determined without regard to the income of the Partnership Trust Fund. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered portfolio interest. As a result,
certificateholders who are foreign persons will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that event, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
BACKUP WITHHOLDING. Remittances made on the Partnership Certificates and
proceeds from the sale of the Partnership Certificates will be subject to a
backup withholding tax of 31% if, in general, the certificateholder fails to
comply with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
It is suggested that prospective purchasers consult their tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of REMIC Certificates, Notes, Grantor Trust Certificates and
Partnership Certificates, including the tax consequences under state, local,
foreign and other tax laws and the possible effects of changes in federal or
other tax laws.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences of the
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acquisition, ownership, and disposition of the securities offered hereunder.
State tax law may differ substantially from the corresponding federal tax law,
and the discussion above does not purport to describe any aspect of the tax laws
of any state or other jurisdiction. Therefore, prospective investors should
consult their own tax advisors with respect to the various tax consequences of
investments in the securities offered hereunder.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of
1974, as amended, impose fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA and on some other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and bank collective investment funds and insurance
company general and separate accounts in which plans subject to ERISA are
invested. Section 4975 of the Code imposes essentially the same prohibited
transaction restrictions on tax-qualified retirement plans described in Section
401(a) of the Code and on Individual Retirement Accounts described in Section
408 of the Code. ERISA and the Code prohibit a broad range of transactions
involving assets of ERISA plans and tax plans which are collectively referred to
in this prospectus as "Plans" and persons who have certain specified
relationships to such plans, unless a statutory or administrative exemption is
available with respect to the transaction.
Some employee benefit plans, such as governmental plans, as defined in
Section 3(32) of ERISA, and, if no election has been made under Section 410(d)
of the Code, church plans, as defined in Section 3(33) of ERISA, are not subject
to ERISA requirements. Accordingly, assets of such plans may be invested in the
securities without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal, state and local law. Any plan
which is qualified and exempt from taxation under Sections 401(a) and 501(a) of
the Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Transactions involving the trust fund might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchases the securities, if the mortgage loans, and other assets included in a
trust fund are deemed to be assets of the Plan. The U.S. Department of Labor has
promulgated regulations at 29 C.F.R. ss.2510. 3-101 defining the term "Plan
Assets" for purposes of applying the general fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and the Code. Under
the DOL Regulations, generally, when a Plan acquires an "equity interest" in
another entity, such as the trust fund, the underlying assets of that entity may
be considered to be Plan Assets unless certain exceptions apply. Exceptions
contained in the DOL Regulations provide that a Plan's assets will not include
an undivided interest in each asset of an entity in which such Plan makes an
equity investment if:
o the entity is an operating company;
o the equity investment made by the Plan is either a
"publicly-offered security" that is "widely held," both as
defined in the DOL Regulations, or a security issued by an
investment company registered under the Investment Company Act of
1940, as amended; or
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o Benefit Plan Investors do not own 25% or more in value of any
class of equity securities issued by the entity. For this
purpose, "Benefit Plan Investors" include plans, as well as any
"employee benefit plan", as defined in Section 3(3) or ERISA,
which is not subject to Title I of ERISA, such as governmental
plans, as defined in Section 3(32) of ERISA, and church plans, as
defined in Section 3(33) of ERISA, which have not made an
election under Section 410(d) of the Code, and any entity whose
underlying assets include Plan Assets by reason of a Plan's
investment in the entity. In addition, the DOL Regulations
provide that the term "equity interest" means any interest in an
entity other than an instrument which is treated as indebtedness
under applicable local law and which has no "substantial equity
features". Under the DOL Regulations, Plan Assets will be deemed
to include an interest in the instrument evidencing the equity
interest of a Plan, such as a Certificate or a Note with
"substantial equity features", and, because of the factual nature
of certain of the rules set forth in the DOL Regulations, Plan
Assets may be deemed to include an interest in the underlying
assets of the entity in which a Plan acquires an interest, such
as the trust fund. Without regard to whether the notes are
characterized as equity interests, the purchase, sale and holding
of notes by or on behalf of a Plan could be considered to give
rise to a prohibited transaction if the issuer, the trustee or
any of their respective affiliates is or becomes a "Party in
Interest" within the meaning of ERISA with respect to such Plan.
Neither Plans nor persons investing Plan Assets should acquire or
hold securities in reliance upon the availability of any
exception under the DOL Regulations.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of Plan Assets and any person who
provides investment advice with respect to such Plan Assets for a fee is a
fiduciary of the investing Plan. If the mortgage loans, and other assets
included in the trust fund were to constitute Plan Assets, then any party
exercising management or discretionary control with respect to those Plan Assets
may be deemed to be a Plan "fiduciary," and thus subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing Plan. In
addition, the acquisition or holding of securities by or on behalf of a Plan or
with Plan Assets, as well as the operation of the trust fund, may constitute or
involve a prohibited transaction under ERISA and the Code unless a statutory or
administrative exemption is available.
The DOL issued an individual prohibited transactions exemption, to certain
underwriters, which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and operation of
mortgage pools and the initial purchase, holding and subsequent resale of
mortgage pass-through certificates underwritten by an Underwriter, provided that
certain conditions set forth in the Exemption are satisfied. For purposes of
this Section "ERISA Considerations", the term "Underwriter" shall include (a)
the underwriter, (b) any person directly or indirectly, through one or
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more intermediaries, controlling, controlled by or under common control with the
underwriter and (c) any member of the underwriting syndicate or selling group of
which a person described in (a) or (b) is a manager or co-manager with respect
to a class of certificates.
The underwriters' exemption sets forth six general conditions which must be
satisfied for the underwriters' exemption to apply. First, the acquisition of
certificates by a Plan or with Plan Assets must be on terms that are at least as
favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the underwriters' exemption only applies to
certificates evidencing rights and interests that are not subordinated to the
rights and interests evidenced by other certificates of the same trust. Third,
the certificates at the time of acquisition by a Plan or with Plan Assets must
be rated in one of the three highest generic rating categories by Standard &
Poor's Structured Rating Group, Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. or Fitch IBCA, Inc. Fourth, the trustee cannot be an affiliate
of any member of the "Restricted Group" which consists of any Underwriter, the
depositor, the trustee, the servicer, any sub-servicer and any obligor with
respect to assets included in the trust fund constituting more than 5% of the
aggregate unamortized principal balance of the assets in the trust fund as of
the date of initial issuance of the certificates. Fifth, the sum of all payments
made to and retained by the Underwriter(s) must represent not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the depositor pursuant to the assignment of the
assets to the related trust fund must represent not more than the fair market
value of such obligations; and the sum of all payments made to and retained by
the servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the related agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the underwriters' exemption states that the investing Plan or Plan Asset
investor must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act of 1933, as amended.
The underwriters' exemption also requires that the trust fund meet the
following requirements:
o the trust fund must consist solely of assets of the type that
have been included in other investment pools;
o certificates evidencing interests in such other investment pools
must have been rated in one of the three highest generic
categories of one of the rating agencies named in the
underwriters' exemption for at least one year prior to the
acquisition of the certificates by or on behalf of a Plan or with
Plan Assets; and
o certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at
least one year prior to any acquisition of the certificates by or
on behalf of a Plan or with Plan Assets.
Any transferee of the certificates will be deemed to have represented that
either (a) such transferee is not a Plan and is not purchasing such certificates
by or on behalf of or with "Plan Assets" of any Plan or (b) the purchase of any
such certificate by or on behalf of or with "Plan Assets" of any Plan is
permissible under applicable law, will not result in any non-exempt prohibited
transaction under ERISA or Section 4975 of the Code and will not subject the
servicer, the depositor
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or the trustee to any obligation in addition to those undertaken in the related
agreement. A fiduciary of a Plan or any person investing Plan Assets to purchase
a certificate must make its own determination that the conditions set forth
above will be satisfied with respect to such certificate.
If the general conditions of the underwriters' exemption are satisfied, the
underwriters' exemption may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code, in connection with the direct or indirect sale, exchange or transfer
of certificates in the initial issuance of such certificates or the direct or
indirect acquisition or disposition in the secondary market of certificates by a
Plan or with Plan Assets or the continued holding of a certificate acquired by a
Plan or with Plan Assets pursuant to either of the foregoing. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
of the certificates, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the underwriters' exemption are also
satisfied, the underwriters' exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA, and the excise
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code, in connection with (1) the direct or indirect sale,
exchange or transfer of certificates in the initial issuance of certificates
between the depositor or an Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan Assets in the certificates is (a) a mortgagor with respect to
5% or less of the fair market value of the trust fund assets or (b) an affiliate
of such a person, (2) the direct or indirect acquisition or disposition in the
secondary market of certificates by a Plan or with Plan Assets and (3) the
continued holding of certificates acquired by a Plan or with Plan Assets
pursuant to either of the foregoing.
Further, if certain specific conditions of the underwriters' exemption are
satisfied, the underwriters' exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407 of ERISA, and the excise
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the trust fund. The depositor expects that the
specific conditions of the underwriters' exemption required for this purpose
will be satisfied with respect to the certificates so that the underwriters'
exemption would provide an exemption from the restrictions imposed by Sections
406(a) and (b) of ERISA (as well as the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code) for transactions
in connection with the servicing, management and operation of the trust fund,
provided that the general conditions of the underwriters' exemption are
satisfied.
The underwriters' exemption also may provide an exemption from the
restrictions imposed by Sections 406(a) and 407(a) of ERISA, and the excise
taxes imposed by Section 4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be a Party in Interest with
respect to an investing Plan by virtue of providing services to the Plan (or by
virtue of having certain specified relationships to such a person) solely as a
result of the Plan's ownership of certificates.
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On July 21, 1997, the DOL published in the Federal Register an amendment to
the underwriters' exemption, which will extend exemptive relief to certain
mortgage-backed and asset- backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
certificates, the amendment will generally allow mortgage loans supporting
payments to certificateholders, and having a value equal to no more than 25% of
the total principal amount of the certificates being offered by a trust fund, to
be transferred to such trust fund within a pre-funding period no longer than 90
days or three months following the closing date instead of requiring that all
such mortgage loans be either identified or transferred on or before the closing
date. In general, the relief applies to the purchase, sale and holding of
certificates which otherwise qualify for the underwriters' exemption, provided
that the following general conditions are met:
(1) the ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered must be less
than or equal to: (a) 40% for transactions occurring on or after January 1,
1992 but prior to May 23, 1997 and (b) 25% for transactions occurring on or
after May 23, 1997;
(2) all additional mortgage loans transferred to the related trust
fund after the date of initial issuance of a series of securities must meet
the same terms and conditions for eligibility as the original mortgage
loans used to create the trust fund, which terms and conditions have been
approved by one of the rating agencies named in the underwriters exemption;
(3) the transfer of subsequent mortgage loans to the trust fund during
the pre-funding period must not result in the certificates covered by the
underwriters' exemptions receiving a lower credit rating from a rating
agency upon termination of the pre-funding period than the rating that was
obtained at the time of the initial issuance of the certificates by the
trust fund;
(4) solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the mortgage loans included in
the trust fund on the closing date and subsequent mortgage loans in the
trust fund at the end of the pre-funding period must not be more than 100
basis points lower than the weighted average interest rate for the mortgage
loans which were transferred to the trust fund on the closing date;
(5) for transactions occurring on or after May 23, 1997, either:
(a) the characteristics of the subsequent mortgage loans must be
monitored by an insurer or other credit support provider which is
independent of the depositor; or
(b) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to the rating
agency rating the certificates, the Underwriter and the trustee) stating
whether or not the characteristics of the subsequent mortgage loans conform
to the characteristics described in this prospectus or the prospectus
supplement and the governing agreement. In preparing such letter, the
independent accountant must use the same type of procedures as were
applicable to the mortgage loans which were transferred to the trust fund
as of the closing date;
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(6) the pre-funding period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
agreement or an event of default occurs;
(7) amounts transferred to any pre-funding account and capitalized
interest account used in connection with the pre-funding may be invested
only in investments which are permitted by the rating agencies rating the
certificates and must:
(a) be direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States; or
(b) have been rated, or the obligor has been rated, in one of the
three highest generic rating categories by one of the rating agencies named
in the underwriters' exemption;
(8) the prospectus or prospectus supplement must describe the duration
of the pre- funding period;
(9) the trustee, or any agent with which the trustee contracts to
provide trust services, must be a substantial financial institution or
trust company experienced in trust activities and familiar with its duties,
responsibilities and liabilities with ERISA. The trustee, as legal owner of
the trust fund, must enforce all the rights created in favor of
certificateholders of the trust fund, including employee benefit plans
subject to ERISA.
In addition to the underwriters' exemption, a Plan fiduciary or other Plan
Asset investor should consider the availability of certain class exemptions
granted by the DOL, which may provide relief from certain of the prohibited
transaction provisions of ERISA and the related excise tax provisions of the
Code, including Prohibited Transaction Class Exemption 83-1, regarding
transactions involving mortgage pool investment trusts; PTCE 84-14, regarding
transactions effected by a "qualified professional asset manager"; PTCE 90-1,
regarding transactions by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 95-60,
regarding transactions by insurance company general accounts; and PTCE 96-23,
regarding transactions effected by an "in-house asset manager. "
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the securities by an insurance company general account,
the Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute Plan Assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets,
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unless (1) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (2) an action is brought
by the Secretary of Labor for certain breaches of fiduciary duty which would
also constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as Plan Assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as Plan Assets of any Plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in the
securities should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the securities after the date which is 18 months
after the date the 401(c) Regulations become final.
REPRESENTATION FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY FEATURES"
OR CERTAIN SECURITIES
Because the exemptive relief afforded by the underwriters' exemption, or
any similar exemption that might be available, will not apply to the purchase,
sale or holding of securities such as: notes with "substantial equity features,"
subordinate securities, REMIC Residual Certificates and any securities which are
not rated in one of the three highest generic rating categories by the rating
agencies named in the underwriters' exemption, transfers of any such securities
to a Plan, to a trustee or other person acting on behalf of any Plan, or to any
other person investing Plan Assets to effect such acquisition will not be
registered by the trustee unless the transferee provides the depositor, the
trustee and the servicer with an opinion of counsel satisfactory to the
depositor, the trustee and the servicer, which opinion will not be at the
expense of the depositor, the trustee or the servicer, that the purchase of such
securities by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the depositor, the
trustee or the servicer to any obligation in addition to those undertaken in the
related agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code and will not subject the depositor, the trustee or the servicer to
any obligation in addition to those undertaken in the Agreement and the
following statements are correct:
o the transferee is an insurance company;
o the source of funds used to purchase such securities is an "insurance
company general account", as such term is defined in PTCE 95-60;
o the conditions set forth in PTCE 95-60 have been satisfied; and
o there is no Plan with respect to which the amount of such general
account's reserves and liabilities for contracts held by or on behalf
of such Plan and all other Plans maintained by the same employer, or
any "affiliate" thereof, as defined in PTCE 95-60, or by the same
employee organization exceed 10% of the total of all reserves and
liabilities of such general
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account, as determined under PTCE 95-60, as of the date of the
acquisition of such securities.
An opinion of counsel or certification will not be required with respect to
the purchase of DTC registered securities. Any purchaser of a DTC registered
security will be deemed to have represented by such purchase that either (a)
such purchaser is not a Plan and is not purchasing such securities on behalf of,
or with Plan Assets of, any Plan or (b) the purchase of any such security by or
on behalf of, or with Plan Assets of, any Plan is permissible under applicable
law, will not result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the depositor, the trustee or the
servicer to any obligation in addition to those undertaken in the related
agreement.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the extent
that its income is "unrelated business taxable income" ("UBTI") within the
meaning of Section 512 of the Code. All "excess inclusion" of a REMIC allocated
to a REMIC Residual Certificate and held by a tax-exempt investor will be
considered UBTI and thus will be subject to federal income tax. SEE "FEDERAL
INCOME TAX CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC RESIDUAL
CERTIFICATES--EXCESS INCLUSIONS" ABOVE.
CONSULTATION WITH COUNSEL
There can be no assurance that any DOL exemption will apply with respect to
any particular Plan that acquires the securities or, even if all the conditions
specified therein were satisfied, that any such exemption would apply to
transactions involving the trust fund. Prospective Plan investors should consult
with their legal counsel concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances prior to making an
investment in the securities. Neither the depositor, the trustee, the servicer
nor any of their respective affiliates will make any representation to the
effect that the securities satisfy all legal requirements with respect to the
investment therein by Plans generally or any particular Plan or to the effect
that the securities are an appropriate investment for Plans generally or any
particular Plan.
BEFORE PURCHASING THE SECURITIES, A FIDUCIARY OF A PLAN OR OTHER PLAN ASSET
INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND GENERAL CONDITIONS
SET FORTH IN THE UNDERWRITERS' EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION
401(C) OF ERISA WOULD BE SATISFIED AND (B) IN THE CASE OF A SECURITY PURCHASED
UNDER THE UNDERWRITERS' EXEMPTION, THE SECURITY CONSTITUTES A "CERTIFICATE" FOR
PURPOSES OF THE UNDERWRITERS' EXEMPTION. IN ADDITION TO MAKING ITS OWN
DETERMINATION AS TO THE AVAILABILITY OF THE EXEMPTIVE RELIEF PROVIDED IN THE
UNDERWRITERS' EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION 401(C) OF ERISA,
THE PLAN FIDUCIARY SHOULD CONSIDER ITS GENERAL FIDUCIARY OBLIGATIONS UNDER ERISA
IN DETERMINING WHETHER TO PURCHASE THE SECURITIES ON BEHALF OF A PLAN.
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LEGAL INVESTMENT
The prospectus supplement for each series of securities will specify which
classes of securities of such series, if any, will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984. Any class of securities that is not rated in one of the two highest rating
categories by one or more nationally recognized statistical rating agencies or
that represents an interest in a trust fund that includes junior mortgage loans
will not constitute "mortgage related securities" for purposes of SMMEA
"Mortgage related securities" are legal investments 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 persons, trusts, corporations, partnerships,
associations, business trusts and business entities, including depository
institutions, insurance companies and pension funds created pursuant to or
existing under the laws of the United States or of any state, the authorized
investments of which are subject to state regulation. Under SMMEA, if a state
enacted legislation prior to October 3, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities", the securities would constitute legal investments for entities
subject to such legislation only to the extent provided in such legislation.
SMMEA provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase, hold
or invest in "mortgage related securities", or require the sale or other
disposition of such securities, so long as such contractual commitment was made
or such securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination Council
issued a revised supervisory policy statement applicable to all depository
institutions, setting forth guidelines for investments in "high-risk mortgage
securities". The 1998 policy statement has been adopted by the Federal Reserve
Board, the Office of the Comptroller of the Currency, the FDIC, the National
Credit Union Administration and the Office of Thrift Supervision with an
effective date of May 26, 1998. The 1998 policy statement rescinds a 1992 policy
statement that had required, prior to purchase, a depository institution to
determine whether a mortgage derivative product that it is considering acquiring
is high-risk, and, if so, that the proposed acquisition would reduce the
institution's overall interest rate risk. The 1998 policy statement eliminates
former constraints on investing in certain "high-risk" mortgage derivative
products and substitutes broader guidelines for evaluating and monitoring
investment risk.
On December 1, 1998, the Office of Thrift Supervision issued Thrift
Bulletin 13a, entitled, "Management of Interest Rate Risk, Investment
Securities, and Derivatives Activities", which is applicable to thrift
institutions regulated by the OTS. Thrift Bulletin 13a has an effective date of
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December 1, 1998. One of the primary purposes of Thrift Bulletin 13a is to
require thrift institutions, prior to taking any investment position, to (1)
conduct a pre-purchase portfolio sensitivity analysis for any "significant
transaction" involving securities or financial derivatives and (2) conduct a
pre-purchase price sensitivity analysis of any "complex security" or financial
derivative. For the purposes of Thrift Bulletin 13a, "complex security" includes
among other things any collateralized mortgage obligation or REMIC security,
other than any "plain vanilla" mortgage pass-through security, that is,
securities that are part of a single class of securities in the related pool,
that are non-callable and do not have any special features. Accordingly, the
offered securities may be viewed as "complex securities". The OTS recommends
that while a thrift institution should conduct its own in-house pre-acquisition
analysis, it may rely on an analysis conducted by an independent third-party as
long as management understands the analysis and its key assumptions. Further,
Thrift Bulletin 13a recommends that the use of "complex securities with high
price sensitivity" be limited to transactions and strategies that lower a thrift
institution's portfolio interest rate risk. Thrift Bulletin 13a warns that an
investment in complex securities by thrift institutions that do not have
adequate risk measurement, monitoring and control systems may be viewed by the
OTS examiners as an unsafe and unsound practice.
Prospective investors in the securities, including in particular the
classes of securities that do not constitute "mortgage related securities" for
purposes of SMMEA should consider the matters discussed in the following
paragraph.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase securities or to purchase
securities representing more than a specified percentage of the investor's
assets. INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS IN DETERMINING WHETHER
AND TO WHAT EXTENT THE SECURITIES CONSTITUTE LEGAL INVESTMENTS FOR SUCH
INVESTORS OR ARE SUBJECT TO INVESTMENT, CAPITAL OR OTHER RESTRICTIONS, AND, IF
APPLICABLE, WHETHER SMMEA HAS BEEN OVERRIDDEN IN ANY JURISDICTION RELEVANT TO
SUCH INVESTOR.
METHODS OF DISTRIBUTION
The securities offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
depositor from such sale.
The depositor intends that securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of the securities of a
particular series may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the depositor with institutional investors through
dealers; and
3. By direct placements by the depositor with institutional investors.
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If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, such securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at fixed
public offering prices or at varying prices to be determined at the time of sale
or at the time of commitment therefor. Such underwriters may be broker-dealers
affiliated with the depositor whose identities and relationships to the
depositor will be as set forth in the related prospectus supplement. The
managing underwriter or underwriters with respect to the offer and sale of the
securities of a particular series will be set forth on the cover of the
prospectus supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such prospectus supplement.
In connection with the sale of the securities offered, underwriters may
receive compensation from the depositor or from purchasers of such securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the securities may be deemed to be
underwriters in connection with such certificates, and any discounts or
commissions received by them from the depositor and any profit on the resale of
offered securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
offered securities of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased, other than in connection with an underwriting on a best efforts
basis, and that, in limited circumstances, the depositor will indemnify the
several underwriters and the underwriters will indemnify the depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933 or will contribute to payments required to be made in respect thereof.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the depositor and purchasers of
offered securities of the series.
The depositor anticipates that the securities offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of offered securities, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with reoffers and
sales by them of the offered securities. Holders of offered securities should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
Certain legal matters in connection with the securities will be passed upon
for the depositor by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
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The depositor has determined that its financial statements are not material
to the offering made hereby. Any prospective purchaser that desires to review
financial information concerning the depositor will be provided by the depositor
on request with a copy of the most recent financial statements of the depositor.
RATING
It is a condition to the issuance of any class of securities that they
shall have been rated not lower than investment grade, that is, in one of the
four highest rating categories, by at least one nationally recognized
statistical rating organization.
Any such ratings on the securities address the likelihood of receipt by the
holders thereof of all collections on the underlying mortgage assets to which
such holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with such securities, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any. The
ratings do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which prepayments might differ from
those originally anticipated. As a result, securityholders might suffer a lower
than anticipated yield, and, in addition, holders of Strip Securities in extreme
cases might fail to recoup their initial investments.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission. Such reports and
other information filed by the depositor can be inspected and copied at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval System at the
Commission's Web site (http:\\www.sec.gov). The depositor does not intend to
send any financial reports to securityholders.
This prospectus does not contain all of the information set forth in the
registration statement, of which this prospectus forms a part, and exhibits
thereto which the depositor has filed with the Commission under the securities
Act of 1933 and to which reference is hereby made.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated into this prospectus by reference all documents and
reports filed or caused to be filed by the depositor with respect to a trust
fund pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, prior to the termination of the offering of securities offered
hereby evidencing interest in a trust fund. The depositor will provide or cause
to be provided without charge to each person to whom this prospectus is
delivered in connection with the
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offering of one or more classes of securities offered hereby, a copy of any or
all documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of such
offered securities, other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Requests
to the depositor should be directed in writing to its principal executive office
at One Lincoln Centre, Oakbrook Terrace, Illinois 60181, Attention: Secretary,
or by telephone at (708) 916-4000. The depositor has determined that its
financial statements are not material to the offering of any securities offered
hereby.
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GLOSSARY
ACCRUAL SECURITIES: A class of securities as to which accrued interest or a
portion thereof will not be distributed but rather will be added to the
principal balance of the security on each distribution date in the manner
described in the related prospectus supplement.
APPLICABLE FEDERAL RATE: A rate based on the average of current yields on
Treasury securities, which rate is computed and published monthly by the IRS.
ARM LOAN: A mortgage loan with an interest rate that adjusts periodically, with
a corresponding adjustment in the amount of the monthly payment, to equal the
sum of a fixed percentage amount and an index.
CERCLA: The Comprehensive Environmental Response, Compensation and Liability
Act, as amended.
CLEAN-UP CALL: The right of the party entitled to effect a termination of a
trust fund upon the aggregate principal balance of the outstanding trust fund
assets for the series at that time being less than the percentage, as specified
in the related prospectus supplement, of the aggregate principal balance of the
trust fund assets at the cut-off date for that series and which percentage will
be between 25% and 0%.
CLOSING DATE: With respect to any series of securities, the date on which the
securities are issued.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: The Securities and Exchange Commission.
CPR: The Constant Prepayment Rate model, which assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate.
CRIME CONTROL ACT: The Comprehensive Crime Control Act of 1984.
DIDMC: The Depository Institutions Deregulation and Monetary Control Act of
1980.
DOL: The U.S. Department of Labor.
DOL REGULATIONS: The regulations promulgated by the U.S. Department of Labor at
29 C.F.R. ss.2510. 3-101
DUE PERIOD: The second day of the month immediately preceding the month in which
the distribution date occurs, or the day after the cut-off date in the case of
the first Due Period, and ending on the first day of the month of the related
distribution date, unless the prospectus supplement specifies otherwise.
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EQUITY CERTIFICATES: Where the issuer is an owner trust, the certificates
evidencing ownership of the trust fund.
ERISA PERMITTED INVESTMENTS: The types of investments permitted by the rating
agencies named in the Prohibited Transaction Exemption 91-23 issued by the DOL
in which funds in a pre-funding account may be invested.
FTC RULE: The "Holder in the Due Course" Rule of the Federal Trade Commission.
GARN-ST. GERMAIN ACT: The Garn-St. Germain Depositor Institutions Act of 1982.
GRANTOR TRUST CERTIFICATE: A certificate representing an interest in a Grantor
Trust Fund.
GRANTOR TRUST FRACTIONAL CERTIFICATE: A Grantor Trust Certificate representing
an undivided equitable ownership interest in the principal of the mortgage loans
constituting the related Grantor Trust Fund, together with interest on the
Grantor Trust Certificates at a pass-through rate.
GRANTOR TRUST STRIP CERTIFICATE: A certificate representing ownership of all or
a portion of the difference between interest paid on the mortgage loans
constituting the related Grantor Trust Fund (net of normal administration fees
of the depositor) and interest paid to the holders of Grantor Trust Fractional
Interest Certificates issued with respect to the Grantor Trust Fund. A Grantor
Trust Strip Certificate may also evidence a nominal ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund.
GRANTOR TRUST FUND: A trust fund as to which no REMIC election will be made and
which qualifies as a grantor trust within the meaning of Subpart E, part I,
subchapter J of Chapter 1 of the Code.
HIGH COST LOAN: A Mortgage Asset subject to the Home Ownership and Equity
Protection Act of 1994.
HOMEOWNERSHIP ACT: The Home Ownership and Equity Protection Act of 1994.
INSURANCE PROCEEDS: Proceeds received with respect to a Mortgage Asset under any
hazard insurance policy, special insurance policy, primary insurance policy, FHA
insurance policy, VA guarantee, bankruptcy bond or mortgage pool insurance
policy, to the extent such proceeds are not applied to the restoration of the
property or released to the mortgagor in accordance with normal servicing
procedures.
LIQUIDATED LOAN: A defaulted mortgage loan that is finally liquidated, through
foreclosure sale or otherwise.
LIQUIDATION PROCEEDS: All amounts, other than Insurance Proceeds, received and
retained in connection with the liquidation of a defaulted Mortgage Asset, by
foreclosure or otherwise.
MORTGAGE: The mortgage, deed of trust or similar instrument securing a mortgage
loan.
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MORTGAGE ASSET: A mortgage loan, manufactured housing conditional sales contract
or installment agreement or a home improvement installment sales contract or
installment loan agreement.
NBRC: The National Bankruptcy Review Commission.
NCUA: The National Credit Union Administration.
NONRECOVERABLE ADVANCE: An advance made or to be made with respect to a Mortgage
Asset which the servicer determines is not ultimately recoverable from Related
Proceeds.
OID REGULATIONS: The rules governing original issue discount that are set forth
in Sections 1271-1273 and 1275 of the Code and in the related Treasury
regulations.
PARTNERSHIP CERTIFICATE: A certificate representing an interest in a Partnership
Trust Fund.
PARTNERSHIP TRUST FUND: A trust fund as to which no REMIC election will be made
and which qualifies as a partnership within the meaning of subchapter K of
Chapter 1 of the Code.
PLANS: Employee pension and welfare benefit plans subject to ERISA and
tax-qualified retirement plans described in Section 401(a) of the Code or
Individual Retirement Accounts described in Section 408 of the Code.
PREPAYMENT ASSUMPTION: With respect to a REMIC Regular Certificate or a Grantor
Trust Certificate, the assumption as to the rate of prepayments of the principal
balances of mortgage loans held by the trust fund used in pricing the initial
offering of that security.
PREPAYMENT PERIOD: The calendar month immediately preceding the month in which
the distribution date occurs, unless the prospectus supplement specifies
otherwise.
PTCE: Prohibited Transaction Class Exemption
PURCHASE PRICE: As to any mortgage loan, an amount equal to the sum of (1) the
unpaid principal balance of the mortgage loan, (2) unpaid accrued interest on
the principal balance at the rate at which interest accrues on the mortgage loan
from the date as to which interest was last paid to but not including the due
date in the Due Period most recently ended prior to such date of purchase and
(3) any unreimbursed servicing advances or expenses payable or reimbursable to
the servicer with respect to that mortgage loan, unless the prospectus
supplement specifies otherwise.
RECORD DATE: The last business day of the month preceding the month in which a
distribution date occurs, unless the prospectus supplement specifies otherwise.
RELATED PROCEEDS: Recoveries on a Mortgage Asset related to amounts which the
servicer has previously advanced to the related trust fund.
RELEASED MORTGAGED PROPERTY PROCEEDS: Proceeds received in connection with the
taking of an entire mortgaged property by exercise of the power of eminent
domain or condemnation or any
136
<PAGE>
release of a part of the mortgaged property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of 1940.
REMIC: A real estate mortgage investment conduit as defined in Sections 860A
through 860G of the Code.
REMIC CERTIFICATES: Certificates evidencing interests in a trust fund as to
which a REMIC election has been made.
REMIC PROVISIONS: Sections 860A through 860G of the Code.
REMIC REGULAR CERTIFICATE: A REMIC Certificate designated as a regular interest
in the related REMIC.
REMIC RESIDUAL CERTIFICATE: A REMIC Certificate designated as a residual
interest in the related REMIC.
REMIC REGULATIONS: The REMIC Provisions and the related Treasury regulations.
REO PROPERTY: A mortgaged property acquired for the benefit of securityholders
by foreclosure or by deed-in-lieu of foreclosure or otherwise.
RETAINED INTEREST: A portion of the interest payments on a trust fund asset that
may be retained by the depositor or any previous owner of the asset.
RICO: The Racketeer Influenced and Corrupt Organizations statute.
SAIF: The Savings Association Insurance Fund.
SCHEDULED PRINCIPAL BALANCE: As to any Mortgage Asset, the unpaid principal
balance thereof as of the date of determination, reduced by the principal
portion of all monthly payments due but unpaid as of the date of determination.
SENIOR/SUBORDINATE SERIES: A series of securities of which one or more classes
is senior in right of payment to one or more other classes to the extent
described in the related prospectus supplement.
SINGLE FAMILY LOANS: A loan secured by a first or junior lien on a Single Family
Property.
SINGLE FAMILY PROPERTIES: One- to four-family residential properties including
detached and attached dwellings, townhouses, rowhouses, individual condominium
units, individual units in planned-unit developments, individual units in de
minimus planned-unit developments or manufactured homes that are permanently
affixed to their sites.
137
<PAGE>
STRIP SECURITIES: A class of securities which are entitled to (a) principal
distributions, with disproportionate, nominal or no interest distributions, or
(b) interest distributions, with disproportionate, nominal or no principal
distributions.
STRIPPED INTEREST: The distributions of interest on a Strip Security with no or
a nominal principal balance.
STRIPPED INTEREST SECURITIES: A class of securities which are entitled to
interest distributions, with disproportionate, nominal or no principal
distributions.
UNITED STATES PERSON: A citizen or resident of the United States; a corporation
or partnership, including an entity treated as a corporation or partnership for
federal income tax purposes, created or organized in, or under the laws of, the
United States or any state thereof or the District of Columbia, except, in the
case of a partnership, to the extent provided in Treasury regulations; an estate
whose income is subject to United States federal income tax regardless of its
source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. To the extent prescribed in regulations by the Secretary of the Treasury,
which have not yet been issued, a trust which was in existence on August 20,
1996, other than a trust treated as owned by the grantor under subpart E of part
I of subchapter J of chapter 1 of the Code, and which was treated as a United
States person on August 20, 1996 may elect to continue to be treated as a United
States person notwithstanding the previous sentence.
138
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3)
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below. All such
expenses, except for the filing fee, are estimated.
Filing fee for registration statement.................. $ 722,800.00
Legal fees and expenses................................ 200,000.00
Accounting fees and expenses........................... 75,000.00
Trustee's fees and expenses (including counsel fees)... 85,000.00
Printing and engraving fees............................ 100,000.00
Rating agency fees..................................... 300,000.00
Blue Sky and legal investment fees and expenses........ 10,000.00
Miscellaneous.......................................... 25,000.00
--------------
Total......................................... $ 1,517,800.00
==============
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3)
The pooling and servicing agreements pursuant to which each series of
certificates being registered will be issued and the indenture, owner trust
agreement and servicing agreement pursuant to which each series of notes being
registered will be issued will provide that neither the Registrant nor any
director, officer, employee or agent of the Registrant will be under any
liability to the trust fund created thereunder or the holders of the securities
issued thereunder for any action taken or for refraining from the taking of any
action in good faith pursuant to the related agreement, or for errors in
judgment; provided, however, that neither the Registrant nor any such person
will be protected against any breach of warranties or representations made in
the related agreement, or against any liability which would otherwise be imposed
by reason of misfeasance, bad faith or negligence in the performance of
obligations or duties thereunder, or by reason of reckless disregard of such
obligations or duties thereunder. The agreements will further provide that the
Registrant and any director, officer, employee or agent of the Registrant will
be entitled to indemnification by the related trust fund and will be held
harmless by the trust fund against any loss, liability or expense incurred in
connection with any legal action relating to the agreement or the securities
issued thereunder, other than any loss, liability or expense (i) related to any
specific mortgage loan or mortgage loans comprising the trust fund (except any
such loss, liability or expense otherwise reimbursable pursuant to the related
agreement); (ii) incurred by reason of misfeasance, bad faith or negligence in
the performance of obligations or duties under the agreement, or by reason of
reckless disregard of such obligations or duties thereunder; (iii) incurred in
connection with any violation by it of any state or federal securities laws; or
(iv) imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the agreements.
The underwriter who executes an Underwriting Agreement in the form
filed as Exhibit 1.1 to the Registration Statement will agree to indemnify the
Registrant's directors and its officers who
II-1
<PAGE>
signed this Registration Statement against certain liabilities which might arise
under the Act from certain information furnished to the Registrant by or on
behalf of such underwriter.
EXHIBITS (ITEM 16 OF FORM S-3)
EXHIBITS --
<TABLE>
<CAPTION>
<S> <C>
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
4.2 -- Form of Indenture, for a series consisting of mortgage-backed notes.
4.3 -- Form of Servicing Agreement for a series of mortgage-backed notes.
4.4 -- Form of Trust Agreement for a series of mortgage-backed notes.
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain tax matters (included
with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of Exhibit 5.1 and Exhibit 8.1).
25.1 -- Power of Attorney.**
</TABLE>
- ---------
* Previously filed as an Exhibit to Registration Statement on Form S-11 and
incorporated herein by reference.
** Previously filed on page II-4 of Registration Statement No. 333-61691 and
incorporated herein by reference.
UNDERTAKINGS (ITEM 17 OF FORM S-3)
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant
II-2
<PAGE>
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) That, for the purposes of determining any liability under
the Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(c) To provide to the underwriter at the closing specified in
the underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Superior Bank FSB certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, reasonably
believes that the security rating requirements contained in Transaction
Requirement B.5 of Form S-3 will be met by the time of the sale of the
securities registered hereunder and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Oakbrook Terrace, State of Illinois, on the 21st day of July, 1999.
SUPERIOR BANK FSB
By: /s/ William C. Bracken
---------------------------------
Name: William C. Bracken
Title: Senior Vice President and
Chief Financial Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
Neal T. Halleran President, Director July 21, 1999
/s/ William C. Bracken
- --------------------------------------- Senior Vice President and July 21, 1999
William C. Bracken Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director July 21, 1999
- ---------------------------------------
Nelson Stephenson
* Director July 21, 1999
Glen Miller
* Director July 21, 1999
- ---------------------------------------
Marc A. Weisman
*
Monte Kurs Director July 21, 1999
*By /s/ William C. Bracken
- ---------------------------------------
William C. Bracken
</TABLE>
Attorney-in-fact pursuant to a power of attorney previously filed with
the Registration Statement No. 333-61691 and incorporated herein by reference.
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT LOCATION OF EXHIBIT
SEQUENTIAL IN
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
<S> <C>
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
4.2 -- Form of Indenture for a series consisting of mortgage-backed notes.
4.3 -- Form of Servicing Agreement for a series of mortgage-backed notes.
4.4 -- Form of Trust Agreement for a series of mortgage-backed notes.
5.1 -- Opinion of Thacher Proffitt & Wood with respect to
legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to
certain tax matters (included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1 and Exhibit 8.1).
25.1 -- Power of Attorney.**
</TABLE>
- -----------
* Previously filed as an Exhibit to Registration Statement on Form S-11 and
incorporated herein by reference.
** Previously filed on page II-4 of Registration Statement No. 333-61691 and
incorporated herein by reference.
II-6
EXHIBIT 4.2
<PAGE>
EXHIBIT 4.2
AFC TRUST SERIES ___-__
Issuer
and
[-------------------------------------]
Indenture Trustee
-----------------------------------------
INDENTURE
Dated as of [_______________]
------------------------------------------
AFC MORTGAGE LOAN ASSET BACKED NOTES
Series _____-_
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS................................................................................2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT..........................................2
1.03. RULES OF CONSTRUCTION......................................................................2
ARTICLE II
ORIGINAL ISSUANCE OF NOTES
2.01. FORM.......................................................................................4
2.02. EXECUTION, AUTHENTICATION AND DELIVERY.....................................................4
2.03. ACCEPTANCE OF MORTGAGE LOANS BY INDENTURE TRUSTEE..........................................4
ARTICLE III
COVENANTS
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS..................................6
3.02. MAINTENANCE OF OFFICE OR AGENCY............................................................6
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT.......................................6
3.04. EXISTENCE..................................................................................8
3.05. PAYMENT OF PRINCIPAL AND INTEREST..........................................................8
3.06. PROTECTION OF TRUST ESTATE.................................................................9
3.07. OPINIONS AS TO TRUST ESTATE...............................................................10
3.08. PERFORMANCE OF OBLIGATIONS................................................................10
3.09. NEGATIVE COVENANTS........................................................................11
3.10. ANNUAL STATEMENT AS TO COMPLIANCE.........................................................11
3.11. [Reserved]................................................................................12
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS..............................12
3.13. AMENDMENTS TO MORTGAGE LOAN PURCHASE AGREEMENT............................................12
3.14. SERVICER AS AGENT AND BAILEE OF THE INDENTURE TRUSTEE.....................................12
3.15. INVESTMENT COMPANY ACT....................................................................12
3.16. ISSUER MAY CONSOLIDATE, ETC...............................................................13
3.17. SUCCESSOR OR TRANSFEREE...................................................................14
3.18. NO OTHER BUSINESS.........................................................................15
3.19. NO BORROWING..............................................................................15
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.........................................15
3.21. CAPITAL EXPENDITURES......................................................................15
3.22. [Reserved]................................................................................15
3.23. RESTRICTED PAYMENTS.......................................................................15
<PAGE>
3.24. NOTICE OF EVENTS OF DEFAULT...............................................................16
3.25. FURTHER INSTRUMENTS AND ACTS..............................................................16
3.26. [RESERVED]................................................................................16
3.27. ALLOCATION OF REALIZED LOSSES.............................................................16
ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
4.01. THE NOTES.................................................................................17
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
APPOINTMENT OF NOTE REGISTRAR AND CERTIFICATE REGISTRAR...................................17
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES................................................18
4.04. PERSONS DEEMED OWNERS.....................................................................19
4.05. CANCELLATION..............................................................................19
4.06. BOOK-ENTRY NOTES..........................................................................20
4.07. NOTICES TO DEPOSITORY.....................................................................21
4.08. DEFINITIVE NOTES..........................................................................21
4.09. TAX TREATMENT.............................................................................21
4.10. SATISFACTION AND DISCHARGE OF INDENTURE...................................................21
4.11. APPLICATION OF TRUST MONEY................................................................23
4.12. SUBROGATION AND COOPERATION...............................................................23
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT..................................................24
4.14. TEMPORARY NOTES...........................................................................24
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT.........................................................................25
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT........................................25
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE TRUSTEE.................26
5.04. REMEDIES; PRIORITIES......................................................................28
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE.................................................29
5.06. LIMITATION OF SUITS.......................................................................30
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND INTEREST.....................30
5.08. RESTORATION OF RIGHTS AND REMEDIES........................................................31
5.09. RIGHTS AND REMEDIES CUMULATIVE............................................................31
5.10. DELAY OR OMISSION NOT A WAIVER............................................................31
5.11. CONTROL BY [NOTE INSURER] [NOTEHOLDERS]...................................................31
5.12. WAIVER OF PAST DEFAULTS...................................................................32
5.13. UNDERTAKING FOR COSTS.....................................................................32
5.14. WAIVER OF STAY OR EXTENSION LAWS..........................................................32
<PAGE>
5.15. SALE OF TRUST ESTATE......................................................................33
5.16. ACTION ON NOTES...........................................................................34
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE...............................................................36
6.02. RIGHTS OF INDENTURE TRUSTEE...............................................................37
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE....................................................37
6.04. INDENTURE TRUSTEE'S DISCLAIMER............................................................37
6.05. NOTICE OF EVENT OF DEFAULT................................................................38
6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS...................................................38
6.07. COMPENSATION AND INDEMNITY................................................................38
6.08. REPLACEMENT OF INDENTURE TRUSTEE..........................................................38
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER.....................................................39
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE.........................40
6.11. ELIGIBILITY; DISQUALIFICATION.............................................................41
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER..........................................41
6.13. REPRESENTATIONS AND WARRANTIES............................................................41
6.14. DIRECTIONS TO INDENTURE TRUSTEE...........................................................42
6.15. THE AGENTS................................................................................42
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS....................43
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS................................43
7.03. REPORTS OF ISSUER.........................................................................43
7.04. REPORTS BY INDENTURE TRUSTEE..............................................................44
7.05. STATEMENTS TO NOTEHOLDERS.................................................................44
ARTICLE VIII
ACCOUNTS, DISTRIBUTIONS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY.......................................................................47
8.02. TRUST ACCOUNTS; DISTRIBUTIONS.............................................................47
8.03. OFFICER'S CERTIFICATE.....................................................................48
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS..............................................48
8.05. RELEASE OF TRUST ESTATE...................................................................49
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT.....................................................49
8.07. OPTIONAL REDEMPTION OF THE NOTES..........................................................49
8.08. PAYMENTS UNDER THE NOTE INSURANCE POLICY..................................................50
<PAGE>
8.09. REPLACEMENT NOTE INSURANCE POLICY.........................................................50
8.10. WITHDRAWALS FROM PRE-FUNDING ACCOUNT......................................................51
8.11. WITHDRAWALS FROM THE CAPITALIZED INTEREST ACCOUNT. ......................................51
8.12. EFFECT OF PAYMENTS BY THE NOTE INSURER; SUBROGATION......................................51
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS....................................53
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.......................................54
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES......................................................55
9.04. EFFECT OF SUPPLEMENTAL INDENTURE..........................................................56
9.05. CONFORMITY WITH TRUST INDENTURE ACT.......................................................56
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.............................................56
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.................................................57
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE..........................................58
10.03. ACTS OF NOTEHOLDERS.......................................................................59
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, [NOTE INSURER,] ISSUER AND RATING AGENCIES...........59
10.05. NOTICES TO NOTEHOLDERS; WAIVER............................................................60
10.06. CONFLICT WITH TRUST INDENTURE ACT.........................................................61
10.07. EFFECT OF HEADINGS........................................................................61
10.08. SUCCESSORS AND ASSIGNS....................................................................61
10.09. SEPARABILITY..............................................................................61
10.10. BENEFITS OF INDENTURE.....................................................................61
10.11. LEGAL HOLIDAYS............................................................................61
10.12. GOVERNING LAW.............................................................................61
10.13. COUNTERPARTS..............................................................................62
10.14. RECORDING OF INDENTURE....................................................................62
10.15. ISSUER OBLIGATION.........................................................................62
10.16. NO PETITION...............................................................................62
10.17. INSPECTION................................................................................62
ADJUSTMENT DATE..........................................................................................1
ADVANCE ...........................................................................................1
AVAILABLE FUNDS..........................................................................................2
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT.................................................................2
AVAILABLE FUNDS INTEREST RATE............................................................................2
BANKRUPTCY CODE..........................................................................................3
CASH LIQUIDATION.........................................................................................3
Converted Mortgage Loan..................................................................................5
<PAGE>
Convertible Mortgage Loan................................................................................5
Converting Mortgage Loan.................................................................................5
CUMULATIVE LOSS PERCENTAGE:..............................................................................5
DEBT SERVICE REDUCTION...................................................................................5
DEFICIENT VALUATION......................................................................................6
DELINQUENCY PERCENTAGE...................................................................................6
PREPAYMENT INTEREST SHORTFALL...........................................................................21
PREPAYMENT PERIOD.......................................................................................21
REO ACQUISITION.........................................................................................24
REO Disposition.........................................................................................24
REO IMPUTED INTEREST....................................................................................24
REO PROCEEDS ..........................................................................................24
Required Subordination Amount...........................................................................25
ROLLING DELINQUENCY PERCENTAGE..........................................................................25
SERVICING ADVANCES......................................................................................26
STEP-DOWN CUMULATIVE LOSS TEST..........................................................................27
STEP-DOWN ROLLING DELINQUENCY TEST......................................................................27
STEP-DOWN TRIGGER.......................................................................................27
STEP-UP CUMULATIVE LOSS TEST............................................................................27
STEP-UP ROLLING DELINQUENCY TEST........................................................................27
STEP-UP TRIGGER.........................................................................................27
SUBORDINATION AMOUNT....................................................................................27
Subordination Reduction Amount..........................................................................28
Signatures and Seals ......................................................................................... 59
Acknowledgments .............................................................................................. 60
</TABLE>
<PAGE>
EXHIBITS
Exhibit A-1 - Form of Class ___ Notes
Exhibit A-2 - Form of Class ___ Notes
Exhibit A-3 - Form of Class ___ Notes
Exhibit B - Trustee's Initial Certification
Exhibit C - Trustee's Final Certification
Exhibit D - Mortgage Loan Schedule
Exhibit E - Certificate of Non-Foreign Status
Appendix A Definitions
<PAGE>
This Indenture, dated as of [______________], between AFC
Trust Series ___-__, a Delaware business trust, as Issuer (the "Issuer"), and
[______________________], a [national banking association], as Indenture Trustee
(the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
AFC Mortgage Loan Asset Backed Notes, Series ___-___ (the "Notes") [and the Note
Insurer].
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes [and the
Note Insurer], all of the Issuer's right, title and interest in and to whether
now existing or hereafter created by (a) the Initial Mortgage Loans, Substitute
Mortgage Loans, Subsequent Mortgage Loans and the proceeds thereof and all
rights under the Related Documents; (b) all funds on deposit from time to time
in the Collection Account allocable to the Mortgage Loans excluding any
investment income from such funds; (c) all funds on deposit from time to time in
the Note Distribution Account and in all proceeds thereof; (d) all rights under
the (i) Servicing Agreement and any Sub-Servicing Agreements, and (ii) any
title, hazard and primary insurance policies with respect to the Mortgaged
Property; and (e) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments on or under,
and all proceeds of every kind and nature whatsoever in respect of, any or all
of the foregoing and all payments on or under, and all proceeds of every kind
and nature whatsoever in the conversion thereof, voluntary or involuntary, into
cash or other liquid property, all cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, checks, deposit accounts, rights to payment of any
and every kind, and other forms of obligations and receivables, instruments and
other property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing (collectively, the "Trust Estate" or the
"Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rules
and have the meanings assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words
in the plural include the singular; and
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(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instru ment or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
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ARTICLE II
ORIGINAL ISSUANCE OF NOTES
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibits [____ through ____], with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders).
The terms of the Notes set forth in Exhibits [____ through ____] are
part of the terms of this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver the Class ___, Class ___, Class ___ and Class ___ Notes for original
issue in an aggregate initial principal amount of $[______________].
Each Class of Notes shall be dated the date of its authentication. The
Notes shall be issuable as registered Notes and the Notes shall be issuable in
the minimum initial Note Principal Balances of $1,000 and in integral multiples
of $1 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. ACCEPTANCE OF MORTGAGE LOANS BY INDENTURE TRUSTEE. (a)
The Indenture Trustee acknowledges receipt of, subject to the exceptions it
notes pursuant to the procedures described below, the documents (or certified
copies thereof) referred to in Section [2.1(e)] of the Mortgage Loan Purchase
Agreement and declares that it holds and will continue to hold those documents
and any amendments, replacements or supplements thereto and all other assets of
the Trust Estate as Indenture Trustee in trust for the use and benefit of all
present and future Holders of the Notes [and the Note Insurer]. No later than 45
days after the Closing Date (or, with respect
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to any Eligible Substitute Mortgage Loan or Subsequent Mortgage Loan, within 45
days after the receipt by the Indenture Trustee thereof and, with respect to any
documents received beyond 45 days after the Closing Date, promptly thereafter),
the Indenture Trustee agrees, for the benefit of the Noteholders [and the Note
Insurer], to review each Mortgage File delivered to it and to execute and
deliver, or cause to be executed and delivered, to the Seller[, the Note
Insurer] and the Servicer an Initial Certification in the form annexed hereto as
Exhibit B. In conducting such review, the Trustee will ascertain whether all
required documents described in Section [2.1(e)] of the Mortgage Loan Purchase
Agreement have been executed and received and whether those documents relate,
determined on the basis of the Mortgagor name, original principal balance and
loan number, to the Mortgage Loans it has received, as identified in the related
Mortgage Loan Schedule (PROVIDED, HOWEVER, that with respect to those documents
described in subclause [(e)(vii)] of such section, the Indenture Trustee's
obligations shall extend only to documents actually delivered pursuant to such
subclause). In performing any such review, the Indenture Trustee may
conclusively rely on the purported due execution and genuineness of any such
document and on the purported genuineness of any signature thereon. If the
Indenture Trustee finds any document constituting part of the Mortgage File not
to have been executed or received, or to be unrelated to the Mortgage Loans
listed on the related Mortgage Loan Schedule or to appear to be defective on its
face, the Indenture Trustee shall promptly notify the Seller [and the Note
Insurer] of such finding and the Seller's obligation to cure such defect or
repurchase or substitute for the related Mortgage Loan.
(b) No later than 180 days after the Closing Date, the Indenture
Trustee will review, for the benefit of the Noteholders [and the Note Insurer],
the Mortgage Files and will execute and deliver or cause to be executed and
delivered to the Seller [and the Note Insurer], a Final Certification in the
form annexed hereto as Exhibit C. In conducting such review, the Indenture
Trustee will ascertain whether an original of each document described in
subclauses [(e)(ii)-(iv) of Section 2.1] of the Servicing Agreement required to
be recorded has been returned from the recording office with evidence of
recording thereon or a certified copy has been obtained from the recording
office. If the Indenture Trustee finds any document constituting part of the
Mortgage File has not been received, or to be unrelated, determined on the basis
of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans listed on the related Mortgage Loan Schedule or to appear
defective on its face, the Indenture Trustee shall promptly notify the Seller
[and the Note Insurer].
(c) Upon deposit of the Repurchase Price in the Note Distribution
Account, the Indenture Trustee shall release to the Seller the related Mortgage
File and shall execute and deliver all instruments of transfer or assignment,
without recourse, furnished to it by the Seller as are necessary to vest in the
Seller title to and rights under the related Mortgage Loan. Such purchase shall
be deemed to have occurred on the date on which certification of the deposit of
the Repurchase Price in the Note Distribution Account was received by the
Indenture Trustee. The Indenture Trustee shall amend the applicable Mortgage
Loan Schedule to reflect such repurchase and shall promptly notify the
Servicer[, the Note Insurer] and the Rating Agencies of such amendment.
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ARTICLE III
COVENANTS
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain in [the corporate
trust department of itself or an affiliate depository institution], a trust
account (the "Note Distribution Account") in which the Indenture Trustee shall,
subject to the terms of this paragraph, deposit, on the same day as it is
received from the Servicer, each remittance received by the Indenture Trustee
with respect to the Mortgage Loans. The Indenture Trustee shall make all
payments of principal of and interest on the Notes, subject to Section 3.03 as
provided in Section 8.02 herein from monies on deposit in the Note Distribution
Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in [the City of Oakbrook Terrace, Illinois], an office or agency where, subject
to satisfaction of conditions set forth herein, Notes may be surrendered for
registration of transfer or exchange, and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served. [The Issuer
hereby initially appoints the Indenture Trustee to serve as its agent for the
foregoing purposes.] If at any time the Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Indenture Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as
its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Note
Distribution Account pursuant to Section 3.01 shall be made on behalf of the
Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Note Distribution Account for payments of Notes shall be paid
over to the Issuer except as provided in this Section 3.03.
On or before the Business Day preceding each Payment Date and
Redemption Date, the Issuer shall deposit or cause to be deposited into the Note
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto, and (unless the Paying Agent is the Indenture
Trustee) shall promptly notify the Indenture Trustee in writing of its action or
failure so to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
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(ii) give the Indenture Trustee [and the Note Insurer]
notice of any default by the Issuer of which it has actual knowledge in
the making of any payment required to be made with respect to the
Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith; and
(vi) not commence a Bankruptcy proceeding against the
Issuer in connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be repaid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Inden ture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ [with the consent of the Note Insurer so long
as no Note Insurer Default exists], at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not
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claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST. [REVISE AS
APPROPRIATE] [(a) On each Payment Date from amounts on deposit in the Note
Distribution Account in accordance with Section 8.02 hereof, the Indenture
Trustee shall pay to the Noteholders and to other Persons the Interest
Remittance Amount and Principal Remittance Amount. Interest on the Notes will be
calculated on the basis of a 30-day month and a 360-day year.
(b) Each distribution with respect to a Book-Entry Note shall be paid
to the Depository, as Holder thereof, and the Depository shall be responsible
for crediting the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the Note
Owners that it represents and to each indirect participating brokerage firm (a
"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm shall be responsible for disbursing funds to the Note Owners
that it represents. None of the Indenture Trustee, the Note Registrar, the
Depositor or the Servicer shall have any responsibility therefor except as
otherwise provided by this Agreement or applicable law.
(c) On each Payment Date, the Certificate Paying Agent shall deposit in
the Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
(d) Any installment of interest or principal, if any, payable on any
Note that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder shall have so requested at least
five Business Days prior to the related Record Date and such Holder holds Notes
of an aggregate initial Note Principal Balance of at least $5,000,000, be paid
to each Holder of record on the preceding Record Date, by wire transfer to an
account specified in writing by such Holder reasonably satisfactory to the
Indenture Trustee as of the preceding Record Date or in all other cases or if no
such instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register in
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Notes; PROVIDED, HOWEVER, that the Indenture Trustee
shall not pay to such Holders any amount required to be withheld from a payment
to such Holder by the Code.
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(e) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the forms of Note set
forth in Exhibits [A-1 through A-3]. All principal payments on the Notes shall
be made to the Noteholders entitled thereto in accordance with the Percentage
Interests represented by such Notes. Upon notice to the Indenture Trustee by the
Issuer, the Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the Final
Scheduled Payment Date or other final Payment Date (including any final Payment
Date resulting from any redemption pursuant to Section 8.07 hereof). Such notice
shall to the extent practicable be mailed no later than five Business Days prior
to such Final Scheduled Payment Date or other final Payment Date and shall
specify that payment of the principal amount and any interest due with respect
to such Note at the Final Scheduled Payment Date or other final Payment Date
will be payable only upon presentation and surrender of such Note and shall
specify the place where such Note may be presented and surrendered for such
final payment. No interest shall accrue on the Notes on or after the Final
Scheduled Payment Date or any such other final Payment Date.]
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from time
to time prepare, execute and deliver all such supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer or Servicer to enforce any of
the rights to the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee[, the Note Insurer] and the
Noteholders in such Trust Estate against the claims of
all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 hereof (or from the jurisdiction in
which it was held as described in the Opinion of Counsel delivered on the
Closing Date pursuant to Section 3.07(a) hereof, or if no Opinion of Counsel has
yet been delivered pursuant to Section 3.07(b) hereof unless the Trustee shall
have first received an Opinion of Counsel to the effect that the lien and
security interest created by this Indenture with respect to such property will
continue to be maintained after giving effect to such action or actions).
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The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to sign any financing statement, continuation statement or
other instrument required to be signed pursuant to this Section 3.06 upon the
Issuer's preparation thereof and delivery to the Indenture Trustee.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee[, the Note Insurer] and the Owner
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continu ation statements, as are necessary to perfect and make
effective the lien and first priority security interest in the Collateral and
reciting the details of such action, or stating that, in the opinion of such
counsel, no such action is necessary to make such lien and first priority
security interest effective.
(b) On or before April 15 in each calendar year, beginning in ______,
the Issuer shall furnish to the Indenture Trustee [and the Note Insurer] an
Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the lien and first priority security interest in the
Collateral and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Collateral until December 31 in the following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS. (a) The Issuer will
punctually perform and observe all of its obligations and agreements contained
in this Indenture, the Basic Documents and in the instruments and agreements
included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Servicer
is expressly permitted to take in the Servicing Agreement. The Indenture
Trustee, as pledgee of the Mortgage Loans, shall be able to exercise the rights
of the Issuer to direct the actions of the Servicer pursuant to the Servicing
Agreement.
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(d) The Issuer may retain an administrator and may enter into contracts
with other Persons for the performance of the Issuer's obligations hereunder,
and performance of such obligations by such Persons shall be deemed to be
performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee
[without the consent of the Note Insurer];
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or other wise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Issuer's
interest in the Mortgage Loans, the Mortgage Loan Purchase Agreement,
the Servicing Agreement or in any Basic Document, if any such action
would materially and adversely affect the interests of the Noteholders
[or the Note Insurer].
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee [and the Note Insurer], within 120 days after
the end of each fiscal year of the Issuer (commencing with the fiscal year
_____), an Officer's Certificate stating, as to the Authorized Officer signing
such Officer's Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's
knowledge, based on such review, the Issuer has complied with all
conditions and covenants under this Indenture throughout such year, or,
if there has been a default in its compliance with any such condition
or
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covenant, specifying each such default known to such Authorized Officer
and the nature and status thereof.
Section 3.11. [Reserved].
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in the Mortgage Loan
Purchase Agreement concerning the Seller and the Mortgage Loans and the right to
enforce the remedies against the Seller provided in such Mortgage Loan Purchase
Agreement to the same extent as though such representations and warranties were
made directly to the Indenture Trustee. If the Indenture Trustee has actual
knowledge of any breach of any representation or warranty made by the Seller in
the Mortgage Loan Purchase Agreement, the Indenture Trustee shall promptly
notify the Seller [and the Note Insurer] of such finding and the Seller's
obligation to cure such defect or repurchase or substitute for the related
Mortgage Loan.
Section 3.13. AMENDMENTS TO MORTGAGE LOAN PURCHASE AGREEMENT. The
Issuer covenants with the Indenture Trustee [and the Note Insurer] that it will
not enter into any amendment or supplement to the Mortgage Loan Purchase
Agreement without the prior written consent of the Indenture Trustee. The
Indenture Trustee, as pledgee of the Mortgage Loans, may decline to enter into
or consent to any such supplement or amendment if the Noteholders' rights,
duties or immunities shall be adversely affected.
Section 3.14. SERVICER AS AGENT AND BAILEE OF THE INDENTURE TRUSTEE.
Solely for purposes of perfection under Section 9-305 of the Uniform Commercial
Code or other similar applicable law, rule or regulation of the state in which
such property is held by the Servicer, the Issuer and the Indenture Trustee
hereby acknowledge that the Servicer is acting as agent and bailee of the
Indenture Trustee in holding amounts on deposit in the Collection Account, as
well as its agent and bailee in holding any Related Documents released to the
Servicer, and any other items constituting a part of the Trust Estate which from
time to time come into the possession of the Servicer. It is intended that, by
the Servicer's acceptance of such agency, the Indenture Trustee, as a secured
party of the Mortgage Loans, will be deemed to have possession of such Related
Documents, such monies and such other items for purposes of Section 9-305 of the
Uniform Commercial Code of the state in which such property is held by the
Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
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Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee [and the Note
Insurer], the due and punctual payment of the principal of and interest
on all Notes and to the Certificate Paying Agent, on behalf of the
Certificateholders [and the payment of the Note Insurance Premium and
all other payments to the Note Insurer] and the performance or
observance of every agreement and covenant of this Indenture on the
part of the Issuer to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
(iii the Rating Agencies shall have confirmed in writing
that such transaction shall not cause the downgrade, withdrawal or
qualification of the rating of the Notes;
(iv) [the Issuer [and the Note Insurer] shall have
received an Opinion of Counsel (and shall have delivered a copy thereof
to the Indenture Trustee) to the effect that such transaction will not
(A) result in a "substantial modification" of the Notes under Treasury
Regulation section 1.1001-3, or adversely affect the status of the
Notes as indebtedness for federal income tax purposes, or (B) if 100%
of the Certificates are not owned by Superior Bank FSB, cause the Trust
to be subject to an entity level tax for federal income tax purposes];
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture
Trustee [and the Note Insurer] an Officer's Certificate and an Opinion
of Counsel each stating that such consolidation or merger and such
supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) [the Note Insurer, so long as no Note Insurer
Default exists, shall have given its prior written consent.]
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United
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States citizen or a Person organized and existing under the laws of the
United States of America or any state, (B) expressly assumes, by an
indenture supplemental hereto, executed and delivered to the Indenture
Trustee, in form satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes[, the
payment of the Note Insurance Premium and all other amounts payable to
the Note Insurer] and the performance or observance of every agreement
and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the
rights of the Holders of the Notes [and the Note Insurer], (D) unless
otherwise provided in such supplemental indenture, expressly agrees to
indemnify, defend and hold harmless the Issuer [and the Note Insurer]
against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agrees by
means of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have confirmed in writing
that such transaction shall not cause the downgrade, withdrawal or
qualification of the rating of the Notes;
(iv) [the Issuer [and the Note Insurer] shall have
received an Opinion of Counsel (and shall have delivered a copy thereof
to the Indenture Trustee) to the effect that such transaction will not
(A) result in a "substantial modification" of the Notes under Treasury
Regulation section 1.1001-3, or adversely affect the status of the
Notes as indebtedness for federal income tax purposes, or (B) if 100%
of the Certificates are not owned by Superior Bank FSB, cause the Trust
to be subject to an entity level tax for federal income tax purposes];
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture
Trustee [and the Note Insurer] an Officer's Certificate and an Opinion
of Counsel each stating that such conveyance or transfer and such
supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) [the Note Insurer, so long as no Note Insurer
Default exists, shall have given its prior written consent.]
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation
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or merger (if other than the Issuer) shall succeed to, and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture with
the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee [and the Note Insurer] of such conveyance or
transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes [and amounts due to the Note Insurer under
this Indenture and the Insurance Agreement].
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under this Indenture and the Trust Agreement and (y)
payments to the Servicer pursuant to the terms of the Servicing Agreement. The
Issuer will not, directly or indirectly, make payments to or distributions from
the Collection Account except in accordance with this Indenture and the Basic
Documents.
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Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee[, the Note Insurer] and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee [or the Note Insurer], the Issuer will execute and deliver
such further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purpose of this Indenture.
Section 3.26. [RESERVED].
[Section 3.27. ALLOCATION OF REALIZED LOSSES.
(a) [REVISE AS APPROPRIATE] Prior to each Payment Date, the Servicer
shall determine the total amount of Realized Losses, if any, that resulted from
any Cash Liquidation, Debt Service Reduction, Deficient Valuation or REO
Disposition that occurred during the related Collection Period. The amount of
each Realized Loss shall be evidenced by an Officers' Certificate delivered to
the Indenture Trustee with the related Determination Date Report.
(b) On each Payment Date, the principal portion of Realized Losses will
be allocated as follows: first, to the Class ___ Certificates; second, to the
Class ___ Certificates; third to the Class ___ Certificates; fourth to the Class
___ Notes; fifth, to the Class ___ Notes; sixth, to the Class ___ Notes; and
seventh, to the Class ___ Notes, in each case in reduction of the Certificate
Principal Balance or Note Principal Balance thereof, until such Certificate
Principal Balance or Note Principal Balance has been reduced to zero. Except as
provided in the following sentence, any allocation of the principal portion of
Realized Losses (other than Debt Service Reductions) to a Class of Certificates
or Notes shall be made by reducing the Certificate Principal Balance or Note
Principal Balance thereof, as applicable, by the amount so allocated, which
allocation shall be deemed to have occurred on such Payment Date. Any allocation
of the principal portion of Realized Losses (other than Debt Service Reductions)
to the class of Class ___ Certificates then outstanding with the highest
numerical designation shall be made by operation of the definition of
"Certificate Principal Balance" and by operation of the provisions of Section
3.05. Allocations of the principal portion of Debt Service Reductions shall be
made by operation of the provisions of Section 3.05. All Realized Losses and all
other losses allocated to a class of Certificates or class of Notes hereunder
will be allocated among the Certificates or Notes of such class in proportion to
the Certificate Percentage Interests or Percentage Interests, as applicable,
evidenced thereby.]
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ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.01. THE NOTES. [REVISE AS APPROPRIATE] The Notes shall be
registered in the name of a nominee designated by the Depository. Beneficial
Owners will hold interests in the Notes through the book-entry facilities of the
Depository in minimum initial Note Principal Balances of $__________ and
integral multiples of $1 in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of the Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08
hereof, Beneficial Owners shall not be entitled to definitive certificates for
the Notes as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Notes shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Noteholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee, no Note may be transferred by the Depository except to a
successor Depository that agrees to hold such Note for the account of the
Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Indenture Trustee and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF NOTE REGISTRAR AND CERTIFICATE REGISTRAR. The Issuer
shall cause to be kept at the Corporate Trust Office a Note Register in which,
subject to such reasonable regulations as it may prescribe, the Note Registrar
shall provide for the registration of Notes and of transfers and exchanges of
Notes as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Issuer shall execute and the Note Registrar shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes in authorized initial Note Principal Balances evidencing the same
aggregate Percentage Interests.
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Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor and in authorized initial Note
Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Notes to be exchanged at the Corporate Trust Office of the Note
Registrar. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Notes which
the Noteholder making the exchange is entitled to receive. Each Note presented
or surrendered for registration of transfer or exchange shall (if so required by
the Note Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Note Registrar
duly executed by the Holder thereof or his attorney duly authorized in writing
with such signature guaranteed by a commercial bank or trust company located or
having a correspondent located in the city of New York. Notes delivered upon any
such transfer or exchange will evidence the same obligations, and will be
entitled to the same rights and privileges, as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of
Notes.
The Issuer hereby appoints the Indenture Trustee as (i) Certificate
Registrar to keep at its Corporate Trust Office a Certificate Register pursuant
to Section 3.09 of the Trust Agreement in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges thereof pursuant to
Section 3.05 of the Trust Agreement and (ii) Note Registrar under this
Indenture. The Indenture Trustee hereby accepts such appointments.
[No Person shall become a Class ___ Noteholder until it shall establish
its non-foreign status by submitting to the Note Registrar an IRS Form W-9 and
the Certificate of Non-Foreign Status in the form set forth in Exhibit E hereto,
acceptable to and in form and substance reasonably satisfactory to the Note
Registrar and the Company, which certificate shall not be an expense of the
Trust, the Owner Trustee, the Note Registrar, the Servicer or the Company. If
the Noteholder is unable to provide a Certificate of Non-Foreign Status, the
Noteholder must provide an Opinion of Counsel as to the non-foreign status of
such Person which Opinion of Counsel shall not be an expense of the Trust, the
Owner Trustee, the Indenture Trustee, the Note Registrar, the Servicer or the
Company. The Class ___ Noteholder desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trust, the Owner Trustee, the Note
Registrar, the Servicer and the Company against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal and
state laws. So long as the Class ___ Notes are Book-Entry Notes, any purchaser
of a Class ___ Note will be deemed to have represented by such purchase that
such purchaser is a U.S. Person under the Code.]
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer[, the Note Insurer] and
the Indenture Trustee harmless, then, in the absence of notice to the Issuer,
the Note Registrar or the
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Indenture Trustee that such Note has been acquired by a bona fide purchaser, and
provided that the requirements of Section 8-405 of the UCC are met, the Issuer
shall execute, and upon its request the Indenture Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Note, a replacement Note; provided, however, that if any such destroyed,
lost or stolen Note, but not a mutilated Note, shall have become or within seven
days shall be due and payable, instead of issuing a replacement Note, the Issuer
may pay such destroyed, lost or stolen Note when so due or payable without
surrender thereof. If, after the delivery of such replacement Note or payment of
a destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the
Issuer[, the Note Insurer] and the Indenture Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer[, the Note Insurer], the
Indenture Trustee and any agent of the Issuer[, the Note Insurer] or the
Indenture Trustee may treat the Person in whose name any Note is registered (as
of the day of determination) as the owner of such Note for the purpose of
receiving payments of principal of and interest, if any, on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and neither
the Issuer[, the Note Insurer], the Indenture Trustee nor any agent of the
Issuer[, the Note Insurer] or the Indenture Trustee shall be affected by notice
to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
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authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. [REVISE AS APPROPRIATE] The Notes, upon
original issuance, will be issued in the form of typewritten Notes representing
the Book-Entry Notes, to be delivered to The Depository Trust Company, the
initial Depository, by, or on behalf of, the Issuer. The Notes shall initially
be registered on the Note Register in the name of Cede & Co., the nominee of the
initial Depository, and no Beneficial Owner will receive a Definitive Note
representing such Beneficial Owner's interest in such Note, except as provided
in Section 4.08. With respect to such Notes, unless and until definitive, fully
registered Notes (the "Definitive Notes") have been issued to Beneficial Owners
pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar[, the Note Insurer] and the
Indenture Trustee shall be entitled to deal with the Depository for all
purposes of this Indenture (including the payment of principal of and
interest on the Notes and the giving of instructions or directions
hereunder) as the sole holder of the Notes, and shall have no
obligation to the Beneficial Owners of the Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Note Principal Balances of the
Notes, the Depository shall be deemed to represent such percentage with
respect to the Notes only to the extent that it has received
instructions to such effect from Beneficial Owners and/or Depository
Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Notes and has delivered
such instructions to the Indenture Trustee.
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Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Indenture Trustee determines
that the Depository is no longer willing or able to properly discharge its
responsibilities with respect to the Notes and the Indenture Trustee is unable
to locate a qualified successor, (ii) the Indenture Trustee elects to terminate
the book-entry system through the Depository or (iii) after the occurrence of an
Event of Default, Beneficial Owners of Notes representing beneficial interests
aggregating at least a majority of the Note Principal Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then the Depository shall notify all Beneficial Owners and the Indenture
Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Beneficial Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes representing the Book-Entry Notes by
the Depository, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Depository. None of the Issuer, the Note
Registrar or the Indenture Trustee shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Notes, the
Indenture Trustee shall recognize the Holders of the Definitive Notes as
Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness. The Issuer, by entering into this Indenture, and
each Noteholder, by its acceptance of its Note (and each Beneficial Owner by its
acceptance of an interest in the applicable Book-Entry Note), agree to treat the
Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders [(and the Note
Insurer, as subrogee of the Noteholders)] to receive payments of principal
thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09, 3.16, 3.18
and 3.19, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.07 and
the obligations of the Indenture Trustee under Section 4.11) and (vi) the rights
of Noteholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging
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satisfaction and discharge of this Indenture with respect to the Notes and shall
release and deliver the Collateral to or upon the order of the Issuer, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 hereof and (ii) Notes
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final
Scheduled Payment Date within one year, or
c. have been called for early redemption
pursuant to Section 8.07 hereof,
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
then outstanding not theretofore delivered to the Indenture Trustee for
cancellation when due on the Final Scheduled Payment Date or other
final Payment Date and has delivered to the Indenture Trustee [and the
Note Insurer] a verification report from a nationally recognized
accounting firm certifying that the amounts deposited with the
Indenture Trustee are sufficient to pay and discharge the entire
indebtedness of such Notes, or, in the case of c. above, the Issuer
shall have complied with all requirements of Section 8.07 hereof;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder; and
(C) the Issuer has delivered to the Indenture Trustee [or the
Note Insurer] an Officer's Certificate and an Opinion of Counsel, each
meeting the applicable requirements of Section 10.01 hereof, each
stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied
with and, if the Opinion of Counsel relates to a deposit made in
connection with Section 4.10(A)(2)b. above, such opinion shall further
be to the effect that such deposit will constitute an "in-substance
defeasance" within the meaning of Revenue Ruling 85-42, 1985-1 C.B. 36,
and
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in accordance therewith, the Issuer will be the owner of the assets
deposited in trust for federal income tax purposes.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or the
Issuer, Certificate Paying Agent as designee of the Issuer, as applicable, as
the Indenture Trustee may determine, to the Holders of Securities, of all sums
due and to become due thereon for principal and interest or otherwise; but such
monies need not be segregated from other funds except to the extent required
herein or required by law.
[Section 4.12. SUBROGATION AND COOPERATION. The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Note Insurer makes
payments under the Note Insurance Policy on account of principal of or interest
on the Notes, the Note Insurer will be fully subrogated to the rights of such
Holders to receive such principal and interest from the Issuer, and (ii) the
Note Insurer shall be paid such principal and interest but only from the sources
and in the manner provided herein and in the Insurance Agreement for the payment
of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interest under this Indenture or the Insurance
Agreement, consistent with this Indenture and without limiting the rights of the
Noteholders as otherwise set forth in the Indenture, including, without
limitation, upon the occurrence and continuance of a default under the Insurance
Agreement, a request to take any one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement,
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Note Insurer hereunder;
provided, however, action shall be taken pursuant to this Section 4.12 by the
Indenture Trustee to preserve the Note Insurer's rights or interest under this
Agreement or the Insurance Agreement
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only to the extent such action is available to the Noteholders or the Note
Insurer under other provisions of this Indenture.
Notwithstanding any provision of this Indenture to the contrary, so
long as no Note Insurer Default exists, the Note Insurer shall at all times be
treated as if it were the exclusive owner of all Notes Outstanding for the
purposes of all approvals, consents, waivers and the institution of any action
and the direction of all remedies, and the Indenture Trustee shall act in
accordance with the directions of the Note Insurer so long as it is indemnified
therefor to its reasonable satisfaction.]
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Person other than the Indenture Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.05 and thereupon such Paying Agent shall be released from all further
liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. The Issuer shall deliver to the
Indenture Trustee [and the Note Insurer], within five days after learning of the
occurrence of an Event of Default, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii) of the definition of "Event
of Default", its status and what action the Issuer is taking or proposes to take
with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee at the written direction of the [Note Insurer or, if a Note
Insurer Default exists, the] Holders of Notes representing not less than a
majority of the Note Principal Balances of all Notes may declare the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid Note Principal Balance of the Notes, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V, [Note Insurer or, if a Note Insurer Default
exists, the] Holders of Notes representing a majority of the Note Principal
Balances of all Notes, by written notice to the Issuer and the Indenture
Trustee, may waive the related Event of Default and rescind and annul such
declaration and its consequences if:
(i) the Issuer [or the Note Insurer] has paid or
deposited with the Indenture Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12
[provided, however, the Note Insurer may waive an Event of Default
regardless of Section 5.02(i) above.]
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest (including the Interest Remittance Amount) on any Note
when the same becomes due and payable, and such default continues for a period
of five days, or (ii) default is made in the payment of the principal (including
the Principal Remittance Amount) of or any installment of the principal of any
Note when the same becomes due and payable, the Issuer shall, upon demand of the
Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Holders
of Notes [and the Note Insurer], the whole amount then due and payable on the
Notes in respect of principal and interest, with interest at the Note Interest
Rate upon the overdue principal, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.16 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee, subject to the provisions of Section 10.16 hereof may, as more
particularly provided in Section 5.04 hereof, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders [and the Note
Insurer], by such appropriate Proceedings as the Indenture Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or by
law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or
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documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee (including any claim for reasonable
compensation to the Indenture Trustee and each predecessor Indenture
Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith)[, the Note
Insurer] and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders[, the Note
Insurer] and of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee[, the Note Insurer] or the Holders of Notes
allowed in any judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith[,
and all amounts due to the Note Insurer].
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes [and the Note Insurer], subject to
Section 5.05 hereof.
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(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing and if an acceleration has been declared and not
rescinded pursuant to Section 5.02 hereof, the Indenture Trustee subject to the
provisions of Section 10.16 hereof shall, do one or more of the following
(subject to Section 5.05 hereof):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, and enforce any judgment obtained,
and collect from the Issuer and any other obligor upon such Notes
monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
[and the Note Insurer]; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Note Principal Balance, (B) the proceeds of such sale or liquidation
distributable to the Holders of the Notes are sufficient to discharge in full
all amounts then due and unpaid upon the Notes for principal and interest [and
to reimburse the Note Insurer for any amounts paid under the Note Insurance
Policy and any other amounts due to the Note Insurer under the Insurance
Agreement] or (C) the Indenture Trustee determines that the Mortgage Loans will
not continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of the
Holders of a majority of the aggregate Note Principal Balance. In determining
such sufficiency or insufficiency with respect to clause (B) and (C), the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose. Notwithstanding the fore going, so long as an Event of
Servicer Termination has not occurred, any Sale of the Trust Estate shall be
made subject to the continued servicing of the Mortgage Loans by the Servicer as
provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order
[REVISE AS APPROPRIATE]:
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FIRST: to the Indenture Trustee for amounts due under Section
6.07 hereof;
SECOND: to the Noteholders for amounts due and unpaid on the
Notes with respect to interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Notes for interest (including Interest Remittance
Amount but not any Unpaid Interest Shortfalls) from amounts
available in the Trust Estate for the Noteholders;
THIRD: to Noteholders for amounts due and unpaid on the Notes
with respect to principal (including, but not limited to, any
Note Principal Distribution Amount), from amounts available in
the Trust Estate for such Noteholders, and to each Noteholder
ratably, without preference or priority of any kind, according
to the amounts due and payable on the Notes for principal,
until the Note Principal Balance is reduced to zero;
FOURTH: to the Noteholders for amounts due and unpaid on the
Notes with respect to any Unpaid Interest Shortfalls, ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Notes with respect thereto,
from amounts available in the Trust Estate for the
Noteholders; and
FIFTH: to the payment of the remainder, if any to the
Certificate Paying Agent on behalf of the Issuer or to any
other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. With respect to any
acceleration, the first payment date after the acceleration shall be the first
Payment Date after the acceleration. At least 15 days before such record date,
the Indenture Trustee shall mail to each Noteholder a notice that states the
record date, the payment date and the amount to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee shall elect to take and maintain possession of
the Trust Estate. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Notes and other obligations of the Issuer [including payments to
the Note Insurer], and the Indenture Trustee shall take such desire into account
when determining whether or not to take and maintain possession of the Trust
Estate. In determining whether to take and maintain possession of the Trust
Estate, the Indenture Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
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Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.16 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Note
Principal Balances of the Notes have made a written request to the
Indenture Trustee to institute such Proceeding in respect of such Event
of Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice of request and offer of indemnity has failed to
institute such Proceedings;
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Note Principal Balances of the Notes;
and
[(vi) such Holder or Holders have the consent of the
Note Insurer, unless a Note Insurer Default exists.]
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
Subject to the last paragraph of Section 4.12 herein, in the event the
Indenture Trustee shall receive conflicting or inconsistent requests and
indemnity from two or more groups of Holders of Notes, each representing less
than a majority of the Note Principal Balances of the Notes, the Indenture
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
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Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee[, the Note Insurer] or to such Noteholder, then and in every such case
the Issuer, the Indenture Trustee[, the Note Insurer] and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee[, the Note Insurer] and the Noteholders shall
continue as though no such Proceeding had been instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee[, the Note Insurer] or any Holder of any Note to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee[, the Note Insurer] or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee[, the Note Insurer] or by the Noteholders, as the case may be.
Section 5.11. CONTROL BY [NOTE INSURER] [NOTEHOLDERS]. The [Note
Insurer] [Holders of a majority of the Note Principal Balances of Notes] shall
have the right (subject to the provisions of Section 5.06) to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that [REVISE AS APPROPRIATE]:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) any direction to the Indenture Trustee to sell or
liquidate the Trust Estate shall be by Holders of Notes representing
not less than 100% of the Note Principal Balances of Notes;
(iii) if the conditions set forth in Section 5.05
hereof have been satisfied and the Indenture Trustee elects to retain
the Trust Estate pursuant to such Section, then any direction to the
Indenture Trustee by Holders of Notes representing less than 100% of
the Note Principal Balances of Notes to sell or liquidate the Trust
Estate shall be of no force and effect; and
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(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02 hereof,
[the Note Insurer, or if a Note Insurer Default exists,] the Holders of Notes of
not less than a majority of the Note Principal Balances of the Notes may waive
any past Event of Default and its consequences except an Event of Default (a)
with respect to payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note [or (c) the waiver of which would
not materially and adversely affect the interests of the Note Insurer]. In the
case of any such waiver, the Issuer, the Indenture Trustee and the Holders of
the Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Event
of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Note
Principal Balances of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatso ever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
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Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 hereof is expressly subject to the provisions of Section 5.05
hereof and this Section 5.15. The power to effect any such Sale shall not be
exhausted by any one or more Sales as to any portion of the Trust Estate
remaining unsold, but shall continue unimpaired until the entire Trust Estate
shall have been sold or all amounts payable on the Notes and under this
Indenture shall have been paid. The Indenture Trustee may from time to time
postpone any public Sale by public announcement made at the time and place of
such Sale. The Indenture Trustee hereby expressly waives its right to any amount
fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the [Note Insurer or if a Note Insurer Default exists,
the] Holders of all Notes, consent to or direct the Indenture Trustee to make,
such Sale, or
(2) the proceeds of such Sale would not be less than the
entire amount which would be payable to the Noteholders under the Notes [and the
Note Insurer under the Insurance Agreement] on the Payment Date next succeeding
the date of such Sale; or
(3) the Indenture Trustee determines, that the conditions for
retention of the Trust Estate set forth in Section 5.05 hereof cannot be
satisfied (in making any such determination, the Indenture Trustee may rely upon
an opinion of an Independent investment banking firm obtained and delivered as
provided in Section 5.05 hereof), and the [Note Insurer or if a Note Insurer
Default exists, the] Holders of Notes representing at least 66-2/3% of the Note
Principal Balances of the Notes consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the [Note Insurer or if a Note Insurer Default exists, the]
Holders representing at least 66-2/3% of the Principal Balances of the Notes
have otherwise consented or directed the Indenture Trustee, at any public Sale
of all or any portion of the Trust Estate at which a minimum bid equal to or
greater than the amount described in paragraph (2) of subsection (b) of this
Section 5.15 has not been established by the Indenture Trustee and no Person
bids an amount equal to or greater than such amount, the Indenture Trustee, as
trustee for the benefit of the Holders of the Notes, shall bid an amount at
least $1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust
Estate,
(1) any Holder or Holders of Notes may bid for the property
offered for sale, and upon compliance with the terms of sale may hold, retain
and possess and dispose of such property, without further accountability, and
may, in paying the purchase money therefor, deliver any Notes or claims for
interest thereon in lieu of cash up to the amount which shall, upon distribution
of the net proceeds of such sale, be payable thereon, and such Notes, in case
the
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amounts so payable thereon shall be less than the amount due thereon, shall be
returned to the Holders thereof after being appropriately stamped to show such
partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
[and the Note Insurer] as a result of such Sale in accordance with Section
5.04(b) hereof on the Payment Date next succeeding the date of such Sale and (B)
the expenses of the Sale and of any Proceedings in connection there with which
are reimbursable to it, without being required to produce the Notes in order to
complete any such Sale or in order for the net Sale price to be credited against
such Notes, and any property so acquired by the Indenture Trustee shall be held
and dealt with by it in accordance with the provisions of this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee[, the Note Insurer] or the Noteholders shall
be impaired by the recovery of any judgment by the Indenture Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate or upon any of the assets of the Issuer. Any money or property
collected by the Indenture Trustee shall be applied in accordance with Section
5.04(b) hereof.
Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so, the Issuer in
its capacity as holder of the Mortgage Loans, shall take all such lawful action
as the Indenture Trustee [or the Note Insurer] may request to cause the Issuer
to compel or secure the performance and observance by the Seller and the
Servicer, as applicable, of each of their obligations to the Issuer under or in
connection with the Mortgage Loan Purchase Agreement and the Servicing
Agreement, as applicable, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, as
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applicable, to the extent and in the manner directed by the Indenture Trustee as
pledgee of the Mortgage Loans, including the transmission of notices of default
on the part of the Seller or the Servicer thereunder and the institution of
legal or administrative actions or proceedings to compel or secure performance
by the Seller or the Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement, as applicable.
(b) The Indenture Trustee, as pledgee of the Mortgage Loans, may, and
at the direction (which direction shall be in writing or by telephone (confirmed
in writing promptly thereafter)) of [the Note Insurer or, if a Note Insurer
Default exists, the] Holders of 66-2/3% of the Note Principal Balances of the
Notes, shall exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Servicer under or in connection with the
Mortgage Loan Purchase Agreement or the Servicing Agreement, including the right
or power to take any action to compel or secure performance or observance by the
Seller or the Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Mortgage Loan Purchase Agreement or the Servicing
Agreement, as the case may be, and any right of the Issuer to take such action
shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to
Section 5.11 [or the Note Insurer].
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other trust funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties
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hereunder or in the exercise of any of its rights or powers, if it shall have
reasonable grounds to believe that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
(h) The Indenture Trustee shall act in accordance with Sections 6.03
and 6.04 of the Servicing Agreement and shall act as successor to the Servicer
in accordance with Section 6.02 of the Servicing Agreement.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Indenture Trustee must comply with Sections 6.11 and 6.12 hereof.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall
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not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.
Section 6.05. NOTICE OF EVENT OF DEFAULT. The Indenture Trustee shall
mail to [the Note Insurer] [each Noteholder] notice of the Event of Default
within 10 days after it is known to a Responsible Officer of the Indenture
Trustee, unless such Event of Default shall have been waived or cured. Except in
the case of an Event of Default in payment of principal of or interest on any
Note, the Indenture Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Noteholders.
Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall pay to the
Indenture Trustee on each Payment Date reasonable compensation for its services.
The Indenture Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to compensation for its services.
Such expenses shall include reasonable compensation and expenses, disbursements
and advances of the Indenture Trustee's agents, counsel, accountants and
experts. The Issuer shall indemnify the Indenture Trustee against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by it
in connection with the administration of this Trust and the performance of its
duties hereunder. The Indenture Trustee shall notify the Issuer promptly of any
claim for which it may seek indemnity. Failure by the Indenture Trustee to so
notify the Issuer shall not relieve the Issuer of its obligations hereunder. The
Issuer shall defend any such claim, and the Indenture Trustee may have separate
counsel and the Issuer shall pay the fees and expenses of such counsel. The
Issuer is not obligated to reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
with respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08.
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The Indenture Trustee may resign at any time by so notifying the Issuer [and the
Note Insurer]. The [Note Insurer or, if a Note Insurer Default exists, the]
Holders of a majority of Note Principal Balances of the Notes may remove the
Indenture Trustee by so notifying the Indenture Trustee [and the Note Insurer]
and may appoint a successor Indenture Trustee. The Issuer [with the consent of
the Note Insurer] shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11 hereof;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge
of the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable
of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of the Indenture Trustee for any reason (the Indenture Trustee in
such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall [with the consent of the Note Insurer] promptly appoint a successor
Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee[, the Note Insurer] and to the
Issuer. Thereupon, the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to
Noteholders. The retiring Indenture Trustee shall promptly transfer all property
held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the[, the Note Insurer] Issuer or the Holders of a majority
of Note Principal Balances of the Notes may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.07 shall continue for the
benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation, without any further act, shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Rating Agencies [and the Note Insurer] with prior written notice of
any such transaction.
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If at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture and any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee and deliver such Notes so
authenticated; and if at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is in the Notes or in this Indenture provided
that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust Estate, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Noteholders [and the Note Insurer], such title to the Trust Estate, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Indenture Trustee [and the Note
Insurer] may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be conferred or
imposed upon and exercised or performed by the Indenture Trustee and
such separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this
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Agreement and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3 or better by Moody's and BBB
or better by Standard & Poor's]. The Indenture Trustee shall comply with TIA ss.
310(b), including the optional provision permitted by the second sentence of TIA
ss. 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities of the Issuer are outstanding if the requirements for such exclusion
set forth in TIA ss. 310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATIONS AND WARRANTIES. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as an association in good standing under the laws of the
United States with power and authority to own its properties and to
conduct its business as such properties are currently owned and
such business is presently conducted;
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action;
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the
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terms and provisions of, or constitute (with or without notice or lapse
of time) a default under, the articles of organization or bylaws of the
Indenture Trustee or any agreement or other instrument to which the
Indenture Trustee is a party or by which it is bound; and
(iv) To the Indenture Trustee's best knowledge, there are
no proceedings or investigations pending or threatened before any
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Owner Trust Estate in trust for the Noteholders [and the Note Insurer];
(b) to authenticate and deliver the Notes substantially in the form
prescribed by Exhibits [A-1 through A-3] in accordance with the terms of this
Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. THE AGENTS. The provisions of this Indenture relating to
the limitations of the Indenture Trustee's liability and to its indemnity shall
inure also to the Paying Agent and Note Registrar.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee [and the Note Insurer] may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 hereof and the names and addresses of Holders of Notes received
by the Indenture Trustee in its capacity as Note Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS OF ISSUER. (a)(i) The Indenture Trustee shall
file with the Commission [and the Note Insurer] on behalf of the Issuer, with a
copy to the Issuer within 15 days before the Issuer is required to file the same
with the Commission, the annual reports and the information, documents and other
reports (or such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Issuer may be required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) The Indenture Trustee shall file with the
Commission [and the Note Insurer], on behalf of the Issuer, in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(iii The Indenture Trustee shall supply (and the
Indenture Trustee shall transmit by mail to [the Note Insurer and] all
Noteholders described in TIA ss. 313(c)) such summaries of any
information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.03(a) and by rules
and regulations prescribed from time to time by the Commission.
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(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 29 beginning with January 29, 1999,
the Indenture Trustee shall mail to each Noteholder as required by TIA ss.
313(c) a brief report dated as of such date that complies with TIA ss. 313(a).
The Indenture Trustee also shall comply with TIA ss. 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee [and the Note Insurer] if and when the Notes
are listed on any stock exchange.
Section 7.05. STATEMENTS TO NOTEHOLDERS. (a) With respect to each
Payment Date, the Indenture Trustee shall deliver to each Certificateholder,
Noteholder[, the Note Insurer], the Depositor, the Owner Trustee, the
Certificate Paying Agent and each Rating Agency, a statement setting forth the
following information as to each Class of Notes and Certificates, to the extent
applicable [REVISE AS APPROPRIATE]:
(i) the aggregate amount of collections with respect to the
Mortgage Loans;
(ii) the Interest Remittance Amount, Principal Remittance Amount
and Note Principal Distribution Amount payable to the Noteholders and
Certificates for such Payment Date, and the aggregate Unpaid Interest
Shortfalls for all prior Payment Dates;
(iii) (a) the amount of such distribution to the Holders of each
Class of Notes applied to reduce the Note Principal Balance thereof,
and (b) the aggregate amount included therein representing Principal
Prepayments;
(iv) (a) the amount of such distribution to the Holders of each
Class of Class C Certificates applied to reduce the Certificate
Principal Balance thereof, and (b) the aggregate amount included
therein representing Principal Prepayments;
(v) the amount of such distribution to Holders of such Class of
Notes allocable to interest;
(vi) the amount of such distribution to Holders of such Class of
Certificates allocable to interest;
(vii) if the distribution to the Holders of any Class of Notes
or Certificates is less than the full amount that would be
distributable to such Holders if there were sufficient funds available
therefor, the amount of the shortfall;
(viii) the number and the aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to the distribution of principal on
such Payment Date;
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(ix) the aggregate Note Principal Balance of each Class of the
Notes, after giving effect to the amounts distributed on such Payment
Date, separately identifying any reduction thereof due to Realized
Losses other than pursuant to an actual distribution of principal and
the aggregate Note Principal Balance of all of the Notes after giving
effect to the distribution of principal on such Payment Date;
(x) the aggregate Certificate Principal Balance of each Class of
Class ___ Certificates, after giving effect to the amounts distributed
on such Payment Date, separately identifying any reduction thereof due
to Realized Losses other than pursuant to an actual distribution of
principal and the aggregate Certificate Principal Balance of all of the
Certificates after giving effect to the distribution of principal on
such Payment Date;
(xi) the Certificate Interest Rate on each Class of
Certificates,
(xii) the Notional Amount of the Class ___ Certificates, after
giving effect to the amounts distributed on such Payment Date,
(xiii) the number and aggregate Principal Balances of Mortgage
Loans (a) as to which the Monthly Payment is delinquent for 30-59 days,
60-89 days, 90 or more days, respectively, (b) in foreclosure and (c)
that have become REO Property, in each case as of the end of the
preceding Due Period; PROVIDED, HOWEVER, that such information will not
be provided on the statements relating to the first Payment Date;
(xiv) the amount of any Advances and Compensating Interest
payments;
(xv) the aggregate Realized Losses with respect to the related
Payment Date and cumulative Realized Losses since the Closing Date;
(xvi) the number and aggregate Principal Balance of Mortgage
Loans repurchased pursuant to the Mortgage Loan Purchase Agreement for
the related Payment Date and cumulatively since the Closing Date;
(xvii) the book value of any REO Property; and
(xviii) [the aggregate Principal Balance of Mortgage Loans
purchased pursuant to [Section 3.18] of the Mortgage Loan Purchase
Agreement for the related Payment Date and cumulatively since the
Closing Date].
Items (iii), (iv), (v), (vi), (vii), (ix), (x) and (xii) above shall be
presented on the basis of a Note or Certificate, as applicable, having a $1,000
denomination. In addition, by January 31 of each calendar year following any
year during which the Notes are outstanding, the Indenture Trustee shall furnish
a report to each Noteholder of record if so requested in writing at any time
during each calendar year as to the aggregate of amounts reported pursuant to
(iii), (v), (vii) and (xiii) with respect to the Notes for such calendar year.
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The Indenture Trustee may conclusively rely upon the Determination Date
Report provided by the Servicer pursuant to [Section 4.01] of the Servicing
Agreement in its preparation of its Statement to Noteholders.
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ARTICLE VIII
ACCOUNTS, DISTRIBUTIONS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS; DISTRIBUTIONS. (a) On or prior to the
Closing Date, the Issuer shall cause the Indenture Trustee to establish and
maintain, in the name of the Indenture Trustee, for the benefit of the
Noteholders [and the Note Insurer], the Note Distribution Account as provided in
Section 3.01 hereof.
(b) All monies deposited from time to time in the Note Distribution
Account, the Pre- Funding Account and the Capitalized Interest Account
(collectively, the "Trust Accounts") and all investments made with such monies
including all income or other gain from such investments pursuant to the
Servicing Agreement and all deposits therein pursuant to this Indenture are for
the benefit of the Noteholders [and the Note Insurer]. The Indenture Trustee
shall invest any funds in the Trust Accounts in Eligible Investments, as
directed by the Servicer, maturing no later than the Business Day preceding each
Payment Date and such Eligible Investments shall not be sold or disposed of
prior to their maturity. In the absence of such direction, the Indenture Trustee
shall invest the funds in the Trust Account in money market funds as further
described in clause (vii) of the definition of Eligible Investments. The amount
of any losses incurred with respect to any such investments shall be deposited
in the related Trust Account by the Servicer.
(c) On each Payment Date, the Interest Remittance Amount shall be
distributed in the following order of priority, in each case to the extent of
the then remaining Interest Remittance
Amount:
(i) to the Owner Trustee and the Indenture Trustee,
the Owner Trustee Fee and Indenture Trustee Fee, respectively, and
expenses;
(ii) first, to the Noteholders, on a pro rata basis,
Accrued Note Interest thereon for such Payment Date, plus any Unpaid
Interest Shortfalls thereon remaining unpaid from any previous Payment
Date; provided, that if the Interest Remittance Amount is insufficient
to pay the Noteholders in full any Accrued Note Interest thereon, the
amount
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of such shortfall shall be allocated first, to the Class ___ Notes,
second, to the Class ___ Notes, third, to the Class ___ Notes and
fourth, to the Class ___ Notes;
(iii) second, to the Noteholders in the following
order: first, to the Class ___ Notes, second, to the Class ___ Notes,
third, to the Class ___ Notes, and fourth, to the Class ___ Notes, in
each case in respect of the principal portion of any Realized Losses to
be allocated thereto on such Payment Date, or previously allocated
thereto on any prior Payment Date, until the amount of such losses has
been fully reimbursed;
[(iv) third, provided that no Note Insurer Default is
occurring, to the Note Insurer, the aggregate of all payments, if any,
made by the Note Insurer under the Note Insurance Policy and any other
amounts due to the Note Insurer pursuant to the Insurance Agreement, to
the extent not previously paid or reimbursed;] and
(v) fourth, to the Certificate Distribution Account
on behalf of the Certificateholders.
(d) On each Payment Date the Principal Remittance Amount shall be
distributed in the following order of priority, in each case to the extent of
the then remaining Principal Remittance Amount, as follows:
(i) first, to the Noteholders on a pro rata basis,
based on the then-current Note Principal Balances thereof, an amount
equal to the Note Principal Distribution Amount, in reduction of the
Note Principal Balance thereof, until reduced to zero; and
(ii) second, to the Certificate Distribution Account
on behalf of the Certificateholders.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.05(a) hereof, accompanied by copies of any
instruments to be executed, and the Indenture Trustee shall also require, as a
condition to such action, an Officer's Certificate, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, [the Note Insurer,] the Certificate Paying Agent on behalf of the
Certificateholders and the Indenture Trustee of all amounts required to be
distributed pursuant to Article III; provided, however, that in no event shall
the trust created here by continue beyond the expiration of 21 years from the
death of the survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof.
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Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding[, (ii) all sums due to the Note Insurer have been paid] and (iii)
all sums due to the Indenture Trustee pursuant to this Indenture have been paid,
release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture.
(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of a request from the
Issuer accompanied by an Officers' Certificate and an Opinion of Counsel stating
that all applicable requirements have been
satisfied.
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
Section 8.07. OPTIONAL REDEMPTION OF THE NOTES. (a) The Issuer shall
have the option to redeem the Notes in whole, but not in part, on any Payment
Date on or after the earlier of (i) the Payment Date on which the aggregate
Principal Balance of the Mortgage Loans is less than or equal to [20]% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date or (ii)
the Payment Date occurring in [January 2008]. The aggregate redemption price for
the Notes will be equal to the unpaid Note Principal Balance of the Notes as of
the Payment Date on which the proposed redemption will take place in accordance
with the foregoing, together with accrued and unpaid interest thereon at the
Note Interest Rate through such Payment Date (including any Unpaid Interest
Shortfalls), plus an amount sufficient to pay in full all amounts owing to [the
Note Insurer and] the Indenture Trustee under this Indenture (which amounts
shall be specified in writing upon request of the Issuer by the [the Note
Insurer and] Indenture Trustee).
(b) In order to exercise the foregoing option, the Issuer shall, not
less than 15 days prior to the proposed Payment Date on which such redemption is
to be made, deposit the aggregate redemption price specified in (a) above with
the Indenture Trustee, and shall provide written notice of its exercise of such
option to the Indenture Trustee, [the Note Insurer,] the Owner Trustee and the
Servicer. Following receipt of the notice and the aggregate redemption price,
calculated as specified in Section 8.07(a) hereof, pursuant to the foregoing,
the Indenture Trustee shall provide notice to the Noteholders of the final
payment on the Notes and shall apply such funds to make final payments of
principal and interest on the Notes in accordance with Section 3.05(b) and
3.05(c) hereof, and this Indenture shall be discharged subject to the provisions
of Section 4.10 hereof. If for any reason the amount deposited by the Issuer is
not sufficient to make such redemption or such redemption cannot be completed
for any reason, the amount so deposited by
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the Issuer with the Indenture Trustee shall be immediately returned to the
Issuer in full and shall not be used for any other purpose or be deemed to be
part of the Trust Estate.
[Section 8.08. PAYMENTS UNDER THE NOTE INSURANCE POLICY. (a) On the
second Business Day prior to any Payment Date the Indenture Trustee on behalf of
the Noteholders shall make a draw on the Note Insurance Policy in an amount, if
any, equal to the Deficiency Amount.
(b) If the Indenture Trustee determines that a Deficiency Amount will
exist for the following Payment Date, then the Indenture Trustee shall submit a
Notice (as defined in the Note Insurance Policy) for payment in the amount of
the Deficiency Amount to the Note Insurer no later than 12:00 Noon, New York
City time, on the second Business Day prior to the applicable Payment Date. Upon
receipt of such Deficiency Amount in accordance with the terms of the Note
Insurance Policy, the Indenture Trustee shall deposit such Deficiency Amount in
the Note Distribution Account for distribution to Noteholders pursuant to
Section 3.05 hereof or with respect to an acceleration pursuant to Section 5.04
hereof.
In addition, a draw may be made under the Note Insurance Policy in
respect of any Preference Amount (as defined in and pursuant to the terms and
conditions of the Note Insurance Policy) and the Indenture Trustee shall submit
a Notice (as defined in the Note Insurance Policy) for payment with respect
thereto together with the other documents required to be delivered to the Note
Insurer pursuant to the Note Insurance Policy in connection with a draw in
respect of any Preference Amount.
(c) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Notes from moneys
received under the Note Insurance Policy. The Note Insurer shall have the right
to inspect such records at reasonable time during normal business hours upon one
Business Day's prior notice to the Indenture Trustee at the expense of the Note
Insurer.]
[Section 8.09. REPLACEMENT NOTE INSURANCE POLICY. In the event of a
Note Insurer Default (a "Replacement Event"), the Issuer, at its expense, in
accordance with and upon satis faction of the conditions set forth in the Note
Insurance Policy, including, without limitation, payment in full of all amounts
owed to the Note Insurer, may, but shall not be required to, sub stitute a new
surety bond or surety bonds for the existing Note Insurance Policy or may
arrange for any other form of credit enhancement; PROVIDED, HOWEVER, that in
each case the Notes shall be rated no lower than the rating assigned by each
Rating Agency to the Notes immediately prior to such Replacement Event and the
timing and mechanism for drawing on such new credit enhancement shall be
reasonably acceptable to the Indenture Trustee and provided further that the
premiums under the proposed credit enhancement shall not exceed such premiums
under the existing Note Insurance Policy. It shall be a condition to
substitution of any new credit enhancement that there be delivered to the
Indenture Trustee (i) an Opinion of Counsel, acceptable in form to the Indenture
Trustee, from counsel to the provider of such new credit enhancement with
respect to the enforceability thereof and such other matters as the Indenture
Trustee may require and (ii) an Opinion of Counsel to the effect that such
substitution would not (a) result in a "substantial modification" of the Notes
under Treasury Regulation section 1.1001-3, or adversely
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affect the status of the Notes as indebtedness for federal income tax purposes,
or (b) [if 100% of the Certificates are not owned by ________________________,
cause the Trust to be subject to an entity level tax for federal income tax
purposes.] Upon receipt of the items referred to above and payment of all
amounts owing to the Note Insurer and the taking of physical possession of the
new credit enhancement, the Indenture Trustee shall, within five Business Days
following receipt of such items and such taking of physical possession, deliver
the replaced Note Insurance Policy to the Note Insurer. In the event of any such
replacement the Issuer shall give written notice thereof to the Rating
Agencies.]
[Section 8.10. WITHDRAWALS FROM PRE-FUNDING ACCOUNT. Upon receipt of
written notice from the Seller in accordance with a Subsequent Transfer
Agreement, the Indenture Trustee shall withdraw from the Pre-Funding Account and
pay to the Seller an amount equal to the Purchase Price for each Subsequent
Mortgage Loan as set forth in such written notice. On the _____ Payment Date,
the Indenture Trustee shall withdraw the Pre-Funding Amount on such date
(exclusive of any related Pre-Funding Account Earnings still on deposit therein)
and deposit such amount in the Note Distribution Account to be applied to reduce
the Note Principal Balance of the Class ____ Notes. Any Pre-Funding Account
Earnings still on deposit therein shall promptly be paid to [the Servicer as
additional servicing compensation].]
[Section 8.11. WITHDRAWALS FROM THE CAPITALIZED INTEREST ACCOUNT. (a)
One Business Day prior to each Payment Date during the Funding Period, the
Indenture Trustee, based on the information set forth in the Servicer's Report
for such Payment Date, shall withdraw from the Capitalized Interest Account an
amount equal to the Capitalized Interest Distribution Amount and deposit such
amount into the Note Distribution Account.
(b) At the end of the Funding Period, any amounts remaining in the
Capitalized Interest Account shall be paid to the [Seller].]
[Section 8.12. EFFECT OF PAYMENTS BY THE NOTE INSURER; SUBROGATION. (a)
Anything herein to the contrary notwithstanding, any distribution of principal
of or interest on the Notes that is made with moneys received pursuant to the
terms of the Note Insurance Policy shall not be considered payment of the Notes
by the Issuer and shall not discharge the Trust assets in respect of such
distribution. The Indenture Trustee acknowledges that, without the need for any
further action on the part of the Note Insurer, the Indenture Trustee or the
Note Registrar, (i) to the extent the Note Insurer makes payments, directly or
indirectly, on account of principal of or interest on the Notes to the
Noteholders thereof, the Note Insurer will be fully subrogated to the rights of
such Noteholders to receive such principal and interest from distributions of
the assets of the Trust and will be deemed to the extent of the payments so made
to be a Noteholder and (ii) the Note Insurer shall be paid principal and
interest in its capacity as a Noteholder until all such payments by the Note
Insurer have been fully reimbursed, but only from the sources and in the manner
provided herein for the distribution of such principal and interest and in each
case only after the Noteholders have received all payments of principal and
interest due to them under this Agreement.
(b) Without limiting the rights or interests of the Noteholders as
otherwise set forth herein, so long as no Note Insurer Default exists, the
Indenture Trustee shall cooperate in all
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respect with any reasonable request by the Note Insurer for action to preserve
or enforce the Note Insurer's rights or interests under this Agreement,
including, upon the occurrence and continuance of a Servicing Default, a request
to take any one or more of the following actions:
(i) institute proceedings for the collection of all
amounts then payable on the Notes or under this Agreement, enforce any
judgment obtained and collect moneys adjudged due; and
(ii) exercise any remedies of a secured party under
the UCC and take any other appropriate action to protect and enforce
the rights and remedies of the Note Insurer hereunder.]
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with prior [consent of
the Note Insurer] [notice to the Rating Agencies], the Issuer and the Indenture
Trustee, when authorized by an Issuer Request, at any time and from time to
time, may enter into one or more indentures supplemental hereto (which shall
conform to the provisions of the TIA as in force at the date of the execution
thereof), in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture;
(vi) to make any other provisions with respect to matters
or questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not materially and
adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI hereof; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not result in a "substantial
modification" of the Notes under Treasury Regulation Section 1.1001.3 or
adversely affect the status of the Notes as indebtedness for federal income tax
purposes.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with prior notice to [the Note Insurer] [the Rating Agencies], enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that such action shall not,
as evidenced by an Opinion of Counsel, (i) adversely affect in any material
respect the interests of any Noteholder or (ii) if 100% of the Certificates are
not owned by ________________________, cause the Issuer to be subject to an
entity level tax for federal income tax purposes.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the consent of [the Note
Insurer and] the Holders of not less than a majority of the Note Principal
Balances of the Notes affected thereby, by Act (as defined in Section 10.03
hereof) of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supple mental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Note Principal
Balances of the Notes, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
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(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding" or modify or alter the
exception in the definition of the term "Holder";
(iv) reduce the percentage of the Note Principal
Balances of the Notes required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Trust Estate pursuant to
Section 5.04 hereof;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer [(if 100% of the Certificates are not owned by _______________)]
to be subject to an entity level tax.
The Indenture Trustee may, in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon,
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an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Indenture Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Indenture Trustee's own rights, duties, liabilities or immunities
under this Indenture or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the require ments of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Inden ture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. [REVISE AS
APPROPRIATE] (a) Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee [and the Note Insurer] (i) an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and (ii) an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the signatory of such certificate or opinion is
required to be Independent, the statement required by the definition of
the term "Independent".
(b)(i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee [and the Note
Insurer] an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Collateral or other property or securities to be
so deposited and a report from a nationally recognized accounting firm verifying
such value.
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(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee [and the Note Insurer] an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the matters described in clause
(i) above, the Issuer shall also deliver to the Indenture Trustee an Independent
Certificate from a nationally recognized accounting firm as to the same matters,
if the fair value to the Issuer of the securities to be so deposited and of all
other such securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Issuer, as set forth in the
certificates delivered pursuant to clause (i) above and this clause (ii), is 10%
or more of the Note Principal Balances of the Notes, but such a certificate need
not be furnished with respect to any securities so deposited, if the fair value
thereof to the Issuer as set forth in the related Officer's Certificate is less
than $25,000 or less than one percent of the Note Principal Balances of the
Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee [and the Note Insurer] an Officer's Certificate certifying or
stating the opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed to be
released and stating that in the opinion of such person the proposed release
will not impair the security under this Indenture in contravention of the
provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee [and the Note Insurer] an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the matters described in clause
(iii) above, the Issuer shall also furnish to the Indenture Trustee [and the
Note Insurer] an Independent Certificate as to the same matters if the fair
value of the property or securities and of all other property, other than
property as contemplated by clause (v) below or securities released from the
lien of this Indenture since the commencement of the then-current calendar year,
as set forth in the certificates required by clause (iii) above and this clause
(iv), equals 10% or more of the Note Principal Balances of the Notes, but such
certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the then Note
Principal Balances of the Notes.
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations
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by, an officer or officers of the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Seller or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 10.03
hereof.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, [NOTE INSURER,]
ISSUER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of
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Noteholders or other documents provided or permitted by this Indenture shall be
in writing and if such request, demand, authorization, direction, notice,
consent, waiver or act of Noteholders is to be made upon, given or furnished to
or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: AFC Trust Series ____-__, in care of OWNER TRUSTEE,
______________________________, Attention: ___________________, or at
any other address previously furnished in writing to the Indenture
Trustee by the Issuer. The Issuer shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed first-class postage pre-paid, to (i) in the case of _________________,
at the following address: _______________ and (ii) in the case of
_______________, at the following address: _________________; or as to each of
the foregoing, at such other address as shall be designated by written notice to
the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given regardless of
whether such notice is in fact actually received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
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Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.07. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 10.08. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co- trustees and agents.
Section 10.09. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.10. BENEFITS OF INDENTURE. The Note Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. To the extent that this Indenture confers upon or gives or
grants to the Note Insurer any right, remedy or claim under or by reason of this
Indenture, the Note Insurer may enforce any such right, remedy or claim
conferred, given or granted hereunder. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders [and the Note
Insurer], any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 10.11. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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Section 10.13. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.14. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.15. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.16. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents. This Section 10.16 will survive for one
year following the termination of this Indenture.
Section 10.17. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee [and the
Note Insurer], during the Issuer's normal business hours, to examine all the
books of account, records, reports and other papers of the Issuer, to make
copies and extracts therefrom, to cause such books to be audited by
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Independent certified public accountants, and to discuss the Issuer's affairs,
finances and accounts with the Issuer's officers, employees, and Independent
certified public accountants, all at such reasonable times and as often as may
be reasonably requested. The Indenture Trustee [and the Note Insurer] shall
cause its representatives to hold in confidence all such information except to
the extent disclosure may be required by law (and all reasonable applications
for confidential treatment are unavailing) and except to the extent that the
Indenture Trustee may reasonably determine that such disclosure is consistent
with its obligations hereunder.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
AFC Trust Series ____-__,
as Issuer
By:______________________________
OWNER TRUSTEE,
not in its individual capacity
but solely as Owner Trustee
[_________________________________]
as Indenture Trustee, as Certificate Paying Agent
and as Note Registrar
By:_____________________________
Name:
Title:
[______________________________]
hereby accepts the appointment as Certificate
Paying Agent pursuant to Section 3.03 hereof
and as Certificate Registrar pursuant to
Section 4.02 hereof.
By:___________________________
Name:
Title:
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STATE OF ___________ )
) ss.:
COUNTY OF ____________ )
On this _____ day of _______________________, before me personally
appeared _____________________ to me known, who being by me duly sworn, did
depose and say, that she resides at ______________________, she is the
___________________________ of the Owner Trustee, one of the corporations
described in and which executed the above instrument; that she knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that she signed her name thereto by like order.
Notary Public
____________________________________________
NOTARY PUBLIC
My Commission expires ______________________
[NOTARIAL SEAL]
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STATE OF )
) ss.:
COUNTY OF )
On this _____ day of ____________________, before me personally
appeared ____________________ to me known, who being by me duly sworn, did
depose and say, that she is the ____________________ of _____________________,
as Indenture Trustee, one of the corporations described in and which executed
the above instrument; that she knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that she signed her
name there to by like order.
Notary Public
______________________________________
[NOTARIAL SEAL]
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EXHIBIT A-1
FORM OF CLASS A NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AS PROVIDED IN THE INDENTURE
REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON
THIS NOTE.
PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
AFC MORTGAGE LOAN ASSET BACKED NOTES, SERIES ___-__
CLASS A
AGGREGATE NOTE PRINCIPAL NOTE INTEREST RATE:____%
BALANCE:$
INITIAL NOTE PRINCIPAL
BALANCE OF THIS NOTE: NOTE NO.
$
PERCENTAGE INTEREST: ____% CUSIP NO.
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AFC Trust Series ___-__ (the "Issuer"), a Delaware business trust, for
value received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of _______________________________________________________________
($_________________) in monthly installments on the twenty-fifth day of each
month or, if such day is not a Business Day, the next succeeding Business Day
(each a "Payment Date"), commencing in [________________] _____ and ending on or
before the Payment Date occurring in [___________________] (the "Stated
Maturity") and to pay interest on the Note Principal Balance of this Class A
Note (this "Note") outstanding from time to time as provided below.
This Note is one of a duly authorized issue of the Issuer's AFC
Mortgage Loan Asset Backed Notes, Series _____-__ (the "Notes"), issued under an
Indenture dated as of [__________________] (the "Indenture"), between the Issuer
and [__________________________________], as indenture trustee (the "Indenture
Trustee", which term includes any successor Indenture Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights thereunder of the
Issuer, the Indenture Trustee, and the Holders of the Notes and the terms upon
which the Notes are to be authenticated and delivered. All terms used in this
Note which are defined in the Indenture shall have the meanings assigned to them
in the Indenture.
[Payments of principal and interest on this Note will be made on each
Payment Date to the Noteholder of record as of the related Record Date. On each
Payment Date, Noteholders will be entitled to receive interest payments in an
aggregate amount equal to the aggregate Accrued Note Interest for such Payment
Date, together with principal payments in an aggregate amount equal to the Note
Principal Distribution Amount, if any, for such Payment Date. The "Note
Principal Balance" of a Note as of any date of determination is equal to the
initial Note Principal Balance thereof, reduced by the aggregate of all amounts
previously paid with respect to such Note on account of principal and the
aggregate amount of cumulative Realized Losses allocated to such Note on all
prior Payment Dates.]
The principal of, and interest on, this Note are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. All payments made by the Issuer with respect to this Note shall
be equal to this Note's pro rata share of the aggregate payments on all Notes as
described above, and shall be applied as between interest and principal as
provided in the Indenture.
[[NOTE INSURER] (the "Note Insurer"), in consideration of the payment
of the premium and subject to the terms of the financial guaranty insurance
policy (the "Note Insurance Policy") issued thereby, has unconditionally and
irrevocably guaranteed the payment of the Insured Amount with respect to each
Payment Date. The Note Insurance Policy will not cover any Prepayment Interest
Shortfalls, Relief Act Shortfalls or Available Funds Cap Carry-Forward Amount.]
All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.
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The Notes are subject to redemption in whole, but not in part, by the
Issuer on any Payment Date on or after the earlier of (i) the Payment Date on
which the aggregate Principal Balance of the Mortgage Loans is less than or
equal to [20]% of the aggregate Principal Balance of the Mortgage Loans as of
the Cut-off Date and (ii) the Payment Date in [______________].
The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes. The assets included in the
Trust Estate will be the sole source of payments on the Notes, and each Holder
hereof, by its acceptance of this Note, agrees that (i) such Note will be
limited in right of payment to amounts available from the Trust Estate as
provided in the Indenture and (ii) such Holder shall have no recourse to the
Issuer, the Depositor, the Owner Trustee, the Indenture Trustee, the Servicer or
any of their respective affiliates, or to the assets of any of the foregoing
entities, except the assets of the Issuer pledged to secure the Notes pursuant
to the Indenture and the rights conveyed to the Issuer under the Indenture.
Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note is registered at the close of business on the Record Date
for such Payment Date by check mailed to such person's address as it appears in
the Note Register on such Record Date, except for the final installment of
principal and interest payable with respect to such Note, which shall be payable
as provided below. Notwithstanding the foregoing, upon written request with
appropriate instructions by the Holder of this Note (holding an aggregate
Initial Note Principal Balance of at least $5,000,000) delivered to the
Indenture Trustee at least five Business Days prior to the Record Date, any
payment of principal or interest, other than the final installment of principal
or interest, shall be made by wire transfer to an account in the United States
designated by such Holder. All reductions in the principal amount of a Note (or
one or more Predecessor Notes) effected by payments of principal made on any
Payment Date shall be binding upon all Holders of this Note and of any Note
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, whether or not such payment is noted on such Note. The final
payment of this Note shall be payable upon presentation and surrender thereof on
or after the Payment Date thereof at the Corporate Trust Office or the office or
agency of the Issuer maintained by it for such purpose pursuant to Section 3.02
of the Indenture.
Subject to the foregoing provisions, each Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Note shall carry the right to unpaid principal and interest that were
carried by such other Note.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the payment of the entire unpaid
Note Principal Balance of the Notes, the amount payable to the Holder of this
Note will be equal to the sum of the unpaid Note Principal Balance of the Notes,
together with accrued and unpaid interest thereon as described in the Indenture.
The Indenture provides that, notwithstanding the acceleration of the maturity of
the Notes, under certain circumstances specified therein, all amounts collected
as proceeds of the Trust Estate securing the
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Notes or otherwise shall continue to be applied to payments of principal of and
interest on the Notes as if they had not been declared due and payable.
The failure to pay any Unpaid Interest Shortfall at any time when funds
are not available to make such payment as provided in the Indenture shall not
constitute an Event of Default under the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Note at the office or agency designated
by the Issuer pursuant to the Indenture, accompanied by proper instruments of
assignment in form satisfactory to the Indenture Trustee, one or more new Notes
of any authorized denominations and of a like aggregate initial Note Principal
Balance, will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
of such Note (i) on the applicable Record Date for the purpose of making
payments and interest of such Note, and (ii) on any other date for all other
purposes whatsoever, as the owner hereof, whether or not this Note be overdue,
and neither the Issuer, the Indenture Trustee nor any such agent of the Issuer
or the Indenture Trustee shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of [the Note Insurer or] the Holders of a
majority of all Notes at the time outstanding. The Indenture also contains
provisions permitting [the Note Insurer or] the Holders of Notes representing
specified percentages of the aggregate Note Principal Balance of the Notes on
behalf of the Holders of all the Notes, to waive any past Default under the
Indenture and its consequences. Any such waiver by [the Note Insurer or] the
Holder, at the time of the giving thereof, of this Note (or any one or more
Predecessor Notes) shall bind the Holder of every Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon such Note. The Indenture
also permits the Issuer and the Indenture Trustee to amend or waive certain
terms and conditions set forth in the Indenture without the consent of the
Holders of the Notes issued thereunder.
Initially, the Notes will be registered in the name of CEDE & Co. as
nominee of DTC, acting in its capacity as the Depository for the Notes. The
Notes will be delivered by the clearing agency in denominations as provided in
the Indenture and subject to certain limitations therein set forth. The Notes
are exchangeable for a like aggregate initial Note Principal Balance of Notes of
different authorized denominations, as requested by the Holder surrendering
same.
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Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.
AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
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IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by OWNER TRUSTEE, not in its individual capacity but solely as Owner
Trustee.
Dated: [____________], _____
AFC TRUST SERIES ___-__
BY: OWNER TRUSTEE, not in its individual
capacity but solely in its capacity as Owner
Trustee
By:_______________________________________
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A Notes referred to in the within-mentioned Indenture.
[____________________],
as Indenture Trustee
By:______________________________________
Authorized Signatory
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ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of the Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants
in common
UNIF GIFT MIN ACT -- __________________ Custodian _________________________
(Cust) (Minor)
under Uniform Gifts to Minor Act _______________________
(State)
Additional abbreviations may also be used though not in the above list.
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ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE:
_________________________________________
_________________________________________
_________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints __________________ attorney to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated:__________________________________ ___________________________________
Signature Guaranteed by ___________________________________________________
NOTICE: The signature(s) to this assignment must correspond with the
name as it appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange or another national securities exchange. Notarized or witnessed
signatures are not acceptable.
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EXHIBIT A-2
FORM OF CLASS ___ NOTES
[ADD AS APPROPRIATE]
75
<PAGE>
EXHIBIT A-3
FORM OF CLASS ___ NOTES
[ADD AS APPROPRIATE]
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<PAGE>
EXHIBIT B
FORM OF TRUSTEE INITIAL CERTIFICATION
[Closing Date]
[Servicer]
[Depositor]
______________________
______________________
Re: Indenture, dated as of [___________], _____, between AFC Trust
Series ____-__ and [_______________], AFC Mortgage Loan Asset
Backed Notes, Series ____-__
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section [2.1(___)] of the Mortgage Loan Purchase Agreement, dated
as of [______________], ______ between Superior Bank FSB, _______________ and
AFC Trust Series ______-__ (the "Mortgage Loan Purchase Agreement"; and together
with the Indenture, the "Agreements"), the undersigned, as Indenture Trustee,
hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan
Schedule annexed hereto (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has reviewed the Mortgage File and the Mortgage Loan
Schedule and has determined that: (i) all documents required to be included in
the Mortgage File are in its possession; (ii) such documents have been reviewed
by it and appear regular on their face and relate to such Mortgage Loan; and
(iii) based on examination by it, and only as to such documents, the information
set forth in items (i) - (vi) of the definition or description of "Mortgage Loan
Schedule" is correct.
The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the above-referenced Agreements. The Indenture Trustee makes no
representation that any documents specified in clause (v) of Section 2.1(e) of
the Mortgage Loan Purchase Agreement should be included in any Mortgage File.
The Indenture Trustee makes no representations as to and shall not be
responsible to verify: (i) the validity, legality, sufficiency, enforceability,
due authorization, recordability or genuineness of any of the documents
contained in each Mortgage File of any of the Mortgage Loans identified on the
Mortgage Loan Schedule, (ii) the collectability, insurability, effectiveness or
suitability of any such Mortgage Loan, or (iii) the existence of any assumption,
modification, written assurance or substitution agreement with respect to any
Mortgage File if no such documents appear in the Mortgage File delivered to the
Indenture Trustee.
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Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.
[--------------------------------], as
Indenture Trustee
By:_________________________________
Name:
Title:
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EXHIBIT C
FORM OF TRUSTEE FINAL CERTIFICATION
[date]
[Servicer]
[Depositor]
______________________
______________________
Re: Indenture, dated as of [___________], ______, between AFC
Trust Series ___-__ and [______________________], AFC
Mortgage Loan Asset Back Notes, Series ____-__
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.1(e) of the Mortgage Loan Purchase Agreement, dated as
of [_______________], _____ between Superior Bank FSB, ________________________
and AFC Trust Series ___-__ (the "Mortgage Loan Purchase Agreement"; and
together with the Indenture, the "Agreements"), the undersigned, as Indenture
Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule annexed hereto (other than any Mortgage Loan paid in full or
listed on the attachment hereto) it has received the documents set forth in
Section 2.1(e) of the Mortgage Loan Purchase Agreement.
The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the Agreements. The Indenture Trustee makes no representation that
any documents specified in clause (v) of Section 2.1(e) should be included in
any Mortgage File. The Indenture Trustee makes no representations as to and
shall not be responsible to verify: (i) the validity, legality, sufficiency,
enforceability, due authorization, recordability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan or (iii) the existence of
any assumption, modification, written assurance or substitution agreement with
respect to any Mortgage File if no such documents appear in the Mortgage File
delivered to the Indenture Trustee.
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Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.
[_______________________________], as
Indenture Trustee
By:__________________________________
Name:
Title:
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EXHIBIT D
MORTGAGE LOAN SCHEDULE
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[EXHIBIT E
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("Certificate") is delivered
pursuant to Section 4.02 of the Indenture (the "Indenture"), dated as of
[_________________], ___, between AFC Trust Series ____-__ and
[________________________________], in connection with the acquisition of,
transfer to or possession by the undersigned, whether as beneficial owner (the
"Beneficial Owner"), or nominee on behalf of the Beneficial Owner of the AFC
Mortgage Loan Asset Backed Notes, Series _____-__ Class ___ Note (the "Note").
Capitalized terms used but not defined in this certificate have the respective
meanings given them in the Indenture.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III.
In addition, each holder shall submit with the Certificate an IRS Form W-9
relating to such holder.
To confirm to the Indenture Trustee that the provisions of Sections 871, 881 or
1446 of the Internal Revenue Code (relating to withholding tax on foreign
partners) do not apply in respect of the Note held by the undersigned, the
undersigned hereby certifies:
PART I - COMPLETE EITHER A OR B
- -------------------------------------------------
A. Individual as Beneficial Owner
1. [I am ][The Beneficial Owner is] not a
non-resident alien for purposes of U.S.
income taxation;
2. [My][The Beneficial Owner's] name and home
address are:
; and
3. [My][The Beneficial Owner's] [U.S. taxpayer
identification number][Social Security
Number] is .
B. Corporate, Partnership or Other Entity as Beneficial
Owner
1. [Name of the Beneficial Owner] is not a
foreign corporation, foreign partnership,
foreign trust or foreign estate (as those
terms are defined in the Code and Treasury
Regulations);
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is ;
and
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3. The Beneficial Owner's U.S. employer
identification number is .
PART II - NOMINEES
- -----------------------------------
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
an IRS Form W-9
a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Indenture Trustee at least (30) days prior to the date that
the form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Indenture Trustee promptly after such change.
PART III - DECLARATION
- -----------------------------
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Indenture Trustee within sixty (60) days of the date that the
Beneficial Owner becomes a foreign person. The undersigned understands that this
certificate may be disclosed to the Internal Revenue Service by the Indenture
Trustee and any false statement contained therein could be punishable by fines,
imprisonment or both.
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Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Indenture Trustee of
any change in the information provided above, and, if applicable, I further
declare that I have the authority* to sign this document.
Name
Title (if applicable)
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.]
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APPENDIX A
DEFINITIONS
ACCRUED NOTE INTEREST: With respect to each Payment Date, one
month's interest accrued at the related Note Interest Rate on the Note Principal
Balance thereof immediately prior to such Payment Date. Accrued Note Interest
for the Notes shall be calculated on the basis of the actual number of days in
the related Interest Period and a 360-day year.
ADDITION NOTICE: With respect to the transfer of Subsequent
Mortgage Loans to the Issuer pursuant to Section 2.1(b) of the Mortgage Loan
Purchase Agreement, notice substantially in the form of Exhibit B thereto, which
shall be given not later than two (2) Business Days prior to the related
Subsequent Transfer Date of the Seller's designation of Subsequent Mortgage
Loans to be sold to the Issuer and the aggregate principal balance of such
Subsequent Mortgage Loans.
ADJUSTMENT DATE: As to each Mortgage Loan, each date set forth
in the related Mortgage Note on which an adjustment to the interest rate on such
Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Note Insurer,
which will accrue at ___% per annum based on the Note Principal Balance of the
Notes.
ADVANCE: As to any Mortgage Loan, any advance made by the
Servicer, pursuant to Section 4.04 of the Servicing Agreement.
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lowest of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, (ii) the sales price of such Mortgaged Property at
such time of origination, and (iii) a review appraisal.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
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AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identi fied on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution by the Indenture Trustee (minus, if the Notes have been
declared due and payable following an Event of Default on such Payment Date, any
amounts owed to the Indenture Trustee by the Issuer pursuant to Section 6.07 of
the Indenture and any amounts owed to the Note Insurer by the Issuer pursuant to
Section 5.04(b) of the Indenture).
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT: With respect to the
Notes and any Payment Date, an amount equal to the sum of (x) the amount, if
any, by which (a) the lesser of (1) the amount payable if clause (i) of the
definition of Note Interest Rate is used to calculate interest and (2) the
amount payable if the Maximum Note Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Note Interest
Rate is used to calculate interest and (y) the interest accrued during the prior
Interest Period on the amount of any Available Funds Cap Carry-Forward Amount
immediately prior to such Payment Date, calculated on the basis of a 360-day
year and the actual number of days elapsed and using the Note Interest Rate
applicable to such Payment Date minus (z) the aggregate of all amounts
distributed to the Noteholders on all prior Payment Dates pursuant to Section
3.05(v) of the Indenture.
AVAILABLE FUNDS INTEREST RATE: As to any Payment Date, a per
annum rate equal to the lesser of (x) the fraction, expressed as a percentage,
the numerator of which is (i) an amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding Mortgage Loans times the weighted
average of the Expense Adjusted Mortgage Rates on the then outstanding Mortgage
Loans minus (B) the Administrative Fee for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period divided by 360 and (y) the
Maximum Note Interest Rate.
AVAILABLE DISTRIBUTION AMOUNT: With respect to any Payment
Date, the sum of all amounts described in clauses (i) through (vi) of Section
3.06 of the Servicing Agreement received by the Servicer (including any amounts
paid or advanced by the Servicer or the Seller and excluding (a) any amounts not
required to be deposited in the Collection Account pursuant to Section 3.06 of
the Servicing Agreement and (b) any amounts paid to the Indenture Trustee, the
Owner Trustee or the Servicer pursuant to Sections 3.07(ii) through (ix) of the
Servicing Agreement. No amount included in this definition by virtue of being
described by any component of the definition thereof shall be included twice by
virtue of also being described by any other component or otherwise.
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BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Mortgage Loan Purchase Agreement, the Insurance
Agreement, the Servicing Agreement and the other documents and certificates
delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
Illinois or in the city in which the corporate trust offices of the Indenture
Trustee or the principal office of the Note Insurer are
located, are required or authorized by law to be closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from time to
time.
CAPITALIZED INTEREST ACCOUNT: The account or accounts created
and maintained pursuant to Section 2.4 of the Mortgage Loan Purchase Agreement.
The Capitalized Interest Account shall be an Eligible Account.
CAPITALIZED INTEREST DEPOSIT: $_____________.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Servicer that it has received all Insurance Proceeds, Liquidation Proceeds and
other payments or cash recoveries which the Servicer reasonably and in good
faith expects to be finally recoverable with respect to such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(c) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
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CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES OR TRUST CERTIFICATES: The AFC Trust
Certificates, Series _____-__, evidencing the beneficial ownership interest in
the Issuer and executed by the Owner Trustee in substantially the form set forth
in Exhibit A to the Trust Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Owners of Certificates that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
CLASS: Collectively, all of the Notes or Certificates bearing
the same designation.
CLASS A NOTES OR SENIOR NOTES: Any one of the Class A Notes.
CLOSING DATE: ______________.
CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to Section 3.06(d) of the Servicing Agreement. The
Collection Account shall be an Eligible Account.
COLLECTION PERIOD: With respect to any Payment Date, the
calendar month immediately preceding the month in which such Payment Date
occurs.
[COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan and any date, the percentage equivalent of a fraction, the numerator of
which is the Cut-Off Date Principal Balance of such Mortgage Loan and of any
mortgage loan or mortgage loans that are secured by liens on the Mortgaged
Property that are subordinate to the Mortgage and the denominator of which is
the Appraised Value of the related Mortgaged Property.]
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COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfall for the related Prepayment Period and (ii) the Servicing Fee for such
Determination Date.
[CONVERTED MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.]
[CONVERTIBLE MORTGAGE LOAN: Any Mortgage Loan which by its
terms grants to the related Mortgagor the option to convert the interest rate
borne by such Mortgage Loan from an adjustable interest rate to a fixed interest
rate.]
[CONVERTING MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.]
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
____________________, Attention: AFC Trust Series ____-__, except that for
purposes of Section 4.02 of the Indenture and Section 3.09 of the Trust
Agreement, such term shall include the Indenture Trustee's office or agency at
______________, New York, New York ______, Attention: Certificate Transfers.
With respect to the Owner Trustee, the principal corporate trust office of the
Owner Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of the execution of this Trust
Agreement is located at __________________________, Attention: AFC Trust Series
____-__.
[CUMULATIVE LOSS PERCENTAGE: As to any Payment Date and the
Mortgage Loans, the percentage equivalent of the fraction obtained by dividing
(i) the aggregate of Realized Losses on the Mortgage Loans from the Cut-Off Date
through such Payment Date by (ii) the aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date.]
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Initial
Mortgage Loan, the unpaid principal balance thereof as of the related Initial
Cut-off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: The meaning provided in the Note Insurance
Policy.
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DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
[DELINQUENCY PERCENTAGE: As of the last day of any Collection
Period and with respect to the Mortgage Loans, the percentage equivalent of a
fraction, the numerator of which equals the aggregate Principal Balance of the
Mortgage Loans that are 60 or more days delinquent, in foreclosure or converted
to REO Properties as of such last day of such Collection Period, and the
denominator of which is the aggregate Principal Balance of the Mortgage Loans as
of the last day of such Collection Period.]
DEPOSITOR: Superior Bank FSB, or its successor in interest.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization registered
as a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the
second Business Day preceding such Payment Date.
DUE DATE: The date on which the Monthly Payment on the related
Mortgage Loan is due in accordance with the terms of the related Mortgage Note.
DUE PERIOD: With respect to any Payment Date, the period
commencing on and including the second day of the month preceding the month of
such Payment Date (or, with respect to the first Due Period, the day following
the Initial Cut-off Date) and ending on and including the first day of the month
of such Payment Date.
ELIGIBLE ACCOUNT: An account that is any of the following: (i)
maintained with a depository institution the short term deposits of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are fully
insured to the limits established by the FDIC, PROVIDED that any deposits not so
insured shall, to the extent acceptable to the Note Insurer and each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the
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Indenture Trustee, the Note Insurer and each Rating Agency) the Indenture
Trustee have a claim with respect to the funds in such account or a perfected
first security interest against any collateral (which shall be limited to
Eligible Investments) securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with which such
account is main tained, or (iii) either (A) a trust account or accounts
maintained by the trust department of the Indenture Trustee or other federal or
state chartered depository institution acting in its fiduciary capacity or (B)
an account or accounts maintained by the Indenture Trustee or other federal or
state chartered depository institution, as long as its short term debt
obligations are rated P-1 by Moody's, F-1 by Fitch and A-1 by Standard & Poor's
or better and its long term debt obligations are rated A2 by Moody's, A by Fitch
and A by Standard & Poor's or better, or (iv) an account or accounts of a
depository institution acceptable to each Rating Agency as evidenced in writing
by each Rating Agency that use of any such account as the Collection Account or
the Payment Account will not reduce the rating assigned to any of the Securities
by such Rating Agency below investment grade without taking into account the
Note Insurance Policy and acceptable to the Note Insurer as evidenced in
writing.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, the Federal Home Mortgage
Corporation, the Federal National Mortgage Association, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies
and provided that each such investment has an original maturity of no
more than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by S&P and Fitch and A2 or higher by
Moody's; provided, however, that collateral transferred pursuant to
such repurchase obligation must (A) be valued weekly at current market
price plus accrued interest, (B) pursuant to such valuation, equal, at
all times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the
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Indenture Trustee, in such a manner as to accomplish perfection of a
security interest in the collateral by possession of certificated
securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of
less than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each
of the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
PROVIDED, HOWEVER, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; PROVIDED FURTHER, HOWEVER, that each such instrument acquired shall
not be acquired at a price in excess of par.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) comply with each
representa tion and warranty set forth in clauses (ii) through (xlv) of Section
3.1(b) of the Mortgage Loan
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Purchase Agreement; (iii) have a Mortgage Rate and Gross Margin no lower than
the Mortgage Rate and Gross Margin, respectively, of the Deleted Mortgage Loan
as of the date of substitution; (iv) have a Loan-to-Value Ratio [and a Combined
Loan-to-Value Ratio] at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not longer than (and not more than one year shorter than) that
of the Deleted Mortgage Loan, and (vi) not be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in the payment of (a) the Interest
Payment Amount or the Principal Payment Amount with respect to a Payment Date on
such Payment Date or (b) the Subordination Increase Amount or the Available
Funds Cap Carry-Forward Amount, but only, with respect to clause (b), to the
extent funds are available to make such payment as provided in the Indenture; or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the Indenture, or
any representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant hereto or in connection herewith
proving to have been incorrect in any material respect as of the time when the
same shall have been made, and such default shall continue or not be cured, or
the circumstance or condition in respect of which such representation or
warranty was incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or certified
mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture
Trustee by the Note Insurer, or if a Note Insurer Default exists the Holders of
at least 25% of the Outstanding Amount of the Notes, a written notice specifying
such default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a notice of default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the Issuer
or any substantial part of the Trust Estate in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer or for any substantial
part of the Trust Estate, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
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(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by the Issuer to
the entry of an order for relief in an involuntary case under any such law, or
the consent by the Issuer to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Issuer or for any substantial part of the assets of the Trust Estate, or the
making by the Issuer of any general assignment for the benefit of creditors, or
the failure by the Issuer generally to pay its debts as such debts become due,
or the taking of any action by the Issuer in furtherance of any of the
foregoing.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
EXPENSE ADJUSTED MORTGAGE RATE: For any Mortgage Loan, the
rate equal to the then applicable Mortgage Rate thereon minus the sum of (i) the
Minimum Spread and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee
Fee Rate.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
_________.
FITCH: Fitch IBCA, Inc.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
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FUNDING PERIOD: The period commencing on the Closing Date and
ending on the earliest to occur of (i) the date on which the amount on deposit
in the Pre-Funding Account (exclusive of any investment earnings) is less than
$100,000, (ii) the date of occurrence of a Servicing Default under the Servicing
Agreement or an Event of Default under the Indenture and (iii) ______,____.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or
instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.
GROSS MARGIN: With respect to any Mortgage Loan, the
percentage set forth as the "Gross Margin" for such Mortgage Loan on the
Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
HOLDER: A Noteholders of Certificateholder, as applicable.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture dated as of ___________, between the
Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: _________________________________________,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: The fee payable to the Indenture
Trustee monthly on each Payment Date equal to the product of (i) the Indenture
Trustee Fee Rate divided by 12 and (ii) the sum of the aggregate Principal
Balance of the Mortgage Loans and the Pre-Funded Amount, if any as of the first
day of the related Due Period.
INDENTURE TRUSTEE FEE RATE: ____% per annum.
INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Issuer, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected
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with the Issuer, any such other obligor, the Seller, the Issuer, the Depositor
or any Affiliate of any of the foregoing Persons as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Request and approved by the Indenture Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read the definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.
INDEX: With respect to any Mortgage Loan, the index for the
adjustment of the Mortgage Rate set forth as such on the related Mortgage Note.
INITIAL CUT-OFF DATE: With respect to any Initial Mortgage
Loan, the close of business on _______________.
INITIAL MORTGAGE LOAN: A Mortgage Loan conveyed to the
Depositor by the Seller and by the Depositor to the Issuer on the Closing Date.
INITIAL NOTE PRINCIPAL BALANCE: With respect to the Notes,
$_________.
INITIAL POOL BALANCE: An amount equal to the sum of (i) the
aggregate principal balance of the Initial Mortgage Loans as of the Initial
Cut-off Date and (ii) the aggregate principal balances of all Subsequent
Mortgage Loans as of their Subsequent Cut-off Date.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
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INSURANCE AGREEMENT: The Insurance and Indemnity Agreement
dated as of __________, among the Servicer, the Seller, the Depositor, the
Issuer, the Indenture Trustee and the Note Insurer, including any amendments and
supplements thereto.
INSURED AMOUNT: Shall have the meaning set forth in the Note
Insurance Policy.
INTEREST DETERMINATION DATE: With respect to any Interest
Period, the second London Business Day preceding the commencement of such
Interest Period.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to the Accrued Note Interest, minus any Prepayment Interest
Shortfalls and Relief Act Shortfalls to the extent not covered by the Servicer
by Compensating Interest for such Payment Date.
INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date
and ending on the day preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Mortgage
Loan, the date or dates on which the Mortgage Rate is adjusted in accordance
with the related Mortgage Note.
INVESTMENT COMPANY ACT: The Investment Company Act of 1940, as
amended, and any amendments thereto.
ISSUER: AFC Trust Series ____-__, a Delaware business trust,
or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and delivered to the
Indenture Trustee and the Note Insurer.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York or
in the city of London, England are required or authorized by law to be closed.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing;
PROVIDED, HOWEVER, that any assignment pursuant to Section 6.02 of the Servicing
Agreement shall not be deemed to constitute a Lien.
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LIFETIME RATE CAP: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Mortgage Rate permitted over the life of such Mortgage Loan under the
terms of such Mortgage Note, as set forth on the Mortgage Loan Schedule and
initially as set forth on Exhibit A to the Servicing Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Servicer has determined, in accordance
with the servicing procedures specified in the Servicing Agreement, as of the
end of the related Prepayment Period that substantially all Liquidation Proceeds
which it reasonably expects to recover with respect to the disposition of the
related Mortgaged Property or REO Property have been recovered.
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Servicer in connection with
the liquidation of any Mortgage Loan and not recovered under any insurance
policy, such expenses including, without limitation, legal fees and expenses,
any unreimbursed amount expended (including, without limitation, amounts
advanced to correct defaults on any mortgage loan which is senior to such
Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan
that is senior to such Mortgage Loan) respecting the related Mortgage Loan and
any related and unreimbursed expenditures for real estate property taxes or for
property restoration, preservation or insurance against casualty loss or damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or
otherwise.
LOAN-TO-VALUE RATIO: With respect to any Mortgage Loan, as of
any date of determination, a fraction expressed as a percentage, the numerator
of which is the then current principal amount of the Mortgage Loan, and the
denominator of which is the Appraised Value of the related Mortgaged Property.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
LOST NOTE AFFIDAVIT: With respect to any Mortgage Loan as to
which the original Mortgage Note has been lost, misplaced or destroyed and has
not been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed
(together with a copy of the related Mortgage Note).
MAXIMUM NOTE INTEREST RATE: _____% per annum.
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MAXIMUM MORTGAGE RATE: With respect to each Mortgage Loan, the
maximum Mortgage Rate.
MINIMUM MORTGAGE RATE: With respect to each Mortgage Loan, the
minimum Mortgage Rate.
MINIMUM SPREAD: ____% per annum.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Mortgage Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement, dated as of the Initial Cut-off Date, among the Seller, as seller,
and Superior Bank FSB, as Depositor and AFC Trust Series ____-__, as Issuer,
with respect to the Mortgage Loans, dated as of __________.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans held by the Issuer on such date. The initial schedule of
Initial Mortgage Loans as of the Initial Cut-off Date is the schedule set forth
in Exhibit A of the Servicing Agreement and such schedule, as amended by the
Seller to reflect (i) Eligible Substitute Mortgage Loans and Deleted Mortgage
Loans, and (ii) as of each Subsequent Transfer Date, any Subsequent Mortgage
Loans, which schedule sets forth as to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the maturity date;
(v) the original principal balance;
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(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Initial
Cut-off Date (with respect to an Initial Mortgage
Loan) or Subsequent Cut-off Date (with respect to a
Subsequent Mortgage Loan);
(ix) the Initial Cut-off Date Principal Balance (with
respect to an Initial Mortgage Loan) or Subsequent
Cut-off Date (with respect to a Subsequent Mortgage
Loan);
(x) the occupancy status;
(xi) the purpose of the Mortgage Loan;
(xii) the Appraised Value of the Mortgaged Property;
(xiii) the original term to maturity;
(xiv) the paid-through date of the Mortgage Loan;
(xv) the Loan-to-Value Ratio;
(xvi) whether the Mortgage Loan is secured by a first lien
or second lien;
(xvii) the credit score of the related borrower;
(xviii) whether the Mortgage Loan was originated by Preferred
Credit Corporation; and
(xix) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of the
amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all the Mortgage
Loans that have been sold to the Depositor under the Mortgage Loan Purchase
Agreement or substituted for pursuant to Section 2.1 and 3.1 of the Mortgage
Loan Purchase Agreement and transferred and conveyed to the Issuer and
contributed to the Trust, in each case together with the Related Documents, and
that remain subject to the terms thereof. As applicable, Mortgage Loan shall be
deemed to refer to the related REO Property and to Initial Mortgage Loans,
Eligible Substitute Mortgage Loans, and Subsequent Mortgage Loans.
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MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS CASHFLOW: For any Payment Date, the amount
of Available Funds and any Insured Amount remaining after distributions pursuant
to clauses (i) through (iii) of Section 3.05 of the Indenture (excluding any
Insured Amount and any Subordination Reduction
Amount).
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate,
the Administrative Fee Rate and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: Any Advance or Servicing Advance (i)
which was previously made or is proposed to be made by the Servicer; and (ii)
which, in the good faith judgment of the Servicer, will not or, in the case of a
proposed advance, would not, be ultimately recoverable by the Servicer from
Liquidation Proceeds, Insurance Proceeds or future payments
on any Mortgage Loan.
NOTE INSURANCE POLICY: The note guaranty insurance policy
number ________, issued by the Note Insurer to the Indenture Trustee for the
benefit of the Noteholders.
NOTE INSURANCE PREMIUM: The premium payable to the Note
Insurer, as specified in the Insurance Agreement.
NOTE INSURER: _______________________, any successor thereto
or any replacement note insurer substituted pursuant to Section 8.10 of the
Indenture.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the Bankruptcy Code or
any other similar federal or state law relating to
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insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or (ii) a court of competent jurisdiction, the New York
or _______ Department of Insurance or other competent regulatory authority
enters a final and nonappealable order, judgment or decree (A) appointing a
custodian, trustee, agent or receiver for the Note Insurer or for all or any
material portion of its property or (B) authorizing the taking of possession by
a custodian, trustee, agent or receiver of the Note Insurer (or the taking of
possession of all or any material portion of the property of the Note Insurer).
NOTE INTEREST RATE: With respect to each Payment Date after
the first Payment Date, a floating rate equal to the lesser of (i) with respect
to each Payment Date up to and including the earlier of (a) the Payment Date in
_________ and (b) the Payment Date on which the aggregate Principal Balance of
the Mortgage Loans is less than __% of the aggregate Cut-off Date Principal
Balance of the Mortgage Loans, One-Month LIBOR plus ____%, and with respect to
each Payment Date thereafter, One-Month LIBOR plus ____% and (ii) the Available
Funds Interest Rate with respect to such Payment Date. The Note Interest Rate
for the first Payment Date will equal ______% per annum.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
Note Principal Balance thereof minus all amounts distributed in respect of
principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar.
NOTEHOLDER: The Person in whose name a Note is registered in
the Note Register, except that, any Note registered in the name of the
Depositor, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be a Noteholder or Holder, nor shall any Note so owned be
considered outstanding, for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement, provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of Notes
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee
the pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons. Any Notes on which payments are made under the Note Insurance
Policy shall be deemed Outstanding until the Note Insurer has been reimbursed
with respect thereto and the Note Insurer shall be deemed the Noteholder thereof
to the extent of such unreimbursed payment.
NOTES: The Notes designated as the "Notes" in the Indenture.
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OFFICER'S CERTIFICATE: With respect to the Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Servicer and delivered to the
Indenture Trustee. With respect to the Issuer, a certificate signed by any
Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as
of 11:00 a.m. (London time) on such Interest Determination Date. On each
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the higher of (i) One-Month LIBOR as determined on
the previous Interest Determination Date and (ii) the
Reserve Interest Rate.
OPINION OF COUNSEL: A written opinion of counsel who may be
in-house counsel for the Person rendering such opinion.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes previously executed, authenticated and delivered under
this Indenture except:
(i) Notes previously cancelled by the Note Registrar or
delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other
Notes have been executed, authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a holder in due
course.
All Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OUTSTANDING MORTGAGE LOAN: As to any Due Date, a Mortgage Loan
(including an REO Property) which was not the subject of a Principal Prepayment
in Full, Cash Liquidation or
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REO Disposition and which was not purchased, deleted or substituted for prior to
such Due Date pursuant to the Servicing Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items referred to in Section 2.01 of the Trust
Agreement.
OWNER TRUSTEE: Wilmington Trust Company and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
OWNER TRUSTEE FEE: With respect to any Payment Date the
product of (i) the Owner Trustee Fee Rate divided by 12 and (ii) the aggregate
Note Principal Balance of the Notes as of such date.
OWNER TRUSTEE FEE RATE: ____% per annum.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 8.02 of the Indenture. The Payment Account shall be
an Eligible Account.
PAYMENT DATE: The ____ day of each month, or if such day is
not a Business Day, then the next Business Day.
PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes. With respect to any Certificate, the
percentage on the face thereof.
PERIODIC RATE CAP: With respect to any Mortgage Loan, the
maximum rate, if any, by which the Mortgage Rate on such Mortgage Loan can
adjust on any Adjustment Date, as stated in the related Mortgage Note or
Mortgage.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL BALANCE: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.
PREFERENCE AMOUNT: Any amount previously distributed in
respect of the Notes that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
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PRE-FUNDING ACCOUNT: The Pre-Funding Account established in
accordance with Section 2.3 of the Mortgage Loan Purchase Agreement. The
Pre-Funding Account shall be an Eligible Account.
PRE-FUNDING ACCOUNT EARNINGS: With respect to the _________
Payment Date, the actual investment earnings earned during the period from the
Closing Date through __________ (inclusive) on the portion of the Pre-Funded
Amount remaining during such period.
PRE-FUNDED AMOUNT: With respect to any Determination Date, the
amount remaining on deposit in the Pre-Funding Account.
PREMIUM AMOUNT: The amount of the [monthly] premium due to the
Note Insurer in accordance with the terms of the Insurance Agreement.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of a Principal Prepayment in Full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in Full.
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of such Payment Date
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, as of any date of determination, (i) the Initial Cut-off
Date Principal Balance or Subsequent Cut-off Date Principal Balance, as
applicable, of the Mortgage Loan minus, (ii) the sum of (a) the principal
portion of the Monthly Payments due with respect to such Mortgage Loan or REO
Property during each Due Period ending prior to the most recent Payment Date
which were received, and (b) all Principal Prepayments with respect to such
Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds
and REO Proceed with respect to such Mortgage Loan or REO Property, to the
extent applied by the Servicer as recoveries of principal in accordance with the
Servicing Agreement, and (c) any Realized Loss with respect thereto for any
previous Payment Date.
PRINCIPAL PAYMENT AMOUNT: With respect to any Payment Date (a)
other than the Final Scheduled Payment Date, and the first Payment Date
following any acceleration of the Notes following an Event of Default, the
lesser of (a) the sum of (x) the Available Funds remaining after distributions
pursuant to clause (i) of Section 3.05 of the Indenture and (y) any portion of
any Insured Amount for such Payment Date representing a Subordination Deficit
and (b) the sum of:
(1) the principal portion of all Monthly Payments
received during the related Due Period on each
Mortgage Loan;
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(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period (or
deemed to have been so repurchased) pursuant to the
Mortgage Loan Purchase Agreement or Section 3.18 of
the Servicing Agreement and the amount of any
Substitution Adjustment Amounts during the related
Prepayment Period;
(3) the principal portion of all other unscheduled
collections received during the related Prepayment
Period (or deemed to be received during the related
Prepayment Period) (including, without limitation,
Principal Prepayments in Full, partial Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds
and REO Proceeds) to the extent applied by the
Servicer as payments or recoveries of principal of
the related Mortgage Loan, and to the extent not
distributed in the preceding month;
(4) any Insured Amount paid with respect to any
Subordination Deficit; and
minus
-----
(5) the amount of any Subordination Reduction Amount
for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, and the first Payment
Date following any acceleration of the Notes following an Event of Default, the
amount necessary to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PRINCIPAL PREPAYMENT IN FULL: Any Principal Prepayment made by
a Mortgagor of the entire principal balance of a Mortgage Loan.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PROSPECTUS: The Prospectus Supplement, dated ____________,
together with the attached Prospectus, dated ______________, with respect to the
Notes.
PURCHASE PRICE: The meaning specified in Section 2.2(a) of the
Mortgage Loan Purchase Agreement.
PURCHASER: Superior Bank FSB, and its successors and assigns.
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RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, [Moody's,
Fitch or Standard & Poor's]. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Note Insurer
so long as no Note Insurer Default exists, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean A-1 or better in the
case of [Standard & Poor's] and P-1 or better in the case of [Moody's] and in
the case of any other Rating Agency shall mean such equivalent ratings.
References herein to the highest long-term rating category of a Rating Agency
shall mean "AAA" in the case of [Standard & Poor's] and "Aaa" in the case of
[Moody's] and in the case of any other Rating Agency, such equivalent rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) the proceeds, if any, received during the month in which
such Cash Liquidation (or REO Disposition) occurred, to the extent applied as
recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage
Loan, net of the portion thereof reimbursable to the Servicer or any Subservicer
with respect to related Advances or expenses as to which the Servicer or
Subservicer is entitled to reimbursement thereunder but which have not been
previously reimbursed. With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation. With respect to each Mortgage Loan which has become the object of a
Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose quotations appear on the Reuters Screen
LIBO Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
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RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.1(e) of the Mortgage Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the
Mortgage Loan Purchase Agreement, the Trust Agree
ment, Indenture or the Servicing Agreement.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: As to any Payment Date and any Mortgage
Loan (other than a Mortgage Loan relating to an REO Property), any shortfalls
relating to the Relief Act or similar legislation or regulations.
REO ACQUISITION: The acquisition by the Servicer on behalf of
the Indenture Trustee for the benefit of the Noteholders of any REO Property
pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Servicer expects to be finally recoverable
from the sale or other disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period as such balance is reduced pursuant to Section 3.13 of the Servicing
Agreement by any income from the REO Property treated as a recovery of
principal.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property) which proceeds are required to be deposited into
the Collection Account only upon the
related REO Disposition.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer by foreclosure or by deed in lieu of foreclosure.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Mortgage Loan Purchase Agreement
or purchased by the Servicer pursuant to the Servicing Agreement, an amount
equal to the sum, without duplication, of (i) 100% of the Principal Balance
thereof (without reduction for any amounts charged off) and (ii) unpaid accrued
interest at the Mortgage Rate on the Principal Balance thereof from the Due Date
to which interest was last paid by the Mortgagor to the first day of the month
following the month of purchase plus (iii) the amount of Advances and any
unreimbursed Servicing Advances or unreimbursed Advances made with respect to
such Mortgage Loan plus (iv) any other amounts owed to the Servicer or the
Subservicer pursuant to Section 3.07 of the Servicing Agreement and not included
in clause (iii) of this definition.
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[REQUIRED SUBORDINATION AMOUNT: With respect to any Payment
Date, an amount equal to (i) ___% of the aggregate Principal Balance of the
Mortgage Loans as of the Initial Cutoff Date, or (ii) if the Step-Up Trigger has
occurred and is continuing, an amount equal to the greater of (A) the greater of
(x) ___% of the aggregate Principal Balance of the Mortgage Loans as of the
Initial Cut-off Date and (y) ___% of the aggregate Principal Balance of the
Mortgage Loans as of the close of business on the last day of the related Due
Period and (B) ___% of the aggregate Principal Balance of the Mortgage Loans
that are 90 or more days delinquent or in foreclosure (including REO Properties)
as of the close of business on the last day of the related Collection Period, or
(iii) if the Step-Up Trigger has not occurred, but the Step-Down Trigger has
occurred and is continuing, an amount equal to the greater of (A) ___% of the
aggregate Principal Balance of the Mortgage Loans as of the Initial Cut-off Date
and (B) the lesser of (x) ___% of the aggregate Principal Balance of the
Mortgage Loans as of the Initial Cut-off Date and (y) ___% of the aggregate
Principal Balance of the Mortgage Loans as of the close of business on the last
day of the related Due Period; PROVIDED, HOWEVER, that if a claim has been made
on the Note Insurance Policy by the Indenture Trustee, the Required
Subordination Amount shall not decrease on any Payment Date.]
RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the three-month United States dollar lending rates
which New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest three-month United
States dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
ROLLING DELINQUENCY PERCENTAGE: For any Payment Date, the
average of the Delinquency Percentages for the Mortgage Loans as of the last day
of each of the six (or 1, 2, 3, 4, and 5 in the case of the first five Payment
Dates, as applicable) most recently ended Collection Periods.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
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SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: ______________, and its successors and assigns.
SERVICER: ________________, and its successors and assigns.
SERVICER'S REPORT: The report delivered by the Servicer to the
Indenture Trustee pursuant to Section 4.01 of the Servicing Agreement.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Servicer or each Subservicer with respect to the Mortgage
Loans or REO Property, which shall be an Eligible Account, for collection of
taxes, assessments, insurance premiums and comparable
items as described in Section 3.08 of the Servicing Agreement.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Servicer of
its servicing obligations, including, without duplication, but not limited to,
the cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of any REO Property and (iv) compliance
with the obligations under Sections 3.08, 3.10, 3.11, 3.13 of the Servicing
Agreement.
SERVICING AGREEMENT: The Servicing Agreement dated as of
_________, between the Servicer and the Issuer.
SERVICING CERTIFICATE: A certificate completed and executed by
a Servicing Officer on behalf of the Servicer in accordance with Section 4.01 of
the Servicing Agreement.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of the
Servicing Agreement.
SERVICING FEE: With respect to each Mortgage Loan and any
Payment Date the product of (i) the Servicing Fee Rate divided by 12 and (ii)
the Principal Balance of such Mortgage Loans as of such date.
SERVICING FEE RATE: With respect to any Mortgage Loan, ____%
per annum.
SERVICING OFFICER: Any employee of the Servicer involved in,
or responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Indenture Trustee (with a copy to the Note Insurer) by the Servicer, as such
list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $1,000.
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SIXTY-DAY DELINQUENT LOAN: Any Mortgage Loan which was sixty
days (two payments) or more delinquent as of the last day of the related
Collection Period.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
STEP-DOWN CUMULATIVE LOSS TEST: The Step-Down Cumulative Loss
Test will be met with respect to a Payment Date as follows: (i) for the 30th
through the 47th Payment Dates, if the Cumulative Loss Percentage for such
Payment Date is ___% or less, (ii) for the 48th through the 59th Payment Dates,
if the Cumulative Loss Percentage for such Payment Date is ___% or less and
(iii) for the 60th Payment Date and any Payment Date thereafter, if the
Cumulative Loss Percentage for such Payment Date is ___% or less.
STEP-DOWN ROLLING DELINQUENCY TEST: The Step-Down Rolling
Delinquency Test will be met, with respect to a Payment Date, if the Rolling
Delinquency Percentage for such Payment Date is less than ___%.
STEP-DOWN TRIGGER: For any Payment Date after the 30th Payment
Date, the StepDown Trigger will have occurred if each of the Step-Down
Cumulative Loss Test and the StepDown Rolling Delinquency Test is met at such
Payment Date.
STEP-UP CUMULATIVE LOSS TEST: The Step-Up Cumulative Loss Test
will be met with respect to a Payment Date as follows: (i) for the 1st through
the 12th Payment Dates, if the Cumulative Loss Percentage for such Payment Date
is more than ___%, (ii) for the 13th through the 24th Payment Dates, if the
Cumulative Loss Percentage for such Payment Date is more than ___%, (iii) for
the 25th through the 36th Payment Dates, if the Cumulative Loss Percentage for
such Payment Date is more than ___%, (iv) for the 37th through the 48th Payment
Dates, if the Cumulative Loss Percentage for such Payment Date is more than ___%
and (v) for the 49th Payment Date and any Payment Date thereafter, if the
Cumulative Loss Percentage for such Payment Date is more than ___%.
STEP-UP ROLLING DELINQUENCY TEST: The Step-Up Rolling
Delinquency Test will be met with respect to a Payment Date if the Rolling
Delinquency Percentage for such Payment Date is more than ___%.
STEP-UP TRIGGER: For any Payment Date, the Step-Up Trigger
will have occurred if either the Step-Up Cumulative Loss Test or the Step-Up
Rolling Delinquency Test is met at such Payment Date.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of (i) the aggregate Principal Balances of the Mortgage
Loans as of the close of business on the last day of the related Due Period and
(ii) the Pre-Funded Amount over (y) the Note Principal Balance of the Notes as
of such Payment Date (and following the making of all distributions on
such Payment Date).
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SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the sum of (i) the
aggregate Principal Balances of the Mortgage Loans as of the close of business
on the last day of the related Due Period and (ii) the Pre-Funded Amount.
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Cashflow (including any Subordination
Reduction Amount) available in the Payment Account to increase the Subordination
Amount up to the Required Subordination Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Servicer with respect to the prior
Due Period.
SUBSEQUENT CUT-OFF DATE: Each date specified in the Subsequent
Transfer Agreement with respect to those Subsequent Mortgage Loans which are
sold, transferred and assigned by the Seller to the Issuer pursuant to the
related Subsequent Transfer Agreement.
SUBSEQUENT MORTGAGE LOAN: Each Mortgage Loan sold and assigned
by the Seller to the Indenture Trustee pursuant to a Subsequent Transfer
Agreement.
SUBSEQUENT TRANSFER AGREEMENT: Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Indenture
Trustee and the Seller substantially in the form of Exhibit C to the Mortgage
Loan Purchase Agreement, by which Subsequent Mortgage Loans are sold and
assigned by the Seller to the Indenture Trustee.
SUBSEQUENT TRANSFER DATE: The date specified in each
Subsequent Transfer Agreement as the date on which Subsequent Mortgage Loans are
to be sold, transferred and assigned to the Indenture Trustee.
SUBSERVICER: Any Person with whom the Servicer has entered
into a Subservicing Agreement as a Subservicer.
SUBSERVICING AGREEMENT: The written contract between the
Servicer and any Subservicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or
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such other page as may replace that page on that service, or if such service is
no longer offered, such other service for displaying One-Month LIBOR or
comparable rates as may be selected by the Issuer after consultation with the
Indenture Trustee), the rate will be the Reference Bank
Rate.
TERMINATION PRICE: As defined in Section 7.08(b) of the
Servicing Agreement.
THIRTY-DAY DELINQUENT LOAN: Any Mortgage Loan which was thirty
days or more delinquent, but less than sixty days delinquent, as of the last day
of the related Collection Period.
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST: The AFC Trust Series ___-_ to be created pursuant to
the Trust Agreement.
TRUST ACCOUNT: As defined in Section 8.02 of the Indenture.
TRUST AGREEMENT: The Trust Agreement dated as of ___________
between the Owner Trustee and the Depositor.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
UNPAID INTEREST SHORTFALL: With respect to each Payment Date,
any Accrued Note Interest remaining unpaid as a result of the insufficiency of
amounts available therefor in the Payment Account, plus any such shortfall for
all prior Payment Dates, and plus interest thereon at the related Note Interest
Rate immediately prior to such Payment Date.
WEIGHTED AVERAGE NET MORTGAGE RATE: With respect to the
Mortgage Loans in the aggregate, and any Due Date, the average of the Net
Mortgage Rate for each Mortgage Loan as of the last day of the related Due
Period weighted on the basis of the related Principal Balances outstanding as of
the last day of the related Due Period for each Mortgage Loan as determined by
the Servicer in accordance with the Servicer's normal servicing procedures.
EXHIBIT 4.3
<PAGE>
EXHIBIT 4.3
================================================================================
--------------------,
as Servicer,
and
AFC TRUST SERIES _____-____,
as Issuer
----------------------
SERVICING AGREEMENT
Dated as of ___________
----------------------
AFC Mortgage Loan Asset Backed Notes, Series _____-___
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I
Definitions.......................................................................................................1
Section 1.01. DEFINITIONS.....................................................................................1
Section 1.02. OTHER DEFINITIONAL PROVISIONS...................................................................2
Section 1.03. INTEREST CALCULATIONS...........................................................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES....................................................................................3
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER...........................................3
Section 2.02. EXISTENCE.......................................................................................4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES...................................................4
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS....................................................................6
Section 3.01. SERVICER TO ASSURE SERVICING....................................................................6
Section 3.02. SUBSERVICING AGREEMENTS BETWEEN SERVICER AND SUBSERVICERS.......................................7
Section 3.03. SUCCESSOR SUBSERVICERS..........................................................................7
Section 3.04. LIABILITY OF THE SERVICER.......................................................................7
Section 3.05. ASSUMPTION OR TERMINATION OF SUBSERVICING AGREEMENTS BY INDENTURE TRUSTEE.......................8
Section 3.06. COLLECTION OF MORTGAGE LOAN PAYMENTS............................................................9
Section 3.07. WITHDRAWALS FROM THE COLLECTION ACCOUNT........................................................10
Section 3.08. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS; SERVICING ACCOUNTS.........................12
Section 3.09. RESERVED.......................................................................................12
Section 3.10. MORTGAGE IMPAIRMENT INSURANCE..................................................................12
Section 3.11. MAINTENANCE OF HAZARD INSURANCE AND FIDELITY COVERAGE..........................................13
Section 3.12. DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS.....................................................14
Section 3.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS......................................................15
Section 3.14. INDENTURE TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES......................................16
Section 3.15. SERVICING COMPENSATION.........................................................................17
Section 3.16. ANNUAL STATEMENTS OF COMPLIANCE................................................................17
Section 3.17. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT........................................17
Section 3.18. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS [AND MANDATORY REPURCHASE OF
CONVERTED MORTGAGE LOANS.......................................................................18
Section 3.19. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE GENERALLY AND REPORTS OF
FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY............................................18
i
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Page
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ARTICLE IV
SERVICING CERTIFICATE; ACCOUNTS; ADVANCES......................................................19
Section 4.01. REMITTANCE REPORTS.............................................................................19
Section 4.02. DISTRIBUTION OF ACCOUNTS.......................................................................19
Section 4.03. INVESTMENT OF ACCOUNTS.........................................................................19
Section 4.04. ADVANCES.......................................................................................19
Section 4.05. COMPENSATING INTEREST PAYMENTS.................................................................20
ARTICLE V
THE SERVICER.....................................................................................................21
Section 5.01. LIABILITY OF THE SERVICER......................................................................21
Section 5.02. MERGER OR CONSOLIDATION........................................................................21
Section 5.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.............................................21
Section 5.04. SERVICER NOT TO RESIGN.........................................................................22
Section 5.05. DELEGATION OF DUTIES...........................................................................22
Section 5.06. INDEMNIFICATION................................................................................22
ARTICLE VI
DEFAULT..........................................................................................................23
Section 6.01. SERVICING DEFAULT..............................................................................23
Section 6.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.............................................24
Section 6.03. NOTIFICATION TO NOTEHOLDERS....................................................................25
Section 6.04. WAIVER OF DEFAULTS.............................................................................25
ARTICLE VII
MISCELLANEOUS PROVISIONS.........................................................................................27
Section 7.01. AMENDMENT......................................................................................27
Section 7.02. GOVERNING LAW..................................................................................27
Section 7.03. NOTICES........................................................................................27
Section 7.04. SEVERABILITY OF PROVISIONS.....................................................................28
Section 7.05. THIRD-PARTY BENEFICIARIES......................................................................28
Section 7.06. COUNTERPARTS...................................................................................28
Section 7.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.......................................................28
Section 7.08. TERMINATION....................................................................................28
Section 7.09. NO PETITION....................................................................................29
Section 7.10. NO RECOURSE....................................................................................29
ii
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Page
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ARTICLE VIII
[ADMINISTRATIVE DUTIES OF THE SERVICER...........................................................................30
Section 8.01. ADMINISTRATIVE DUTIES..........................................................................30
Section 8.02. RECORDS........................................................................................31
Section 8.03. ADDITIONAL INFORMATION TO BE FURNISHED.........................................................31
EXHIBIT A - MORTGAGE LOAN SCHEDULE................................................................................A
EXHIBIT B - FORM OF REQUEST FOR RELEASE...........................................................................B
EXHIBIT C - SERVICER'S REPORT.....................................................................................C
</TABLE>
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<PAGE>
This Servicing Agreement, dated as of _____________ __, ____,
between ________________, as Servicer (the "Servicer"), and AFC Trust Series
____-___, as Issuer (the "Issuer") and ____________, as Indenture Trustee (the
"Indenture Trustee").
W I T N E S S E T H T H A T:
-----------------------------
WHEREAS, Superior Bank FSB (the "Depositor") will create AFC
Trust Series ____-___, a Delaware business trust (the "Issuer"), pursuant to the
terms of a Trust Agreement dated as of ___________ (the "Trust Agreement")
between the Depositor, as depositor, and ________________________, as owner
trustee (the "Owner Trustee"):
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Depositor will acquire the Initial Mortgage Loans and the
Subsequent Mortgage Loans and will transfer the Mortgage Loans and all of its
rights under the Mortgage Loan Purchase Agreement to the Issuer;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Trust Certificates, Series _____-__ (the
"Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
___________(the "Indenture") between the Issuer and _____________________ (the
"Indenture Trustee"), the Issuer will pledge the Mortgage Loans and issue and
transfer to or at the direction of the Depositor the AFC Mortgage Loan Asset
Backed Notes, Series _____-__ (the "Notes"); and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans set forth on the Mortgage Loan
Schedule attached hereto as Exhibit A directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
this Servicing Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made in accordance with the terms of the related Mortgage Note and
Mortgage. The calculation of the Servicing Fee shall be made on the basis of a
360-day year consisting of twelve 30-day months.
-2-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to the Issuer and for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Loans, the Note Insurer and the
Noteholders, as of the Initial Cut-off Date, each Subsequent Cut-off Date and
the Closing Date, that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
__________ and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The Servicer is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer or the validity or
enforceability of the Mortgage Loans;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execu tion, delivery
and performance of this Servicing Agreement. When executed and
delivered, this Servicing Agreement will constitute the legal, valid
and binding obligation of the Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the certificate of incorporation or bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement
which, to the knowledge of the Servicer, has a reasonable likelihood of
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resulting in a material adverse effect on the transactions contemplated
by this Servicing Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Servicing Agreement.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Loans, or the Note Insurer, shall enforce the
representations and warranties and related obligations for breaches thereof of
the Seller pursuant to the Mortgage Loan Purchase Agreement. Upon the discovery
by the Seller, the Servicer, the Indenture Trustee, the Note Insurer or the
Company of a breach of any of the representations and warranties made in the
Mortgage Loan Purchase Agreement in respect of any Mortgage Loan, which
materially and adversely affects the interests of the Noteholders or the
Certificateholders or the Note Insurer in such Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties.
The Servicer shall promptly notify the Seller of such breach and request that,
pursuant to the terms of the Mortgage Loan Purchase Agreement, the Seller either
(i) cure such breach in all material respects or (ii) purchase such Mortgage
Loan, in each instance in accordance with the Mortgage Loan Purchase Agreement;
PROVIDED that the Seller shall, subject to the conditions set forth in the
Mortgage Loan Purchase Agreement, have the option to substitute an Eligible
Substitute Mortgage Loan or Eligible Substitute Mortgage Loans for such Mortgage
Loan. Monthly Payments due with respect to Eligible Substitute Mortgage Loans in
the month of substitution shall not be part of the Trust Estate and will be
retained by the Servicer and remitted by the Servicer to the Seller on the next
succeeding Payment Date. For the month of substitution, distributions to the
Payment Account pursuant to this Servicing Agreement will include the Monthly
Payment due on a Deleted Mortgage Loan for such month, and thereafter the Seller
shall be entitled to retain all amounts received in respect of such Deleted
Mortgage Loan. The Servicer shall amend or cause to be amended the Mortgage Loan
Schedule to reflect the removal of such Mortgage Loan and the sub stitution of
the Eligible Substitute Mortgage Loans, and the Servicer shall promptly deliver
the amended Mortgage Loan Schedule to the related Subservicer, the Note Insurer,
the Owner Trustee and the Indenture Trustee.
In connection with the substitution of one or more Eligible Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will
determine the amount (such amount, a "Substitution Adjustment Amount"), if any,
by which the aggregate principal balance of all such Eligible Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of all such Deleted Mortgage Loans (after application of the
principal portion
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of the Monthly Payments due in the month of substitution that are to be
distributed to the Payment Account in the month of substitution). The Seller
shall pay the Substitution Adjustment Amount to the Servicer and the Servicer
shall deposit such Substitution Adjustment Amount into the Collection Account
upon receipt.
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ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01. SERVICER TO ASSURE SERVICING. (a) The Servicer shall take
such actions as are necessary to ensure the servicing and administration of the
Mortgage Loans and any REO Property in accordance with this Servicing Agreement
and its normal servicing practices, which generally shall conform to the
standards of an institution prudently servicing mortgage loans similar to the
Mortgage Loans for its own account and shall have full authority to do anything
it reasonably deems appropriate or desirable in connection with such servicing
and administration. The Servicer may perform its responsibilities relating to
servicing through other agents or independent contractors, but shall not thereby
be released from any of its responsibilities as hereinafter set forth. The
authority of the Servicer, in its capacity as servicer, and any Subservicer
acting on its behalf, shall include, without limitation, the power to (i)
consult with and advise any Subservicer regarding administration of a related
Mortgage Loan, (ii) approve any recommendation by a Subservicer to foreclose on
a related Mortgage Loan, (iii) supervise the filing and collection of insurance
claims and take or cause to be taken such actions on behalf of the insured
Person thereunder as shall be reasonably necessary to prevent the denial of
coverage thereunder, and (iv) effectuate foreclosure or other conversion of the
ownership of the Mortgaged Property securing a related Mortgage Loan, including
the employment of attorneys, the institution of legal proceedings, the
collection of deficiency judgments, the acceptance of compromise proposals, the
filing of claims under any Primary Insurance Policy and any other matter
pertaining to a delinquent Mortgage Loan. The authority of the Servicer shall
include, in addition, the power on behalf of the Noteholders, the Indenture
Trustee, the Note Insurer or any of them to (i) execute and deliver customary
consents or waivers and other instruments and documents, (ii) consent to
transfer of any related Mortgaged Property and assumptions of the related
Mortgage Notes and Security Instruments (in the manner provided in this
Servicing Agreement) and (iii) collect any Insurance Proceeds and Liquidation
Proceeds. Without limiting the generality of the foregoing, the Servicer and any
Subservicer acting on its behalf may, and is hereby authorized and empowered by
the Indenture Trustee to, execute and deliver, on behalf of itself, the
Noteholders, the Indenture Trustee, the Note Insurer or any of them, any
instruments of satisfaction, cancellation, partial or full release, discharge
and all other comparable instruments, with respect to the related Mortgage
Loans, the Insurance Policies and the accounts related thereto, and the
Mortgaged Properties. The Servicer may exercise this power in its own name or in
the name of a Subservicer.
(b) Notwithstanding the provisions of Subsection 3.01(a), the Servicer
shall not take any action adverse to the interests of the Indenture Trustee, the
Note Insurer or the Noteholders or with the rights and interests of the
Indenture Trustee, the Note Insurer or the Noteholders under this Servicing
Agreement.
(c) The Indenture Trustee shall furnish the Servicer with any powers of
attorney and other documents in the form provided by it which are necessary or
appropriate to enable the Servicer to service and administer the related
Mortgage Loans and REO Property.
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Section 3.02. SUBSERVICING AGREEMENTS BETWEEN SERVICER AND
SUBSERVICERS. (a) The Servicer may enter into Subservicing Agreements with
Subservicers for the servicing and administration of the Mortgage Loans and for
the performance of any and all other activities of the Servicer hereunder. Each
Subservicer shall be either (i) an institution the accounts of which are insured
by the FDIC or (ii) another entity that engages in the business of originating
or servicing mortgage loans comparable to the Mortgage Loans, and in either case
shall be authorized to transact business in the state or states in which the
related Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement, and in either case shall be a
FHLMC or FNMA approved mortgage servicer. Any Subservicing Agreement entered
into by the Servicer shall include the provision that such Agreement may be
immediately terminated (x) with cause and without any termination fee by any
Servicer hereunder or (y) without cause in which case the Servicer shall be
responsible for any termination fee or penalty resulting therefrom. In addition,
each Subservicing Agreement shall provide for servicing of the Mortgage Loans
consistent with the terms of this Servicing Agreement.
(b) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Indenture Trustee, the Note Insurer and the Noteholders,
shall enforce the obligations of each Subservicer under the related Subservicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Subservicing Agreements and the pursuit of
other appropriate remedies, shall be in such form and carried out to such an
extent and at such time as the Servicer, in its good faith business judgment,
would require were it the owner of the related Mortgage Loans. The Servicer
shall pay the costs of such enforcement at its own expense, and shall be
reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys' fees against the party against whom such enforcement is
directed.
Section 3.03. SUCCESSOR SUBSERVICERS. The Servicer shall be entitled to
terminate any Subservicing Agreement that may exist in accordance with the terms
and conditions of such Subservicing Agreement and without any limitation by
virtue of this Servicing Agreement; PROVIDED, HOWEVER, that upon termination,
the Servicer shall either assume the duties of the Subservicer in respect of the
related Mortgage Loan or enter into a contract with a successor Subservicer
meeting the requirements of Section 3.02(a), pursuant to which such successor
Subservicer will be bound by all relevant terms of the related Subservicing
Agreement pertaining to the servicing of such Mortgage Loan.
Section 3.04. LIABILITY OF THE SERVICER. (a) Notwithstanding any
Subservicing Agreement, any of the provisions of this Servicing Agreement
relating to agreements or arrangements between the Servicer and a Subservicer or
reference to actions taken through a Subservicer or otherwise, the Servicer
shall under all circumstances remain obligated and primarily liable to the
Indenture Trustee, the Noteholders and the Note Insurer for the servicing and
administering of the Mortgage Loans and any REO Property in accordance with this
Servicing Agreement. The obligations and liability of the Servicer shall not be
diminished by virtue of Subservicing Agreements or by virtue of indemnification
of the Servicer by any Subservicer, or any other Person. The obligations and
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liability of the Servicer shall remain of the same nature and under the same
terms and conditions as if the Servicer alone were servicing and administering
the related Mortgage Loans. The Servicer shall, however, be entitled to enter
into indemnification agreements with any Subservicer or other Person and nothing
in this Servicing Agreement shall be deemed to limit or modify such
indemnification. For the purposes of this Servicing Agreement, the Servicer
shall be deemed to have received any payment on a Mortgage Loan on the date the
Subservicer received such payment; PROVIDED, HOWEVER, that this sentence shall
not apply to the Indenture Trustee acting as the Servicer; PROVIDED, FURTHER,
however, that the foregoing provision shall not affect the obligation of the
Servicer if it is also the Indenture Trustee to advance amounts which are not
Nonrecoverable Advances.
(b) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such shall be deemed to be between the Subservicer and the
Servicer alone, and the Indenture Trustee, the Note Insurer and the Noteholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Subservicer except as set
forth in Section 3.05.
Section 3.05. ASSUMPTION OR TERMINATION OF SUBSERVICING AGREEMENTS BY
INDENTURE TRUSTEE. (a) If the Indenture Trustee or its designee shall assume the
servicing obligations of the Servicer in accordance with Section 6.02 below, the
Indenture Trustee, to the extent necessary to permit the Indenture Trustee to
carry out the provisions of Section 6.02 with respect to the Mortgage Loans,
shall succeed to all of the rights and obligations of the Servicer under each of
the Subservicing Agreements. In such event, the Indenture Trustee or its
designee as the successor servicer shall be deemed to have assumed all of the
Servicer's rights and obligations therein and to have replaced the Servicer as a
party to such Subservicing Agreements to the same extent as if such Subservicing
Agreements had been assigned to the Indenture Trustee or its designee as a
successor servicer, except that the Indenture Trustee or its designee as a
successor servicer shall not be deemed to have assumed any obligations or
liabilities of the Servicer arising prior to such assumption (other than the
obligation to make any Advances) and the Servicer shall not thereby be relieved
of any liability or obligations under such Subservicing Agreements arising prior
to such assumption. The Indenture Trustee shall be entitled as successor
servicer to receive the servicing compensation provided under Section 3.15,
accruing after its assumption of the servicing, as the Servicer would be
entitled to receive.
(b) In the event that the Indenture Trustee or its designee as
successor servicer for the Indenture Trustee assumes the servicing obligations
of the Servicer under Section 6.02, upon the reasonable request of the Indenture
Trustee or such designee as successor servicer, the Servicer shall at its own
expense deliver to the Indenture Trustee, or at its written request to such
designee, photocopies of all documents, files and records, electronic or
otherwise, relating to the Subservicing Agreements and the related Mortgage
Loans or REO Property then being serviced and an accounting of amounts collected
and held by the Servicer, if any, and will otherwise cooperate and use its
reasonable efforts to effect the orderly and efficient transfer of the
Subservicing Agreements and responsibilities hereunder to the Indenture Trustee,
or at its written request to such designee as successor servicer.
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Section 3.06. COLLECTION OF MORTGAGE LOAN PAYMENTS. (a) Continuously
from the date hereof until the principal and interest on all Mortgage Loans are
paid in full, the Servicer will proceed diligently to collect all payments due
under each of the Mortgage Loans when the same shall become due and payable and
will take special care in ascertaining and estimating annual ground rents,
taxes, assessments, water rates, fire and hazard insurance premiums, mortgage
insurance premiums, and all other charges that, as provided in any Mortgage,
will become due and payable to the end that the installments payable by the
Mortgagors will be sufficient to pay such charges as and when they become due
and payable.
(b) The Servicer shall use reasonable efforts to collect or cause to be
collected all payments required under the terms and provisions of the Mortgage
Loans and shall follow collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans similar to the
Mortgage Loans for their own account to the extent such procedures shall be
consistent with this Servicing Agreement. Consistent with the foregoing, the
Servicer may in its discretion (i) waive or permit to be waived any late payment
charge, prepayment charge, assumption fee, or any penalty interest in connection
with the prepayment of a Mortgage Loan and (ii) suspend or reduce or permit to
be suspended or reduced regular monthly payments for a period of up to six
months, or arrange or permit an arrangement with a Mortgagor for a scheduled
liquidation of delinquencies; provided, however, that the Servicer may permit
the foregoing only if it believes, in good faith, that recoveries of Monthly
Payments will be maximized; provided further, however, that Monthly Payments may
not be suspended during the twelve months prior to the final maturity of the
Notes. In the event the Servicer shall consent to the deferment of the Due Dates
for payments due on a Mortgage Note, the Servicer shall nonetheless make an
Advance to the same extent as if such installment were due, owing and delinquent
and had not been deferred; PROVIDED, HOWEVER, that the obligation of the
Servicer to make an Advance shall apply only to the extent that the Servicer
believes that such Advances are not Nonrecoverable Advances.
(c) Within five Business Days after the Servicer has determined that a
Mortgage Loan has become a Liquidated Mortgage Loan, the Servicer shall provide
to the Indenture Trustee a certificate of a Servicing Officer to that effect and
the date of such determination.
(d) The Servicer shall establish a segregated account in the name of
the Indenture Trustee (the "Collection Account"), which shall be an Eligible
Account, in which the Servicer shall deposit or cause to be deposited any
amounts representing interest payments due and principal collections received by
it subsequent to the Initial Cut-off Date with respect to the Initial Mortgage
Loans or the Subsequent Cut-off Date with respect to the Subsequent Mortgage
Loans (other than in respect of the payments referred to in the following
paragraph) within one Business Day of receipt of good funds, including the
following payments and collections received or made by it (without duplication):
(i) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.18;
(ii) Net Liquidation Proceeds;
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(iii) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(iv) amounts required to be paid by the Servicer
pursuant to Section 3.10 in respect of a blanket insurance policy
deductible, Section 5.06 in respect of indemnification or Section 7.08
in respect of the Termination Price;
(v) any Advance and any Compensating Interest payments;
and
(vi) any other amounts received by the Servicer and not
permitted to be retained by the Servicer pursuant to this Servicing
Agreement.
PROVIDED, HOWEVER, that with respect to each Due Period, the Servicer shall be
permitted to retain from payments in respect of interest on the Mortgage Loans
the Servicing Fee for such Due Period. The foregoing requirements respecting
deposits into the Collection Account are exclusive, it being understood that,
without limiting the generality of the foregoing, the Servicer need not deposit
in the Collection Account assumption and modification fees, late charges or
prepayment penalties payable by Mortgagors, or Foreclosure Profits, each as
further described in Section 3.15, or amounts received by the Servicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required to
be deposited in the Collection Account is so deposited, the Servicer may at any
time (prior to being terminated under this Agreement) withdraw such amount from
the Collection Account, any provision herein to the contrary notwithstanding.
The Servicer shall keep records that accurately reflect the funds on deposit in
the Collection Account that have been identified by it as being attributable to
the Mortgage Loans and shall hold all collections in the Collection Account for
the benefit of the Owner Trustee, the Indenture Trustee, the Noteholders and the
Note Insurer, as their interests may appear.
Any interest or investment earnings on funds held in the Collection
Account shall be for the account of the Servicer and may only be withdrawn from
the Collection Account by the Servicer immediately following its monthly
remittance of the Available Distribution Amount to the Indenture Trustee. Any
reference herein to amounts on deposit in the Collection Account shall refer to
amounts net of such investment earnings.
Section 3.07. WITHDRAWALS FROM THE COLLECTION ACCOUNT. (a) The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.06 for
the following purposes (without duplication):
(i) to deposit in the Payment Account, by the
Determination Date prior to each Payment Date, the Available
Distribution Amount for such Payment Date;
(ii) to pay the Indenture Trustee the Indenture Trustee
Fee and to pay the Owner Trustee the Owner Trustee Fee;
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(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.15,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.06);
(iv) to pay to itself, the Seller or other entity
entitled thereto, with respect to any Mortgage Loan or REO Property
that has been purchased or otherwise transferred to the Seller, the
Servicer or such other entity, all amounts received thereon and not
required to be distributed to Noteholders as of the date on which the
related Repurchase Price is determined;
(v) to reimburse the Servicer for any Advance or
Servicing Advance of its own funds, the right of the Servicer to
reimbursement pursuant to this subclause (v) being limited to amounts
received on a particular Mortgage Loan (including, for this purpose,
the Repurchase Price therefor and Liquidation Proceeds) which represent
late payments or recoveries of the principal of or interest on such
Mortgage Loan respecting which such Advance or Servicing Advance was
made;
(vi) to reimburse the Servicer for any Nonrecoverable
Advance previously made, and not reimbursed pursuant to Subsection
3.07(a)(v);
(vii) to pay to itself interest or investment earnings in
respect of Eligible Investments or on funds deposited in the Collection
Account;
(viii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.06; and
(ix) to clear and terminate the Collection Account
pursuant to Section 7.08.
In connection with withdrawals pursuant to clauses (iii), (iv), and (v), the
Servicer's entitlement thereto is limited to collections or other recoveries on
the related Mortgage Loan, and the Servicer shall keep and maintain separate
accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of
justifying any withdrawal from the Collection Account pursuant to such clauses.
(b) So long as no Servicing Default shall have occurred and be
continuing, and consistent with any requirements of the Code, the funds held in
the Collection Account may be invested by the Servicer (to the extent
practicable) in Eligible Investments, as directed in writing to the Indenture
Trustee by the Servicer. In either case, funds in the related Collection Account
must be available for withdrawal without penalty, and any Eligible Investments
must mature not later than the Business Day immediately preceding the
Determination Date next following the date of such investment (except that if
such Eligible Investments is an obligation of the institution that maintains the
related Collection Account, then such Eligible Investments shall mature not
later than such Determination Date) and shall not be sold or disposed of prior
to its maturity. All Eligible Investments in which funds in the related
Collection Account are invested must be held by or registered in the name of the
Indenture Trustee in trust for the Noteholders. All interest or
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other earnings from funds on deposit in the related Collection Account (or any
Eligible Investments thereof) shall be the exclusive property of the Servicer,
and may be withdrawn from the related Collection Account pursuant to clause
(vii) above and the last sentence of Section 3.06(d) above. The amount of any
net losses incurred in connection with the investment of funds in the Collection
Account in Eligible Investments shall be deposited in the related Collection
Account by the Servicer from its own funds immediately as realized without
reimbursement therefor.
Section 3.08. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS;
SERVICING ACCOUNTS.
(a) The Servicer shall establish and maintain one or more Servicing
Accounts. The Servicer will deposit and retain therein all collections from the
Mortgagors for the payment of taxes, assessments, insurance premiums or
comparable items.
(b) The deposits in the Servicing Accounts shall be held in trust by
the Servicer (and its successors and assigns) in the name of the Indenture
Trustee. Such Servicing Accounts shall be Eligible Accounts and if permitted by
applicable law, invested in Eligible Investments held in trust by the Servicer
as described above and maturing, or be subject to redemption or withdrawal, no
later than the date on which such funds are required to be withdrawn, and in no
event later than 45 days after the date of investment. Withdrawals of amounts
from the Servicing Accounts may be made only to effect timely payment of taxes,
assessments, insurance premiums or comparable items, to reimburse the Servicer
for any Servicing 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 or to clear and
terminate the Servicing Accounts at or any time after the termination of this
Servicing Agreement. Any advances of such payments shall constitute Servicing
Advances.
Section 3.09. RESERVED.
Section 3.10. MORTGAGE IMPAIRMENT INSURANCE. In the event that the
Servicer shall obtain and maintain a blanket policy insuring against fire and
hazards of extended coverage on all of the Mortgage Loans, then, to the extent
such policy names the Servicer as loss payee and provides coverage in an amount
equal to the aggregate unpaid principal balance on the related Mortgage Loans
without co-insurance, and otherwise complies with the requirements of Section
3.11 below, the Servicer shall be deemed conclusively to have satisfied its
obligations with respect to fire and hazard insurance coverage under Section
3.11 below, it being understood and agreed that such blanket policy may contain
a deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with Section 3.11 below, and there shall have been a loss which would
have been covered by such policy, deposit in the Collection Account the
difference, if any, between the amount that would have been payable under a
policy complying with Section 3.11 below and the amount paid under such blanket
policy.
Section 3.11. MAINTENANCE OF HAZARD INSURANCE AND FIDELITY COVERAGE.
(a) The Servicer shall maintain and keep, or cause each Subservicer to maintain
and keep, with respect to each
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Mortgage Loan and each REO Property, in full force and effect hazard insurance
(fire insurance with extended coverage) equal to the least of the Principal
Balance of the Mortgage Loan, the current replacement cost of the Mortgaged
Property and the full insurable value 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.
(b) All policies required hereunder shall be endorsed with standard
mortgagee clauses with losses payable to the Servicer. Any amounts collected by
the Servicer or a Subservicer 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 the Servicer's or a
Subservicer's normal servicing procedures, the Mortgage Note, the Security
Instrument or applicable law) shall be deposited into the Collection Account,
for transmittal to the Payment Account, subject to withdrawal pursuant to
Section 3.07.
(c) Any cost incurred by a Servicer in maintaining any such hazard
insurance policy shall not be added to the amount owing under the Mortgage Loan
for the purpose of calculating monthly distributions to Noteholders,
notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall
constitute Servicing Advances and shall be recoverable by the Servicer in
accordance with Section 3.07.
(d) No earthquake or other additional insurance shall be required of
any Mortgagor or maintained on REO Property other than pursuant to such
applicable laws and regulations as shall at any time be in force and shall
require such additional insurance. If, at the time of origination of the
Mortgage Loan or at any subsequent time, the Mortgaged Property is located in a
federally designated special flood hazard area, the Servicer shall use
reasonable efforts to cause with respect to the Mortgage Loans and each REO
Property flood insurance (to the extent available and in accordance with
mortgage servicing industry practice) to be maintained. Such flood insurance
shall be in an amount equal to the lesser of (i) the 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).
(e) If insurance has not been maintained complying with Subsections
3.11 (a) and (d) and there shall have been a loss which would have been covered
by such insurance had it been maintained, the Servicer shall pay for any
resulting loss.
(f) The Servicer shall present, or cause the related Subservicer to
present, claims under any related hazard insurance or flood insurance policy.
(g) The Servicer shall obtain and maintain at its own expense and for
the duration of this Servicing Agreement a blanket fidelity bond and errors and
omissions insurance policy covering such Servicer's officers, employees and
other persons acting on its behalf in connection
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with its activities under this Servicing Agreement acceptable to FNMA or FHLMC.
The Servicer shall promptly notify the Indenture Trustee of any material change
in the terms of such bond or policy. Upon the request of the Indenture Trustee
or the Note Insurer, the Servicer shall provide to the Indenture Trustee or Note
Insurer a certified true copy of such fidelity bond and insurance policy. If any
such bond or policy ceases to be in effect, the Servicer shall, to the extent
possible, give the Indenture Trustee ten days' notice prior to any such
cessation and shall use its reasonable efforts to obtain a comparable
replacement bond or policy, as the case may be. Any amounts relating to the
Mortgage Loans collected under such bond or policy shall be deposited initially
in a Collection Account for transmittal to the Payment Account, subject to
withdrawal pursuant to Section 3.07.
Section 3.12. DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS. (a) In any
case in which the Servicer is notified by any Mortgagor that a Mortgaged
Property relating to a Mortgage Loan has been or is about to be conveyed by the
Mortgagor, the Servicer shall enforce any due-on-sale clause contained in the
related Security Instrument to the extent permitted under the terms of the
related Mortgage Note and by applicable law. If the Servicer reasonably believes
that such due-on-sale clause cannot be enforced under applicable law or if the
Mortgage Loan does not contain a due-on-sale clause, the Servicer is authorized
to consent to a conveyance subject to the lien of the Mortgage, and to take or
enter into an assumption agreement from or with the Person to whom such property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the related Mortgage Note and unless prohibited by applicable state
law, such Mortgagor remains liable thereon. In connection with any such
assumption, no material term of the related Mortgage Note may be changed. The
Servicer shall notify the Indenture Trustee, whenever practicable, before the
completion of such assumption agreement, and shall forward to the Indenture
Trustee the original copy of such assumption agreement, which copy shall be
added by the Indenture Trustee to the related Mortgage File and which shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. Any fee or
additional interest collected by the Servicer for consenting in any such
conveyance or entering into any such assumption agreement may be retained by the
Servicer as additional servicing compensation.
(b) Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.
Section 3.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) The
Servicer shall foreclose upon or otherwise comparably convert the ownership of
properties securing any Mortgage Loans that come into and continue in default
and as to which no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 3.06, except that the Servicer shall not
foreclose upon or otherwise comparably convert a Mortgaged Property if there is
evidence of toxic waste or other environmental hazards thereon unless the
Servicer
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follows the procedures in Subsection (c) below. In connection with such
foreclosure or other conversion, the Servicer shall use reasonable efforts to
preserve REO Property and to realize upon defaulted Mortgage Loans in such a
manner as to maximize the receipt of principal and interest by the Noteholders,
taking into account, among other things, the timing of foreclosure and the
considerations set forth in Subsection 3.13(b). The foregoing is subject to the
proviso that the Servicer shall 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 restoration or foreclosure will
increase Net Liquidation Proceeds, and (ii) that such expenses will constitute
Servicing Advances and will be recoverable to it pursuant to Section 3.07. The
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; PROVIDED, HOWEVER, that it shall be entitled to receive
Foreclosure Profits as additional servicing compensation.
(b) The Trust Estate shall not acquire any real property (or any
personal property incident to such real property) except in connection with a
default or reasonably foreseeable default of a Mortgage Loan. In the event that
the Trust Estate acquires any real property (or personal property incident to
such real property) in connection with a default or imminent default of a
Mortgage Loan, such property shall be disposed of by the Indenture Trustee on
behalf of the Trust Estate within two years after its acquisition by the Trust
Estate.
(c) With respect to any Mortgage Loan as to which the Servicer has
received notice of, or has actual knowledge of, the presence of any toxic or
hazardous substance on the Mortgaged Property, the Servicer shall promptly
notify the Indenture Trustee, the Owner Trustee and the Note Insurer and shall
act in accordance with any such directions and instructions provided by the Note
Insurer, or if a Note Insurer Default exists, by the Indenture Trustee, as
pledgee of the Issuer. Notwithstanding the preceding sentence of this Section
3.13(c), with respect to any Mortgage Loan described by such sentence, the
Servicer shall, if requested by the Note Insurer, obtain and deliver to the
Issuer, the Indenture Trustee and the Note Insurer an environmental audit report
prepared by a Person who regularly conducts environmental audits using customary
industry standards. The Servicer shall be entitled to reimbursement for such
report pursuant to Section 3.07. If the Note Insurer or Indenture Trustee, as
applicable, has not provided directions and instructions to the Servicer in
connection with any such Mortgage Loan within 30 days of a request by the
Servicer for such directions and instructions, then the Servicer shall take such
action as it deems to be in the best economic interest of the Trust Estate
(other than proceeding against the Mortgaged Property) and is hereby authorized
at such time as it deems appropriate to release such Mortgaged Property from the
lien of the related Mortgage. The parties hereto acknowledge that the Servicer
shall not obtain on behalf of the Issuer a deed as a result or in lieu of
foreclosure, and shall not otherwise acquire possession of or title to, or
commence any proceedings to acquire possession of or title to, or take any other
action with respect to, any Mortgaged Property, if the Owner Trustee could
reasonably be considered to be a responsible party for any liability arising
from the presence of any toxic or hazardous substance on the Mortgaged Property,
unless the Owner Trustee has been indemnified to its reasonable satisfaction
against such liability.
Section 3.14. INDENTURE TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE
FILES. (a) Upon payment in full of any Mortgage Loan or the receipt by the
Servicer of a notification that payment
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in full will be escrowed in a manner customary for such purposes, the Servicer
will immediately notify the Indenture Trustee by a certification signed by a
Servicing Officer (which certification shall include a statement to the effect
that all amounts received or to be received in connection with such payment
which are required to be deposited in the Payment Account have been or will be
so deposited) and shall request delivery to the Servicer of the Mortgage File.
Upon receipt of such certification and request, the Indenture Trustee shall
promptly release the related Mortgage File to the Servicer and execute and
deliver to the Servicer, without recourse, the request for reconveyance, deed of
reconveyance or release or satisfaction of mortgage or such instrument releasing
the lien of the Security Instrument (furnished by the Servicer), together with
the Mortgage Note with written evidence of cancellation thereon.
(b) From time to time as is appropriate for the servicing or
foreclosure of any Mortgage Loan or collection under an insurance policy, the
Servicer may deliver to the Indenture Trustee a Request for Release signed by a
Servicing Officer on behalf of the Servicer in substantially the form attached
as Exhibit B hereto. Upon receipt of the Request for Release, the Indenture
Trustee shall deliver the Mortgage File or any document therein to the Servicer
as bailee for the Indenture Trustee.
(c) The Servicer shall cause each Mortgage File or any document therein
released pursuant to Subsection 3.14(b) to be returned to the Indenture Trustee
when the need therefor no longer exists, unless the Mortgage Loan has become a
Liquidated Mortgage Loan and the Net Liquidation Proceeds relating to the
Mortgage Loan have been deposited in the Collection Account. Prior to return of
a Mortgage File or any document to the Indenture Trustee, the Servicer shall
retain such file or document in its constructive control as bailee for the
Indenture Trustee. If a Mortgage Loan becomes a Liquidated Mortgage Loan, the
Indenture Trustee shall deliver the Request for Release with respect thereto to
the Servicer upon deposit of the related Net Liquidation Proceeds in the
Collection Account.
(d) The Indenture Trustee shall execute and deliver to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to (i)
the foreclosure or trustee's sale with respect to a Mortgaged Property; (ii) any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Security Instrument; (iii) obtain a deficiency judgment against the
Mortgagor; or (iv) enforce any other rights or remedies provided by the Mortgage
Note or Security Instrument or otherwise available at law or equity. Together
with such documents or pleadings, the Servicer shall deliver to the Indenture
Trustee a certificate of a Servicing Officer in which it requests the Indenture
Trustee to execute the pleadings or documents.
Section 3.15. SERVICING COMPENSATION. (a) As compensation for its
activities hereunder, the Servicer shall be entitled to receive the Servicing
Fee with respect to each Mortgage Loan. The Servicer shall be solely responsible
for paying any and all fees with respect to a Subservicer and the Trust Estate
shall not bear any fees, expenses or other costs directly associated with any
Subservicer.
(b) The Servicer may retain additional servicing compensation in the
form of [conversion fees, if any, with respect to a Converted Mortgage Loan,]
prepayment charges, if any,
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tax service fees, fees for statement of account or payoff, late payment charges,
bad check charges, assumption fees, modification fees or any other
servicing-related fees, to the extent such fees are collected from the related
Mortgagors, and Foreclosure Profits. The Servicer shall be required to pay all
expenses it incurs in connection with its servicing activities under this
Agreement and shall not be entitled in connection with its servicing activities
under this Agreement to reimbursement except as provided in this Servicing
Agreement.
Section 3.16. ANNUAL STATEMENTS OF COMPLIANCE. Within 120 days after
December 31 of each year, commencing December ____, the Servicer at its own
expense shall deliver to the Indenture Trustee, with a copy to the Note Insurer
and the Rating Agencies, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Servicer during the
preceding calendar year and of performance under this Agreement has been made
under such officer's supervision, (ii) to the best of such officer's knowledge,
based on such review, the Servicer has fulfilled all of its obligations under
this Agreement for such year, or, if there has been a default in the fulfillment
of any such obligation, specifying each such default known to such officer and
the nature and status thereof including the steps being taken by the Servicer to
remedy such default.
Section 3.17. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
(a) Within 120 days after December 31 of each year, commencing December ____,
the Servicer, at its expense, shall cause a nationally recognized firm of
independent certified public accountants to furnish to the Servicer a report
stating that (i) it has obtained a letter of representation regarding certain
matters from the management of the Servicer which includes an assertion that the
Servicer has complied with certain minimum mortgage loan servicing standards
identified in the Uniform Single Attestation Program for Mortgage Bankers
established by the Mortgage Bankers Association of America with respect to the
servicing of residential mortgage loans during the most recently completed
calendar year and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that may be
appropriate. In rendering its report such firm may rely, as to matters relating
to the direct servicing of residential mortgage loans by Subservicers, upon
comparable reports of firms of independent certified public accountants rendered
on the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Subservicers.
Immediately upon receipt of such report, the Servicer shall furnish a copy of
such report to the Indenture Trustee, the Rating Agencies and the Note Insurer.
Section 3.18. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS [AND
MANDATORY REPURCHASE OF CONVERTED MORTGAGE LOANS]. The Servicer may repurchase
any Mortgage Loan delinquent in payment for a period of 90 days or longer for a
price equal to the Repurchase Price. [In addition, the Servicer shall be
obligated to repurchase any Converted Mortgage Loan at a price equal to the
Repurchase Price therefor.] The Repurchase Price for any Mortgage Loan purchased
hereunder shall be deposited by the Servicer in the Collection Account and the
Indenture Trustee, upon receipt of a Request for Release and confirmation of
such deposit from the Servicer in the form of Exhibit B, shall release or cause
to be released to the purchaser of such Mortgage Loan the related Mortgage File
and shall execute and deliver such instruments of transfer or assignment
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prepared by the purchaser of such Mortgage Loan, in each case without recourse,
representation or warranty, as shall be necessary to vest in the purchaser of
such Mortgage Loan any Mortgage Loan released pursuant hereto. [Notwithstanding
the foregoing, the Indenture Trustee, whether acting as Indenture Trustee or in
the capacity of successor Servicer, shall have no obligation to repurchase any
Converted Mortgage Loan].
Section 3.19. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by Section 6050J, Section 6050H (reports relating to
mortgage interest received) and Section 6050P of the Code (reports relating to
cancellation of indebtedness).
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ARTICLE IV
SERVICING CERTIFICATE; ACCOUNTS; ADVANCES
Section 4.01. REMITTANCE REPORTS. Not later than the close of business
(Chicago time) on each Determination Date, the Servicer shall deliver to the
Indenture Trustee a report, prepared as of the close of business on the
Determination Date (the "Servicer's Report"), in the form of an electromagnetic
tape or disk (or such other form and format mutually agreeable to the Servicer
and the Indenture Trustee) containing the information set forth in Exhibit C
hereto as to each Mortgage Loan as of the end of the preceding Due Period and
such other information as the Indenture Trustee may reasonably require.
The determination by the Servicer of the amounts set forth in the
Servicer's Report shall, in the absence of obvious error, be presumptively
deemed to be correct for all purposes hereunder and the Owner Trustee and
Indenture Trustee shall be protected in relying upon the same without any
independent verification.
Section 4.02. DISTRIBUTION OF ACCOUNTS. On each Payment Date, amounts
on deposit in the Payment Account will be distributed by the Indenture Trustee
in accordance with Section 8.02 of the Indenture, and amounts on deposit in the
Certificate Distribution Account shall be distributed by the Certificate Paying
Agent in accordance with Section 5.01 of the Trust Agreement.
Section 4.03. INVESTMENT OF ACCOUNTS. The Indenture Trustee shall, upon
written request from the Servicer, invest or cause the institution maintaining
the Collection Account, Pre-Funding Account, Capitalized Interest Account and
Payment Account (collectively, the "Trust Accounts") to invest the funds therein
in Eligible Investments designated in the name of the Indenture Trustee, which
shall mature not later than the Business Day next preceding the Payment Date
next following the date of such investment (except that (i) any investment in
the institution with which any Trust Account is maintained may mature on such
Payment Date and (ii) any other investment may mature on such Payment Date if
the Indenture Trustee shall advance funds on such Payment Date to the related
Trust Account in the amount payable on such investment on such Payment Date,
pending receipt thereof to the extent necessary to make distributions on the
Notes) and shall not be sold or disposed of prior to maturity. All income and
gain realized from any such investment shall be for the benefit of the Servicer.
The amount of any net losses incurred with respect to any such investments shall
be deposited in the related Trust Account by the Servicer.
Section 4.04. ADVANCES. If any Monthly Payment on a Mortgage Loan that
was due on the immediately preceding Due Date and delinquent on the
Determination Date is delinquent other than as a result of application of the
Relief Act, the Servicer on such Determination Date will deposit in the
Collection Account an amount equal to the interest portion (net of the Servicing
Fee) of the scheduled Monthly Payment for such Mortgage Loan, except to the
extent the Servicer determines any such advance to be a Nonrecoverable Advance.
Subject to the foregoing and in the absence of such a determination, the
Servicer shall continue to make such advances through the date that the related
Mortgage Loan has, in the judgment of the Servicer, become a Liquidated Mortgage
Loan. If applicable, prior to each Determination Date, the Servicer shall
deliver an
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Officer's Certificate to the Indenture Trustee stating that the Servicer elects
not to make an Advance in a stated amount or that an Advance previously made has
become a Nonrecoverable Advance. The Indenture Trustee shall forward a copy of
such Officer's Certificate to the Note Insurer. In lieu of making all or a
portion of such Advance from its own funds, the Servicer may (i) cause to be
made an appropriate entry in its records relating to the Collection Account that
any amount held in the Collection Account and not required for distribution on
the immediately succeeding Payment Date has been used by the Servicer in
discharge of its obligation to make any such Advance and (ii) transfer such
funds from the Collection Account to the Payment Account. Any funds so applied
and transferred shall be replaced by the Servicer by deposit in the Collection
Account no later than the close of business on the Determination Date
immediately preceding the Payment Date on which such funds are required to be
distributed pursuant to the Indenture.
Section 4.05. COMPENSATING INTEREST PAYMENTS. The Servicer shall
deposit in the Collection Account not later than the Determination Date an
amount equal to the Compensating Interest related to such Determination Date.
The Servicer shall not be entitled to any reimbursement of any Compensating
Interest payment.
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ARTICLE V
THE SERVICER
Section 5.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 5.02. MERGER OR CONSOLIDATION. Any corporation into which the
Servicer may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any corporation succeeding to the business of the
Servicer, shall be the successor of the Servicer, hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 5.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors, officers, employees or agents
shall be under any liability to the Depositor, the Issuer, the Owner Trustee,
the Indenture Trustee, the Note Insurer, the Certificateholders or the
Noteholders for any action taken or for refraining from the taking of any action
in good faith pursuant to this Servicing Agreement, PROVIDED, HOWEVER, that this
provision shall not protect the Servicer or any such Person against any
liability which would otherwise be imposed by reason of its willful misfeasance,
bad faith or gross negligence in the performance of its duties hereunder or by
reason of its reckless disregard of its obligations and duties hereunder. The
Servicer and any director, officer, employee or agent of the Servicer may rely
in good faith on any document of any kind PRIMA FACIE properly executed and
submitted by any Person respecting any matters arising hereunder. The Servicer
and any director, officer, employee or agent of the Servicer shall be
indemnified by the Trust Estate and held harmless against any loss, liability or
expense incurred in connection with any legal action relating to this Servicing
Agreement or the Notes, including any amount paid to the Owner Trustee or the
Indenture Trustee pursuant to Section 5.06, other than any loss, liability or
expense related to any specific Mortgage Loan or Mortgage Loans (except as any
such loss, liability or expense shall be otherwise reimbursable pursuant to this
Servicing Agreement) and any loss, liability or expense incurred by reason of
its willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder or by reason of its reckless disregard of its obligations and
duties hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Servicing Agreement, and
which in its opinion may involve it in any expense or liability; PROVIDED,
HOWEVER, that the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable in respect of this Servicing Agreement,
and the rights and duties of the parties hereto and the interests of the
Noteholders hereunder. In such event, the reasonable legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Estate, and the Servicer shall be entitled to be
reimbursed therefor. The Servicer's right to indemnity or reimbursement pursuant
to this Section 5.03 shall survive any resignation or termination of the
Servicer pursuant to Section 5.04 or 6.01 with respect to any losses, expenses,
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costs or liabilities arising prior to such resignation or termination (or
arising from events that occurred prior to such resignation or termination).
Section 5.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 3.02 and Section 5.02, the Servicer shall not assign or resign from the
obligations and duties hereby imposed on it except (i) upon determination that
the performance of its obligations or duties here under are no longer
permissible under applicable law as evidenced by an Opinion of Counsel to such
effect delivered to the Indenture Trustee and the Note Insurer or (ii) upon
satisfaction of the following conditions: (a) the Servicer has proposed a
successor servicer to the Issuer, the Note Insurer and the Indenture Trustee in
writing and such proposed successor servicer is acceptable; and (b) each Rating
Agency shall have confirmed in writing that the proposed appointment of such
successor servicer as Servicer hereunder will not result in the qualification,
reduction or withdrawal of the then current rating of the Notes; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Loans, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Loans, shall have designated a successor servicer in accordance
with Section 6.02. Any such resignation shall not relieve the Servicer of
responsibility for any of the obligations specified in Sections 6.01 and 6.02 as
obligations that survive the resignation or termination of the Servicer.
Section 5.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the Servicer complies pursuant to
Section 3.01. Such delegation shall not relieve the Servicer of its liabilities
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 5.04.
Section 5.06. INDEMNIFICATION. The Servicer shall indemnify and hold
harmless the Owner Trustee, the Indenture Trustee and the Note Insurer and its
officers, directors, agents and employees from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of the Servicer's
willful misfeasance, bad faith or negligence in the performance of its
activities in servicing or administering the Mortgage Loans pursuant to this
Agreement, including, but not limited to, any judgment, award, settlement,
reasonable fees and other costs or expenses incurred resulting from the
Servicer's misfeasance, bad faith or negligence. Any such indemnification shall
not be payable from the assets of the Trust Estate. The provisions of this
indemnity shall run directly to and be enforceable by an injured party specified
above subject to the limitations hereof. The provisions of this Section 5.06
shall survive termination of this Servicing Agreement.
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ARTICLE VI
DEFAULT
Section 6.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default") shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account any deposit required to be made under the terms of
this Agreement, including any Advances and Compensating Interest, which
continues unremedied for a period of two Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Depositor, the Issuer or the Indenture Trustee or to
the Servicer, the Depositor, the Issuer and the Indenture Trustee by
the Note Insurer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in this Servicing Agreement, which failure, in
each case, materially and adversely affects the interests of
Noteholders or the Note Insurer and which continues unremedied for a
period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied, and stating that such
notice is a "Notice of Default" hereunder, shall have been given to the
Servicer by the Depositor, the Issuer or the Indenture Trustee or to
the Servicer, the Depositor, the Issuer and the Indenture Trustee by
the Note Insurer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceed ings, 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 90 consecutive days; or
(iv) The Servicer shall commence a voluntarily case in
bankruptcy, consent to the appointment of a conservator, receiver,
liquidator or similar person in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to all or substantially all
of its property; or the Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations;
then, so long as a Servicing Default shall not have been remedied by the
Servicer, either the Issuer, subject to the direction of the Indenture Trustee
as pledgee of the Mortgage Loans, with the consent of the Note Insurer, or the
Note Insurer, or if a Note Insurer Default exists, the holders of at least 51%
of the aggregate Note Principal Balance of the Notes, by notice then given in
writing to the Servicer (and to the Indenture Trustee and the Issuer if given by
the Note Insurer) may, by notice to the Servicer, terminate all of the rights
and obligations of the Servicer as
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servicer under this Servicing Agreement other than its right to receive
servicing compensation and reimbursement for expenses for servicing the Mortgage
Loans hereunder during any period prior to the date of such termination and the
Depositor, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Loans, with the consent of the Note Insurer, or the Note Insurer may
exercise any and all other remedies available at law or equity. Any such notice
to the Servicer shall also be given to each Rating Agency, the Note Insurer, the
Depositor and the Issuer. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Servicing
Agreement shall pass to and be vested in the Indenture Trustee, and, without
limitation, the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan and Related Documents, or otherwise. The Servicer agrees to cooperate with
the Indenture Trustee in effecting the termination of the responsibilities and
rights of the Servicer hereunder, including, without limitation, the transfer to
the Indenture Trustee for the adminis tration by it of all cash amounts relating
to the Mortgage Loans that shall at the time be held by the Servicer and
required to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive all amounts payable to the
Servicer hereunder the entitlement to which arose prior to the termination of
its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 6.01(i) or Section 6.01(ii) after the applicable grace periods
specified in such Sections shall not constitute a Servicing Default if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the Servicer and such delay or failure was caused by an act of God, acts of
declared or undeclared war, public disorder, rebellion or sabotage, epidemics,
landslides, lightning, fire, hurricanes, earthquakes, floods or similar causes.
The preceding sentence shall not relieve the Servicer from using reasonable
efforts to perform its respective obligations in a timely manner in accordance
with the terms of this Agreement and the Servicer shall provide the Indenture
Trustee, the Note Insurer and the Noteholders with notice of such failure or
delay by it, together with a description of its efforts to so perform its
obligations. The Servicer shall immediately notify the Indenture Trustee, the
Note Insurer and the Owner Trustee in writing of any Servicing Default.
Section 6.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 6.01 or sends a notice pursuant to Section 5.04, the Indenture Trustee
on behalf of the Noteholders and the Note Insurer shall be the successor in all
respects to the Servicer in its capacity as servicer under this Servicing
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, including but not
limited to the provisions of Article VIII. Nothing in this Servicing Agreement
shall be construed to permit or require the Indenture Trustee to (i) succeed to
the responsibilities, duties and liabilities of the initial Servicer in its
capacity as the Seller under
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<PAGE>
the Mortgage Loan Purchase Agreement, (ii) be responsible or accountable for any
act or omission of the Servicer prior to the issuance of a notice of termination
hereunder, (iii) require or obligate the Indenture Trustee, in its capacity as
successor Servicer, to purchase, repurchase or substitute any Mortgage Loan,
(iv) fund any losses on any Eligible Investment directed by any other Servicer,
or (v) be responsible for the representations and warranties of the Servicer;
PROVIDED, HOWEVER, that the Indenture Trustee, as successor Servicer, shall be
required to make any Advances to the extent that the Servicer failed to make
such Advances. As compensation therefor, the Indenture Trustee shall be entitled
to such compensation as the Servicer would have been entitled to hereunder if no
such notice of termination had been given (other than compensation accruing
prior to the notice of termination). Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Noteholders and the Note Insurer may (in the situation described in
clause (i)) or shall (in the situation described in clause (ii)) appoint or
petition a court of competent jurisdiction to appoint any established housing
and home finance institution, bank or other mortgage loan servicer having a net
worth of not less than $10,000,000 as the successor to the Servicer hereunder in
the assumption of all or any part of the responsibili ties, duties or
liabilities of the Servicer hereunder; PROVIDED, that any such successor
Servicer shall be acceptable to the Note Insurer, as evidenced by the Note
Insurer's prior written consent and provided further that each Rating Agency
shall have confirmed in writing that the appointment of any such successor
Servicer will not result in the qualification, reduction or withdrawal of the
ratings assigned to the Notes by the Rating Agencies. Pending appointment of a
successor to the Servicer hereunder, unless the Indenture Trustee is prohibited
by law from so acting, the Indenture Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation in an amount equal to the
compensation which the Servicer would otherwise have received pursuant to
Section 3.15 (or such lesser compensation as the Indenture Trustee and such
successor shall agree). The appointment of a successor Servicer shall not affect
any liability of the predecessor Servicer which may have arisen under this
Servicing Agreement prior to its termination as Servicer, nor shall any
successor Servicer be liable for any acts or omissions of the predecessor
Servicer or for any breach by such Servicer of any of its representations or
warranties contained herein or in any Related Document or agreement. The
Indenture Trustee and such successor shall take such action, consistent with
this Servicing Agreement, as shall be necessary to effectuate any such
succession.
(b) Any successor Servicer, including the Indenture Trustee on behalf
of the Noteholders, shall not be deemed to be in default or to have breached its
duties hereunder if the predecessor Servicer shall fail to deliver any required
deposit to the Collection Account or otherwise cooperate with any required
servicing transfer or succession hereunder.
Section 6.03. NOTIFICATION TO NOTEHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Noteholders, the Note Insurer, the Owner Trustee, the Depositor, the Issuer
and each Rating Agency.
Section 6.04. WAIVER OF DEFAULTS. The Indenture Trustee shall transmit
by mail to all Noteholders and the Note Insurer, promptly after the occurrence
of any Servicing Default known
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<PAGE>
to the Indenture Trustee, unless such Servicing Default shall have been cured,
notice of each such Servicing Default hereunder known to the Indenture Trustee.
The Note Insurer, or if a Note Insurer Default exists, the holders of at least
51% of the aggregate Note Principal Balance of the Notes may waive any default
by the Servicer in the performance of its obligations hereunder and the
consequences thereof, except a default under Section 6.01(i), which shall
require the waiver of all Noteholders. Upon any such waiver of a past default,
such default shall be deemed to cease to exist, and any Servicing Default
arising therefrom shall be deemed to have been timely remedied for every purpose
of this Servicing Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon except to the extent
expressly so waived. The Servicer shall give notice of any such waiver to the
Rating Agencies.
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<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto (i) without the consent of any other Person,
to cure any ambiguity or correct by defective or inconsistent provisions herein
or (ii) otherwise with the consent of the Note Insurer, or if a Note Insurer
Default exists, if each Rating Agency has confirmed in writing that such
amendment will not result in the qualification, reduction or withdrawal of the
then-rating of the Notes.
Section 7.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 7.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to:
(a) in the case of the Servicer: ___________________________
___________________________
___________________________
Attention:
(b) in the case of the Note Insurer: ___________________________
___________________________
___________________________
Attention:
(c) in the case of Rating Agencies: ___________________________
___________________________
___________________________
Attention:
___________________________
___________________________
___________________________
Attention:
(d) in the case of the Owner Trustee,
the Corporate Trust Office: ___________________________
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<PAGE>
___________________________
___________________________
Attention:
(e) in the case of the Issuer,
to AFC Trust, Series _____-___: c/o Superior Bank FSB
___________________________
___________________________
Attention:
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. Any notice required or permitted to be
mailed to a Noteholder shall be given by first class mail, postage prepaid, at
the address of such Noteholder as shown in the Note Register. Any notice so
mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Noteholder
receives such notice.
Section 7.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Notes or the rights of the Noteholders thereof.
Section 7.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the Noteholders,
the Note Insurer, the Owner Trustee, the Indenture Trustee and their respective
successors and permitted assigns. Except as otherwise provided in this Servicing
Agreement, no other Person will have any right or obligation hereunder. The
Indenture Trustee shall have the right to exercise all rights of the Issuer
under this Agreement.
Section 7.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 7.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 7.08. TERMINATION. (a) The respective obligations and
responsibilities of the Servicer and the Issuer created hereby shall terminate
upon the satisfaction and discharge of the Indenture pursuant to Section 4.10
thereof.
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<PAGE>
(b) On each Determination Date as of which the Pool Balance is equal to
or less than 10% of the Initial Pool Balance, the Servicer shall have the option
to purchase all of the Mortgage Loans and REO Properties by depositing into the
Collection Account pursuant to Section 3.06 an amount equal to the sum of (i)
aggregate outstanding Pool Balance and accrued and unpaid interest thereon at
the weighted average of the Mortgage Rates (net of the Servicing Fee) at the end
of the Due Period preceding the final Payment Date and (ii) the fair market
value of each REO Property (the "Termination Price"), and the Servicer shall
succeed to all interests in and to the Mortgage Loans and REO Properties. In
connection with any such purchase, the Servicer shall deposit in the Payment
Account all amounts then on deposit in the Collection Account (less amounts
permitted to be withdrawn by the Servicer pursuant to Section 3.07) including
the Termination Price, which deposit shall be made on the Determination Date
before the final Payment Date.
(c) As described in Article VIII of the Trust Agreement, notice of any
termination of the Trust shall be given by the Servicer to the Owner Trustee,
the Indenture Trustee and the Note Insurer as soon as practicable after the
Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes and all amounts
owed to the Note Insurer, the Certificateholders will succeed to the rights of
the Noteholders hereunder and the Owner Trustee will succeed to the rights of,
and assume the obligations of, the Indenture Trustee pursuant to this Agreement.
Section 7.09. NO PETITION. The Servicer, by entering into this
Servicing Agreement, hereby covenants and agrees that it will not at any time
institute against the Issuer, or join in any institution against the Issuer, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations of the Issuer. This section shall
survive the termination of this Servicing Agreement by one year.
Section 7.10. NO RECOURSE. The Servicer acknowledges that no recourse
may be had against the Issuer, except as may be expressly set forth in this
Servicing Agreement.
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<PAGE>
ARTICLE VIII
[ADMINISTRATIVE DUTIES OF THE SERVICER
Section 8.01. ADMINISTRATIVE DUTIES. (i) In addition to the
duties of the Servicer set forth in this Servicing Agreement or any of the Basic
Documents, the Servicer shall perform such calculations and shall prepare or
cause to be prepared for execution by the Issuer or the Owner Trustee all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee to prepare, file or deliver
pursuant to this Servicing Agreement or any of the Basic Documents or under
state and federal tax and securities laws, and at the request of the Owner
Trustee or the Note Insurer shall take all appropriate action that it is the
duty of the Issuer to take pursuant to this Servicing Agreement or any of the
Basic Documents. In accordance with the directions of the Indenture Trustee, the
Note Insurer or the Owner Trustee, the Servicer shall administer, perform or
supervise the performance of such other activities of the Issuer in connection
with the Basic Documents as are not covered by any of the foregoing provisions
and as are expressly requested by the Indenture Trustee, the Note Insurer or the
Owner Trustee and are reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Servicing
Agreement or any of the Basic Documents to the contrary, the Servicer shall be
responsible for promptly notifying the Owner Trustee and the Note Insurer in the
event that any withholding tax is imposed on the Issuer's payments (or
allocations of income) to an Owner (as defined in the Trust Agreement) as
contemplated in Section 5.03 of the Trust Agreement. Any such notice shall be in
writing and specify the amount of any withholding tax required to be withheld by
the Owner Trustee pursuant to such provision.
(iii) In carrying out the foregoing duties or any of
its other obligations under this Servicing Agreement, the Servicer may enter
into transactions with or otherwise deal with any of its Affiliates; PROVIDED,
HOWEVER, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in the
Servicer's opinion, no less favorable to the Issuer in any material respect than
with terms made available to unrelated third-parties.
(c) TAX MATTERS. The Servicer shall prepare and file (or cause
to be prepared and filed), on behalf of the Owner Trustee, all tax returns and
information reports, tax elections, financial statements and such annual or
other reports of the Issuer as are necessary for preparation of tax returns and
information reports as provided in Section 5.03 of the Trust Agreement,
including without limitation Form 1099. All tax returns and information reports
shall be signed by the Owner Trustee as provided in Section 5.03 of the Trust
Agreement.
(d) NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Servicer are non-ministerial, the Servicer shall
not take any action pursuant to this Article VIII unless within a reasonable
time before the taking of such action, the Servicer shall have notified the
Owner Trustee, the Note Insurer and the Indenture Trustee of the proposed action
and the Owner Trustee, the Note Insurer and, with respect to items (A), (B), (C)
and (D)
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<PAGE>
below, the Indenture Trustee shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include:
(A) the amendment of or any supplement to the
Indenture;
(B) the initiation of any claim or lawsuit by the
Issuer and the compromise of any action, claim or lawsuit
brought by or against the Issuer (other than in connection
with the collection of the Mortgage Loans);
(C) the amendment, change or modification of this
Servicing Agreement pursuant to Section 7.01(ii) hereof or any
of the Basic Documents;
(D) the appointment of successor Certificate Paying
Agents and successor Indenture Trustees pursuant to the
Indenture or the appointment of successor Servicers or the
consent to the assignment by the Certificate Registrar, Paying
Agent or Trustee of its obligations under the Indenture; and
(E) the removal of the Indenture Trustee.
Section 8.02. RECORDS. The Servicer shall maintain appropriate
books of account and records relating to services performed under this Servicing
Agreement, which books of account and records shall be accessible for inspection
by the Issuer and the Note Insurer at any time during normal business hours upon
reasonable prior written notice.
Section 8.03. ADDITIONAL INFORMATION TO BE FURNISHED. The
Servicer shall furnish to the Issuer and the Note Insurer from time to time such
additional information regarding the Mortgage Loans as the Issuer or the Note
Insurer shall reasonably request.]
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<PAGE>
IN WITNESS WHEREOF, the Servicer and the Issuer have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
_________________________,
as Servicer
By /s/
----------------------------------
Name:
Title:
AFC TRUST SERIES _____-____
as Issuer
________________________, not in its
capacity but solely as Owner Trustee
By /s/
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT B
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Loans, we request the
release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full
Mortgage Loan Repurchased
Mortgage Loan in Foreclosure
Other:_____________________
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/Indenture Trustee: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Primary Insurance Policy
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
_____________________
Name
_____________________
Title
_____________________
Date
<PAGE>
EXHIBIT C
SERVICER'S REPORT
EXHIBIT 4.4
<PAGE>
EXHIBIT 4.4
================================================================================
SUPERIOR BANK FSB,
as Depositor
and
[OWNER TRUSTEE],
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of _____________, 19___
------------------------------------------
AFC TRUST Series _____-__
AFC Trust Certificates,
Series _____-__
================================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Section Page
<S> <C> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
1.01. DEFINITIONS................................................................................1
1.02. OTHER DEFINITIONAL PROVISIONS..............................................................1
ARTICLE II
ORGANIZATION.............................................................................................3
2.01. NAME.......................................................................................3
2.02. OFFICE.....................................................................................3
2.03. PURPOSES AND POWERS........................................................................3
2.04. APPOINTMENT OF OWNER TRUSTEE...............................................................4
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE.........................................4
2.06. DECLARATION OF TRUST.......................................................................4
2.07. LIABILITY OF THE HOLDERS OF THE CERTIFICATES...............................................4
2.08. TITLE TO TRUST PROPERTY....................................................................4
2.09. SITUS OF TRUST.............................................................................5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR............................................5
2.11. RESERVED...................................................................................6
2.12. INVESTMENT COMPANY.........................................................................6
ARTICLE III
CONVEYANCE OF THE MORTGAGE LOANS;
CERTIFICATES............................................................................................7
3.01. RESERVED...................................................................................7
3.02. INITIAL OWNERSHIP..........................................................................7
3.03. THE CERTIFICATES...........................................................................7
3.04. AUTHENTICATION OF CERTIFICATES.............................................................7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF CERTIFICATES...................7
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.........................................10
3.07. PERSONS DEEMED CERTIFICATEHOLDERS.........................................................10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES.................................10
3.09. MAINTENANCE OF OFFICE OR AGENCY...........................................................11
3.10. CERTIFICATE PAYING AGENT..................................................................11
ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE...................................................................13
4.01. GENERAL AUTHORITY.........................................................................13
<PAGE>
Section Page
- ------- ----
4.02. GENERAL DUTIES............................................................................13
4.03. ACTION UPON INSTRUCTION...................................................................13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN INSTRUCTIONS................14
4.05. RESTRICTIONS..............................................................................14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS........................14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS..............................15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY...................................15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER.................................................15
4.10. MAJORITY CONTROL..........................................................................16
4.11. OPTIONAL REDEMPTION.......................................................................16
ARTICLE V
APPLICATION OF TRUST FUNDS..............................................................................17
5.01. DISTRIBUTIONS.............................................................................17
5.02. METHOD OF PAYMENT.........................................................................17
5.03. TAX RETURNS...............................................................................18
5.04. STATEMENTS TO CERTIFICATEHOLDERS..........................................................18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE............................................................................19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES...........................................................19
6.02. FURNISHING OF DOCUMENTS...................................................................20
6.03. REPRESENTATIONS AND WARRANTIES............................................................20
6.04. RELIANCE; ADVICE OF COUNSEL...............................................................21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY.........................................................21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS............................22
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES..............................................22
6.08. PAYMENTS FROM OWNER TRUST ESTATE..........................................................22
6.09. DOING BUSINESS IN OTHER JURISDICTIONS.....................................................22
6.10. LIABILITY OF CERTIFICATE REGISTRAR AND CERTIFICATE PAYING AGENT...........................23
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE...........................................................................24
7.01. OWNER TRUSTEE'S FEES AND EXPENSES.........................................................24
7.02. INDEMNIFICATION...........................................................................24
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT..........................................................................26
<PAGE>
SECTION PAGE
8.01. TERMINATION OF TRUST AGREEMENT............................................................26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................28
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE................................................28
9.02. REPLACEMENT OF OWNER TRUSTEE..............................................................28
9.03. SUCCESSOR OWNER TRUSTEE...................................................................28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE..................................................29
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.............................................29
ARTICLE X
MISCELLANEOUS...........................................................................................31
10.01. AMENDMENTS................................................................................31
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE......................................................32
10.03. LIMITATIONS ON RIGHTS OF OTHERS...........................................................32
10.04. NOTICES...................................................................................33
10.05. SEVERABILITY..............................................................................33
10.06. SEPARATE COUNTERPARTS.....................................................................33
10.07. SUCCESSORS AND ASSIGNS....................................................................33
10.08. NO PETITION...............................................................................33
10.09. NO RECOURSE...............................................................................34
10.10. HEADINGS..................................................................................34
10.11. GOVERNING LAW.............................................................................34
10.12. INTEGRATION...............................................................................34
Signatures ......................................................................................................40
EXHIBIT
Exhibit A - Form of Certificate.................................................................................A-1
Exhibit B - Certificate of Trust of AFC Trust Series _____-__...................................................B-1
Exhibit C - Form of Rule 144A Investment Representation.........................................................C-1
Exhibit D - Form of Certificate of Non-Foreign Status...........................................................D-1
Exhibit E - Form of Investment Letter...........................................................................E-1
Exhibit F - Form of Transfer Certificate........................................................................F-1
</TABLE>
<PAGE>
This Trust Agreement, dated as of _________________, 19___ (as amended
from time to time, this "Trust Agreement"), between Superior Bank FSB, as
depositor (the "Depositor") and [OWNER TRUSTEE, a Delaware banking corporation],
as owner trustee (the "Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in Appendix A to the Indenture, dated _________________,
19___, between AFC Trust Series _____-__, as Issuer, and [INDENTURE TRUSTEE], as
Indenture Trustee, which is incorporated by referenced herein. All other
capitalized terms used herein shall have the meanings specified herein.
Section 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Article,
Section and Exhibit references contained in this Trust Agreement are references
to Articles, Sections and Exhibits in or to this Trust Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
<PAGE>
-2-
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
<PAGE>
-3-
ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "AFC Trust Series _____-__", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Notes and
the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Loans pursuant to the Indenture and to hold, manage and
distribute to the Certificateholder pursuant to Section 5.01 any
portion of the Mortgage Loans released from the Lien of, and remitted
to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) if directed by holders of Certificates representing more
than 50% of the beneficial interests in the Trust, sell the Trust
Estate subsequent to the discharge of the Indenture, all for the
benefit of the holders of the Certificates;
(vi) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vii) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholder and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents.
<PAGE>
-4-
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the Trust the receipt in trust of the Mortgage Loans
and the rights with respect to the representations and warranties made by the
Seller under the Mortgage Loan Purchase Agreement which shall constitute the
Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a "business trust"
under the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for federal and state income and state and local franchise tax
purposes, the Trust shall not be treated as (i) an association subject
separately to taxation as a corporation, (ii) a "publicly traded partnership" as
defined in Treasury Regulation Section 1.7704-1 or (iii) a "taxable mortgage
pool" as defined in Section 7701(i) of the Code, and that the Notes shall be
debt, and the provisions of this Agreement shall be interpreted to further this
intention. Except as otherwise provided in this Trust Agreement, the rights of
the Certificateholders will be those of equity owners of the Trust. Effective as
of the date hereof, the Owner Trustee shall have all rights, powers and duties
set forth herein and in the Business Trust Statute with respect to accomplishing
the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDERS OF THE CERTIFICATES. The Holders
of the Certificates shall be jointly and severally liable directly to and shall
indemnify any injured party for all losses, claims, damages, liabilities and
expenses of the Trust and the Owner Trustee (including Expenses, to the extent
not paid out of the Owner Trust Estate); provided, however, that the Holders of
the Certificates shall not be liable for payments required to be made on the
Notes or the Certificates, or for any losses incurred by a Certificateholder in
the capacity of an investor in the Certificates or a Noteholder in the capacity
of an investor in the Notes. The Holders of the Certificates shall be liable for
and shall promptly pay any entity level taxes imposed on the Trust. In addition,
any third party creditors of the Trust shall be deemed third party beneficiaries
of this paragraph. The obligations of the Holders of the Certificates under this
paragraph shall be evidenced by the Certificates.
Section 2.08. TITLE TO TRUST PROPERTY. Except with respect to the
Mortgage Loans, which will be assigned of record to the Indenture Trustee
pursuant to the Indenture, legal title to the Owner Trust Estate shall be vested
at all times in the Trust as a separate legal entity except where applicable law
in any jurisdiction requires title to any part of the Owner Trust Estate to be
vested
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in a trustee or trustees, in which case title shall be deemed to be vested in
the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of California. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
California, and payments will be made by the Trust only from Delaware, New York
or California. The only office of the Trust will be at the Corporate Trust
Office in Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is a federally chartered stock savings
bank duly organized, validly existing and in good standing under the
laws of the United States, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted.
(ii) The Depositor is duly qualified to do business and in
good standing and has obtained all necessary licenses and approvals in
all jurisdictions in which the ownership or lease of its property or
the conduct of its business shall require such qualifications and in
which the failure to so qualify would have a material adverse effect on
the business, properties, assets or condition (financial or other) of
the Depositor.
(iii) The Depositor has the power and authority to execute
and deliver this Trust Agreement and to carry out its terms; the
Depositor has full power and authority to convey and assign the
property to be conveyed and assigned to and deposited with the Trust as
part of the Owner Trust Estate and the Depositor has duly authorized
such conveyance and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance
of this Trust Agreement have been duly authorized by the Depositor by
all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state
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regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties.
Section 2.11. RESERVED.
Section 2.12. INVESTMENT COMPANY. Neither the Depositor nor any Holder
of a Certificate shall take any action which would cause the Trust to become an
"investment company" which would be required to register under the Investment
Company Act.
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ARTICLE III
CONVEYANCE OF THE MORTGAGE LOANS;
CERTIFICATES
Section 3.01. RESERVED.
Section 3.02. INITIAL OWNERSHIP. [Upon the formation of the Trust by
the contribution by the Depositor pursuant to Section 2.05, the Depositor shall
be the initial Certificateholder].
Section 3.03. THE CERTIFICATES. [REVISE AS APPROPRIATE The Certificates
shall be issued in the form of one or more Certificates each representing not
less than a 10% Certificate Percentage Interest.] The Certificates shall
initially be registered in the name of Superior Bank FSB. Each Class of
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. The Owner Trustee shall
cause all Certificates issued hereunder to be executed and authenticated on
behalf of the Trust, delivered to or upon the written order of the Depositor,
signed by its chairman of the board, its president or any vice president,
without further corporate action by the Depositor, in authorized denomi nations.
No Certificate shall entitle its holder to any benefit under this Trust
Agreement or be valid for any purpose unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee or the Certificate Registrar by
manual signature; such authentication shall constitute conclusive evidence that
such Certificate shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
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[_________________________] shall be the initial Certificate Registrar. If the
Certificate Registrar resigns or is removed, the Owner Trustee shall appoint a
successor Certificate Registrar.
Subject to satisfaction of the conditions set forth below with respect
to the Certificates, upon surrender for registration of transfer of any
Certificate at the office or agency maintained pursuant to Section 3.09, the
Owner Trustee or the Certificate Registrar shall execute, authenticate and
deliver in the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Owner Trustee or the Certificate Registrar. At the
option of a Holder, Certificates may be exchanged for other Certificates of
authorized denominations of a like aggregate amount upon surrender of the
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit D hereto.
[No transfer, sale, pledge or other disposition of a Certificate shall
be made unless such transfer, sale, pledge or other disposition is exempt from
the registration requirements of the Securities Act and any applicable state
securities laws or is made in accordance with said Act and laws. In the event of
any such transfer, the Certificate Registrar or the Depositor shall prior to
such transfer require the transferee to execute (A) either (i) (a) an investment
letter in substantially the form attached hereto as Exhibit C (or in such form
and substance reasonably satisfactory to the Certificate Registrar and the
Depositor) which investment letters shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Servicer or the Depositor and
which investment letter states that, among other things, such transferee (a) is
a "qualified institutional buyer" as defined under Rule 144A, acting for its own
account or the accounts of other "qualified institutional buyers" as defined
under Rule 144A, and (b) is aware that the proposed transferor intends to rely
on the exemption from registration requirements under the Securities Act of
1933, as amended, provided by Rule 144A or (ii) (a) a written Opinion of Counsel
acceptable to and in form and substance satisfactory to the Certificate
Registrar and the Depositor that such transfer may be made pursuant to an
exemption, describing the applicable exemption and the basis therefor, from said
Act and laws or is being made pursuant to said Act and laws, which Opinion
<PAGE>
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of Counsel shall not be an expense of the Trust, the Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor and (b) the transferee
executes a representation letter, substantially in the form of Exhibit D hereto,
and the transferor executes a representation letter, substantially in the form
of Exhibit E hereto, each acceptable to and in form and substance satisfactory
to the Certificate Registrar and the Depositor certifying the facts surrounding
such transfer, which representation letters shall not be an expense of the
Trust, the Owner Trustee, the Certificate Registrar, the Servicer or the
Depositor and (B) the Certificate of Non-Foreign Status (in substantially the
form attached hereto as Exhibit D) acceptable to and in form and substance
reasonably satisfactory to the Certificate Registrar and the Depositor, which
certificate shall not be an expense of the Trust, the Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trust, the Owner Trustee, the Certificate Registrar, the Servicer
and the Depositor against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.]
[No transfer of Certificates or any interest therein shall be made to
any employee benefit plan or certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject to
ERISA, or Section 4975 of the Code (collectively, "Plan"), any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with "plan assets" of a Plan within the meaning of the Department
of Labor regulation promulgated at 29 C.F.R. ss.2510.3-101 ("Plan Assets")
unless the Depositor, the Owner Trustee, the Certificate Registrar and the
Servicer are provided with an Opinion of Counsel which establishes to the
satisfaction of the Depositor, the Owner Trustee, the Certificate Registrar and
the Servicer that the purchase of Certificates is permissible under applicable
law, will not constitute or result in any prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the Owner Trustee,
the Certificate Registrar or the Servicer to any obligation or liability
(including obligations or liabilities under ERISA or Section 4975 of the Code)
in addition to those undertaken in this Agreement, which Opinion of Counsel
shall not be an expense of the Depositor, the Owner Trustee, the Certificate
Registrar or the Servicer. In lieu of such Opinion of Counsel, a Plan, any
Person acting, directly or indirectly, on behalf of any such Plan or any Person
acquiring such Certificates with Plan Assets of a Plan may provide a
certification in the form of Exhibit G to this Agreement, which the Depositor,
the Owner Trustee, the Certificate Registrar and the Servicer may rely upon
without further inquiry or investigation. Neither an Opinion of Counsel nor a
certification will be required in connection with the initial transfer of any
such Certificate by the Depositor to an affiliate of the Depositor (in which
case, the Depositor or any affiliate thereof shall have deemed to have
represented that such affiliate is not a Plan or a Person investing Plan Assets
of any Plan) and the Owner Trustee shall be entitled to conclusively rely upon a
representation (which, upon the request of the Owner Trustee, shall be a written
representation) from the Depositor of the status of such transferee as an
affiliate of the Depositor.]
[No offer, sale, transfer, pledge, hypothecation or other disposition
(including any pledge, sale or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made
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to any transferee unless, prior to such disposition, the proposed transferor
delivers to the Owner Trustee an Opinion of Counsel, rendered by a law firm
generally recognized to be qualified to opine concerning the tax aspects of
asset securitization, to the effect that such transfer (including any
disposition permitted following any default under any pledge or repurchase
transaction) will not cause the Trust to be (i) treated as an association
taxable as a corporation for federal income tax purposes, (ii) taxable as a
taxable mortgage pool as defined in Section 7701(i) of the Code or (iii) taxable
as a "publicly traded partnership" as defined in Treasury Regulation section
1.7704-1. Notwithstanding the foregoing, the provisions of this paragraph shall
not apply to the initial transfer of the Certificates to the Depositor.]
[No offer, sale, transfer or other disposition (including pledge) of
any Certificate shall be made to any Affiliate of the Depositor or the Issuer,
other than the initial transfer of the Certificates to the Depositor.]
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity as
may be reasonably required by them to save each of them harmless, then in the
absence of notice to the Certificate Registrar or the Owner Trustee that such
Certificate has been acquired by a bona fide purchaser, the Owner Trustee shall
execute on behalf of the Trust and the Owner Trustee or the Certificate
Registrar, shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and denomination. In connection with the issuance of any new Certificate
under this Section 3.06, the Owner Trustee or the Certificate Registrar may
require the payment of a sum sufficient to cover any expenses of the Owner
Trustee or the Certificate Registrar (including fees and expenses of counsel)
and any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section 3.06 shall
constitute conclusive evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most
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recent Record Date. Each Holder, by receiving and holding a Certificate, shall
be deemed to have agreed not to hold any of the Trust, the Depositor, the
Certificate Registrar or the Owner Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certifi cates and the
Basic Documents may be served. The Owner Trustee initially designates [the
Corporate Trust Office] as its office for such purposes. The Owner Trustee shall
give prompt written notice to the Depositor and the Certificateholders of any
change in the location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints [______________________________] as
Certificate Paying Agent and [_______________________________] hereby accepts
such appointment and further agrees that it will be bound by the provisions of
this Trust Agreement relating to the Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the
Trust of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay to
the Owner Trustee on behalf of the Trust all sums so held in Trust by
such Certificate Paying Agent;
(iv) not resign from its position as Certificate Paying
Agent except that it shall immediately resign as Certificate Paying
Agent and forthwith pay to the Owner Trustee on behalf of the Trust all
sums held by it in trust for the payment of Certificates if at any time
it ceases to meet the standards under this Section 3.10 required to be
met by the Certificate Paying Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes
<PAGE>
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imposed thereon and with respect to any applicable reporting
requirements in connection therewith; and
(vi) not institute bankruptcy proceedings against the
Issuer in connection with this Trust Agreement.
(b) The Trust may revoke such power and remove the Certificate Paying
Agent if it determines in its sole discretion that the Certificate Paying Agent
shall have failed to perform its obligations under this Trust Agreement in any
material respect. In the event that [__________________________] shall no longer
be the Certificate Paying Agent under this Trust Agreement and Paying Agent
under the Indenture, the Owner Trustee shall appoint a successor to act as
Certificate Paying Agent (which shall be a bank or trust company) and which
shall also be the successor Paying Agent under the Indenture. The Owner Trustee
shall cause such successor Certificate Paying Agent or any additional
Certificate Paying Agent appointed by the Owner Trustee to execute and deliver
to the Owner Trustee an instrument to the effect set forth in this Section 3.10
as it relates to the Certificate Paying Agent. The Certificate Paying Agent
shall return all unclaimed funds to the Trust and upon removal of a Certificate
Paying Agent such Certificate Paying Agent shall also return all funds in its
possession to the Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01
shall apply to the Certificate Paying Agent to the extent applicable. Any
reference in this Agreement to the Certificate Paying Agent shall include any
co-paying agent unless the context requires otherwise.
(c) The Certificate Paying Agent, for the benefit of the
Certificateholders, shall estab lish and maintain with itself a trust account
(the "Certificate Distribution Account") in which the Indenture Trustee,
pursuant to the terms of the Indenture, shall deposit payments, if any, made
pursuant to the Indenture on each Payment Date. The establishment of the
Certificate Distribution Account shall be evidenced by a letter agreement in the
form of Exhibit E hereto. The Certificate Paying Agent shall make all
distributions to Certificates, from moneys on deposit in the Certificate
Distribution Account, in accordance with Section 5.01 hereof.
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, as evidenced
conclusively by the Owner Trustee's execution thereof. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, except
as otherwise provided in this Trust Agreement, to take all actions required of
the Trust pursuant to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is required to decide between
alternative courses of action permitted or required by the terms of this Trust
Agreement or under any Basic Document, or in the event that the Owner Trustee is
unsure as to the application of any provision of this Trust Agreement or any
Basic Document or any such provision is ambiguous as to its application, or is,
or appears to be, in conflict with any other applicable provision, or in the
event that this Trust Agreement permits any determination by the Owner Trustee
or is silent or is incomplete as to the course of action that the Owner Trustee
is required to take with respect to a particular set of facts, the Owner Trustee
shall promptly give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction as to the course
of action to be adopted, and to the extent the Owner Trustee acts in good faith
in accordance with any written instruction of the Certificateholders, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within 10 days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action not
inconsistent with this Trust Agreement or the Basic
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Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee or the Depositor (or
an Affiliate thereof) shall not take any action (x) that is inconsistent with
the purposes of the Trust set forth in Section 2.03 or (y) that, to the actual
knowledge of the Owner Trustee based on an Opinion of Counsel rendered by a law
firm generally recognized to be qualified to opine concerning the tax aspects of
asset securitization, would result in the Trust becoming taxable as a
corporation for federal income tax purposes or (z) would result in the amendment
or modification of the Basic Documents or this Trust Agreement without the prior
written consent of the Note Insurer, if required. The Certificateholders shall
not direct the Owner Trustee to take action that would violate the provisions of
this Section 4.05.
(b) [The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel rendered by a law
firm generally recognized to be qualified to opine concerning the tax aspects of
asset securitization to the effect that such transaction will not have any
material adverse tax consequence to the Trust or any Certificateholder and (b)
such conveyance or transfer shall not violate the provisions of Section 3.16(b)
of the Indenture.]
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee
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in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Loans) and the compromise of any action, claim or
lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Loans);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
and
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Note Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, to (a) remove the Servicer under the Servicing
Agreement in accordance with Section 6.01 thereof or (b) except as expressly
provided in the Basic Documents, sell the Mortgage Loans after the termination
of the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and the consent of the Note Insurer, the Noteholders and the
Owner Trustee and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. This paragraph shall survive
for one year following termination of this Trust Agreement.
Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Trust Agreement
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or any of the Basic Documents or would be contrary to Section 2.03, nor shall
the Owner Trustee be obligated to follow any such direction, if given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the Percentage Interests in the Certificates. Except as expressly
provided herein, any written notice of the Certificateholders delivered pursuant
to this Trust Agreement shall be effective if signed by Holders of Certificates
evidencing not less than a majority of the Percentage Interests in the
Certificates at the time of the delivery of such notice.
Section 4.11. OPTIONAL REDEMPTION. Upon receipt of written instructions
provided to the Owner Trustee by the Holder or Holders of 100% of the
Certificates, the Owner Trustee shall cause the Issuer to redeem the Notes in
accordance with Section 8.07 of the Indenture and shall provide all necessary
notices on behalf of the Issuer to effect the foregoing, provided that such
Holder or Holders shall deposit with the Indenture Trustee an amount equal to
the aggregate redemption price specified under Section 8.07 of the Indenture
Trustee solely to make such redemption payments. The Owner Trustee shall not
have the power to exercise the right of the Issuer to redeem the Notes pursuant
to [Section 8.07] of the Indenture, except as provided above.
<PAGE>
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. [REVISE AS APPROPRIATE] (a)(i) On each
Payment Date, the Certificate Paying Agent shall distribute to the
Certificateholders all funds on deposit in the Certificate Distribution Account
and available for distribution on such Payment Date in the following order of
priority, in each case to the extent of amounts available in the Certificate
Distribution Account:
(A) first, to the Owner Trustee, in respect of any amount
owing to the Owner Trustee hereunder and in respect of any Expenses of
the Trust remaining unpaid pursuant to Section 2.11 of this Agreement;
and
(B) second, to the Certificateholders, on a pro rata basis
based on each Certificateholder's Percentage Interest, the remainder of
amounts available.
(ii) In the event that the Certificate Paying Agent receives amounts in
connection with Section 5.04 of the Indenture, such amounts shall be distributed
in the order of priority set forth in (a)(i) above.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Noteholders and the Note Insurer.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
100% of the Certificates, wire transfer in immediately available funds to the
account of such Holder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder shall have provided to the Certificate
Registrar appropriate written
<PAGE>
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instructions at least five Business Days prior to such Payment Date or, if not,
by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
Section 5.03. TAX RETURNS. [REVISE AS APPROPRIATE] [The Owner Trustee
shall cause the Servicer to (a) maintain (or cause to be maintained) the books
of the Trust on a calendar year basis using the accrual method of accounting,
(b) deliver (or cause to be delivered) to each Certificateholder as may be
required by the Code and applicable Treasury Regulations, such information as
may be required to enable each Certificateholder to prepare its federal and
state income tax returns, (c) prepare and file or cause to be prepared and filed
such tax returns relating to the Trust as may be required by the Code and
applicable Treasury Regulations (making such elections as may from time to time
be required or appropriate under any applicable state or federal statutes, rules
or regulations) and (d) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.01 of this Trust Agreement with
respect to income or distributions to Certificateholders and prepare or cause to
be prepared the appropriate forms relating thereto. The Owner Trustee shall sign
all tax and information returns prepared or caused to be prepared by the
Servicer pursuant to this Section 5.03 at the request of the Servicer, and in
doing so shall rely entirely upon, and shall have no liability for information
or calculations provided by, the Servicer.]
Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Indenture Trustee pursuant to Section 7.05 of the Indenture with respect to
such Payment Date.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be liable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct, gross negligence or bad faith or
grossly negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Certificateholders permitted under this Trust Agreement;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate, or for or in respect of the validity
or sufficiency of the Basic Documents, the Notes, the Certificates, other than
the certificate of authentication on the Certificates, if executed by the Owner
Trustee and the Owner Trustee shall in no event assume or incur any liability,
duty, or obligation to any Noteholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
<PAGE>
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(f) The Owner Trustee shall not be liable for the default or misconduct
of the Depositor, Indenture Trustee, Certificate Registrar or the Servicer under
any of the Basic Documents or otherwise and the Owner Trustee shall have no
obligation or liability to perform the obligations of the Trust under this Trust
Agreement or the Basic Documents that are required to be performed by the
Indenture Trustee under the Indenture or the Seller under the Sale and Servicing
Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its gross negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement;
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf;
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound;
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner
<PAGE>
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Trustee, enforceable against it in accordance with the terms hereof subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the enforcement of creditors' rights generally and to general
principles of equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
(e) The Owner Trustee is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder; and
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement.
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, note, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Trust hereunder and in the
performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VI, in accepting the trusts hereby created [OWNER TRUSTEE] acts
solely as Owner Trustee here under and not in its individual capacity, and all
Persons having any claim against the Owner
<PAGE>
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Trustee by reason of the transactions contemplated by this Trust Agreement or
any Basic Document shall look only to the Owner Trust Estate for payment or
satisfaction thereof.
Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Notes, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Certificateholders under this Trust Agreement or the Noteholders
under the Indenture, including compliance by the Depositor or the Seller with
any warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, or any action
of the Certificate Paying Agent, the Certificate Registrar or the Indenture
Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES. The Owner
Trustee in its individual or any other capacity may, subject to Section 3.05,
become the owner or pledgee of Certificates or Notes and may deal with the
Depositor, the Seller, the Certificate Paying Agent, the Certificate Registrar
and the Indenture Trustee in transactions with the same rights as it would have
if it were not Owner Trustee.
Section 6.08. PAYMENTS FROM OWNER TRUST ESTATE. All payments to be made
by the Owner Trustee under this Trust Agreement or any of the Basic Documents to
which the Owner Trustee is a party shall be made only from the income and
proceeds of the Owner Trust Estate or from other amounts required to be provided
by the Certificateholders and only to the extent that the Owner Trust shall have
received income or proceeds from the Owner Trust Estate or the
Certificateholders to make such payments in accordance with the terms hereof.
[OWNER TRUSTEE], in its individual capacity, shall not be liable for any amounts
payable under this Trust Agreement or any of the Basic Documents to which the
Owner Trustee is a party.
Section 6.09. DOING BUSINESS IN OTHER JURISDICTIONS. Notwithstanding
anything contained herein to the contrary, neither [OWNER TRUSTEE] nor the Owner
Trustee shall be required to take any action in any jurisdiction other than in
the State of Delaware if the taking of such action will, even after the
appointment of a co-trustee or separate trustee in accordance with Section 9.05
hereof, (i) require the consent or approval or authorization or order of or the
giving of notice to, or the registration with or the taking of any other action
in respect of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware; (ii) result in any fee, tax or
other governmental charge under the laws of the State of Delaware becoming
payable by [OWNER TRUSTEE]; or (iii) subject [OWNER TRUSTEE] to personal
jurisdiction in any jurisdiction other than the State of Delaware for causes of
action arising from acts unrelated to the consummation of the transactions by
[OWNER TRUSTEE] or the Owner Trustee, as the case may be, contemplated hereby.
<PAGE>
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Section 6.10. LIABILITY OF CERTIFICATE REGISTRAR AND CERTIFICATE PAYING
AGENT. All provisions affording protection to or limiting the liability of the
Owner Trustee shall inure as well to the Certificate Registrar and Certificate
Paying Agent.
<PAGE>
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed by the Depositor or the Servicer for its reasonable expenses
hereunder and under the Basic Documents, including the reasonable compensation,
expenses and disbursements of such agents, representatives, experts and counsel
as the Owner Trustee may reasonably employ in connection with the exercise and
performance of its rights and its duties hereunder and under the Basic
Documents. The amount of the Owner Trustee Fee shall be paid by the Servicer
pursuant to Section 3.07(a)(ii) of the Servicing Agreement and Section 2.11
hereof, and all amounts owing to the Owner Trustee hereunder in excess of such
amount shall be paid pursuant to a separate agreement or as provided in Section
5.01 hereof.
Section 7.02. INDEMNIFICATION. The Depositor shall indemnify, defend
and hold harmless the Owner Trustee and the Certificate Paying Agent, solely in
its capacity as Certificate Paying Agent, and their respective successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reason able legal fees and expenses) of any kind and nature
whatsoever (collectively, "Expenses") which may at any time be imposed on,
incurred by, or asserted against any Indemnified Party in any way relating to or
arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee and the Certificate Paying Agent, solely in its capacity as
Certificate Paying Agent, hereunder, provided, that:
(i) the Depositor shall not be liable for or required
to indemnify an Indemnified Party from and against Expenses arising or
resulting from the Owner Trustee's or the Certificate Paying Agent's
willful misconduct, gross negligence or bad faith or as a result of any
inaccuracy of a representation or warranty of the Owner Trustee
contained in Section 6.03 expressly made by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified
Party shall have given the Depositor written notice thereof promptly
after the Indemnified Party shall have actual knowledge thereof;
(iii) while maintaining control over its own defense, the
Depositor shall consult with the Indemnified Party in preparing such
defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Depositor shall not be liable for settlement of any claim
by an Indemnified Party entered into without the prior consent of the
Depositor which consent shall not be unreasonably withheld.
<PAGE>
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The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the Certificate Paying Agent or the
termination of this Trust Agreement. In the event of any claim, action or
proceeding for which indemnity will be sought pursuant to this Section 7.02, the
Owner Trustee's or the Certificate Paying Agent's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee or the Certificate
Paying Agent in connection with the execution and delivery of this Trust
Agreement, shall be subject to the approval of the Depositor, which approval
shall not be unreasonably withheld. In addition, upon written notice to the
Owner Trustee or the Certificate Paying Agent and with the consent of the Owner
Trustee or the Certificate Paying Agent which consent shall not be unreasonably
withheld, the Depositor has the right to assume the defense of any claim, action
or proceeding against the Owner Trustee or the Certificate Paying Agent.
<PAGE>
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. [(a) This Trust Agreement
(other than Article VII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) the final distribution of all moneys or
other property or proceeds of the Owner Trust Estate in accordance with the
terms of the Indenture and this Trust Agreement, (ii) the distribution of all of
the assets of the Owner Trust Estate, in accordance with written instructions
provided to the Owner Trustee by Holders of 100% of the Certificates, following
the optional redemption of the Notes by the Issuer pursuant to Section 8.07 of
the Indenture; provided in each case that all amounts owing to the Noteholders
and the Note Insurer to the extent payable from the Owner Trust Estate or
proceeds thereof have been paid in full and that all obligations under the
Indenture have been discharged. The bankruptcy, liquidation, dissolution, death
or incapacity of any Certifi cateholder shall not (x) operate to terminate this
Trust Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.]
(b) Except as provided in Section 8.01(a), neither the Depositor nor
any Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Note Insurer mailed within five Business Days of receipt of notice of
the final payment on the Notes from the Indenture Trustee, stating (i) the
Payment Date upon or with respect to which final payment of the Certificates
shall be made upon presentation and surrender of the Certificates at the office
of the Certificate Paying Agent therein designated, (ii) the amount of any such
final payment and (iii) that the Record Date otherwise applicable to such
Payment Date is not applicable, payments being made only upon presentation and
surrender of the Certificates at the office of the Certificate Payment Agent
therein specified. The Certificate Paying Agent shall give such notice to the
Owner Trustee and the Certificate Registrar at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates, the
Certificate Paying Agent shall cause to be distributed to Certificateholders
amounts distributable on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation,
<PAGE>
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the Certificate Paying Agent may take appropriate steps, or may appoint an agent
to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Certif icates, and the cost thereof shall be paid
out of the funds and other assets that shall remain subject to this Trust
Agreement. Any funds remaining in the Certificate Distribution Account after
exhaustion of such remedies shall be distributed by the Certificate Paying Agent
to the Holder of the Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
<PAGE>
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least [_____] or is
otherwise acceptable to the Rating Agencies and the Note Insurer. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
this Section 9.01, the Owner Trustee shall resign immediately in the manner and
with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Indenture Trustee, the Note Insurer and
the Depositor. Upon receiving such notice of resignation, the Depositor shall
promptly appoint a successor Owner Trustee with the consent of the Note Insurer,
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Owner Trustee and to the successor Owner Trustee. If
no successor Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Depositor or the Note Insurer, or if at any time
the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt
or insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Depositor may remove the Owner Trustee
with the consent of the Note Insurer.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until accep tance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Indenture Trustee and to its predecessor Owner Trustee an instrument accepting
such appointment under this Trust
<PAGE>
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Agreement, and thereupon the resignation or removal of the predecessor Owner
Trustee shall become effective, and such successor Owner Trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor under this Trust Agreement,
with like effect as if originally named as Owner Trustee. The predecessor Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee all documents and statements and monies held by it under this
Trust Agreement; and the predecessor Owner Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor Owner Trustee all
such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Owner Trustee shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Note Insurer and the Rating
Agencies.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Owner Trustee
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons to act as co-trustee, jointly with the Owner Trustee, or as
separate trustee or trustees, of all or any part of the Owner Trust Estate, and
to vest in such Person, in such capacity, such title to the Trust or any part
thereof and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Owner Trustee may consider
necessary or desirable. No co-trustee or separate trustee under this Trust
Agreement shall be required to meet the terms of eligibility as a successor
Owner Trustee pursuant to Section 9.01 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 9.03.
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Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Owner Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
<PAGE>
-31-
ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel addressed to the Owner Trustee and obtained by the
Servicer to the effect that such amendment (i) complies with the provisions of
this Section and (ii) would not cause the Trust (if Superior Bank FSB were not
the Holder of 100% of the Certificates) to be subject to an entity level tax for
federal income tax purposes.
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) confirmation in writing from each of the Rating Agencies that the amendment
will not result in the qualification, downgrading or withdrawal of the rating
then assigned to any Note or (B) an Opinion of Counsel obtained by the Servicer
to the effect that such action will not adversely affect in any material respect
the interests of any Holders.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding, it shall
not be necessary to obtain the consent of any Holder, but the Owner Trustee
shall be furnished with an Opinion of Counsel obtained by the Servicer that such
amendment is necessary or helpful to prevent the imposition of such taxes and is
not materially adverse to any Holder.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of this Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel obtained by the
Servicer to the effect that such action will not adversely affect in any
material respect the interests of any Holders, (B) the consent of the Note
Insurer and (C) either (a) confirmation in writing from each of the Rating
Agencies that the amendment will not result in the qualification, downgrading or
withdrawal of the rating then assigned to any Note or (b) the consent of Holders
of Certificates evidencing a majority of the Percentage Interests in the
Certificates and the Indenture Trustee; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments received that are required to be distributed on any Certificate without
the consent of the related Certificateholder, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not be required.
<PAGE>
-32-
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of any Holder, but the Owner Trustee shall be
furnished with (A) an Opinion of Counsel obtained by the Servicer to the effect
that such action will not adversely affect in any material respect the interests
of any Holders and (B) confirmation in writing from each of the Rating Agencies
that the amendment will not result in the qualification, downgrading or
withdrawal of the rating then assigned to any Note.
(g) Promptly after the execution of any such amendment or consent, the
Servicer shall furnish written notification of the substance of such amendment
or consent to each Certificate holder, the Indenture Trustee, the Note Insurer
and each of the Rating Agencies. It shall not be necessary for the consents
required pursuant to this Section 10.01 to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and any
other consents provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate solely by virtue of their status as a Certificateholder. The
Certificateholders shall be entitled to receive distributions with respect to
their undivided beneficial interest therein only in accordance with Articles V
and VIII. No transfer, by operation of law or otherwise, of any right, title or
interest of the Certificateholders to and in their ownership interest in the
Owner Trust Estate shall operate to terminate this Trust Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Certificateholders, the Note Insurer, and, to
the extent expressly provided herein, the Indenture Trustee and the Noteholders,
and nothing in this Trust Agreement (other than Section 2.07), whether express
or implied, shall be construed to give to any other Person any legal or
equitable
<PAGE>
-33-
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt, to the Owner Trustee at: [OWNER TRUSTEE,
________________________________; Attention: ________________________]; to the
Depositor at: Superior Bank FSB, One Lincoln Centre, Oakbrook Terrace, Illinois
60181; Attention: President; to the Indenture Trustee and the Certificate Paying
Agent at: ________________________________; Attention: AFC Trust Series
_____-__; to [each Rating Agency] [; Note Insurer] or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Note Insurer. Any request, notice, direction, consent, waiver
or other instrument or action by a Certificateholder shall bind the successors
and assigns of such Certificateholder.
Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Notes,
<PAGE>
-34-
this Trust Agreement or any of the Basic Documents. This Section shall survive
for one year following the termination of this Trust Agreement.
Section 10.09. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Seller, the Servicer, the Owner Trustee, the
Indenture Trustee or any Affiliate thereof and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Trust Agreement, the Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
SUPERIOR BANK FSB
By:_________________________________
Name:
Title:
[OWNER TRUSTEE], as Owner Trustee,
By:_________________________________
Name:
Title:
Acknowledged and Agreed:
[___________________________________________],
as Certificate Registrar
and Certificate Paying Agent
By:_________________________________________
Name:
Title:
<PAGE>
A-1
EXHIBIT A
[REVISE AS APPROPRIATE]
Form of Certificate
[Face]
[THIS CERTIFICATE IS SUBORDINATE TO THE NOTES AS DESCRIBED IN THE
INDENTURE.]
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE
REGISTRAR SHALL HAVE RECEIVED AN OPINION OF COUNSEL AS DESCRIBED IN THE TRUST
AGREEMENT.
[NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE
REGISTRAR SHALL HAVE RECEIVED A CERTIFICATE OF NON- FOREIGN STATUS CERTIFYING AS
TO THE TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND
LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM
REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED
TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE
REGISTRAR SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE
TRANSFEREE OF THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN
EMPLOYEE BENEFIT PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A
PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN,
OR (II) IF THIS CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN
SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF
THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE
OF ANY SUCH PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN
TO EFFECT SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE
PURCHASE OR HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE
OWNER TRUST ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE
<PAGE>
A-2
CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
SELLER, THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE, OR THE OWNER TRUSTEE
OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY PROVIDED IN THE TRUST
AGREEMENT OR THE BASIC DOCUMENTS.
<PAGE>
A-3
Certificate No. ___ Certificate Percentage Interest of this
Certificate: _________%
Cut-off Date: ____________, 19___
Date of
Trust Agreement:
____________, 19___
Servicer:
AFC TRUST SERIES _____-__
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Loans held by
AFC Trust Series ___-__ (the "Trust"), a Delaware business trust formed by
SUPERIOR BANK FSB, AS DEPOSITOR, pursuant to the Trust Agreement referred to
below.
This certifies that ________________________ is the registered owner of
the Percentage Interest represented hereby.
The Trust was created pursuant to a Trust Agreement, dated as of
_____________, 19___ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and [OWNER TRUSTEE], as owner trustee (the
"Owner Trustee", which term includes any successor entity under the Trust
Agreement), a summary of certain of the pertinent provisions of which is set
forth hereinafter. This Certificate is issued under and is subject to the terms,
provi sions and conditions of the Trust Agreement, to which Trust Agreement the
Holder of this Certifi cate by virtue of the acceptance hereof assents and by
which such Holder is bound.
This Certificate is one of a duly authorized issue of AFC Trust
Certificates, Series ____-__ (herein called the "Certificates") issued under the
Trust Agreement to which reference is hereby made for a statement of the
respective rights thereunder of the Depositor, the Owner Trustee and the Holders
of the Certificates and the terms upon which the Certificates are executed and
delivered. All terms used in this Certificate which are defined in the Trust
Agreement shall have the meanings assigned to them in the Trust Agreement. The
Owner Trust Estate consists of the Mortgage Loans held by the Trust. The rights
of the Holders of the Certificates are subordinated to the rights of the Holders
of the Notes, as set forth in the Indenture, dated as of __________, 19___ ,
between the Trust and [_______________________], as Indenture Trustee (the
"Indenture")..
<PAGE>
A-4
[There will be distributed on the _____ day of each month or, if such
_____ day is not a Business Day, the next Business Day (each, a "Payment Date"),
commencing on _____________, 19___, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day of the month
preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest in the amount to be distributed to
Certificateholders on such Payment Date.]
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Indenture.
The Depositor and each Certificateholder, by acceptance of a
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for federal, state and local income tax purposes
as an equity interest in the Trust.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
Borough of Manhattan, The City of New York.
No transfer, sale, pledge or other disposition of a [Class ____]
Certificate shall be made unless such transfer, sale, pledge or other
disposition is exempt from the registration requirements of the Securities Act
and any applicable state securities laws or is made in accordance with said
<PAGE>
A-5
Act and laws. [In the event of any such transfer, the Certificate Registrar or
the Depositor shall prior to such transfer require the transferee to execute (A)
either (i) (a) an investment letter in substantially the form attached to the
Agreement as Exhibit C (or in such form and substance reasonably satisfactory to
the Certificate Registrar and the Depositor) which investment letters shall not
be an expense of the Trust, the Owner Trustee, the Certificate Registrar, the
Servicer or the Depositor and which investment letter states that, among other
things, such transferee (a) is a "qualified institutional buyer" as defined
under Rule 144A, acting for its own account or the accounts of other "qualified
institutional buyers" as defined under Rule 144A, and (b) is aware that the
proposed transferor intends to rely on the exemption from registration
requirements under the Securities Act of 1933, as amended, provided by Rule 144A
or (ii) (a) a written Opinion of Counsel acceptable to and in form and substance
satisfactory to the Certificate Registrar and the Depositor that such transfer
may be made pursuant to an exemption, describing the applicable exemption and
the basis therefor, from said Act and laws or is being made pursuant to said Act
and laws, which Opinion of Counsel shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Servicer or the Depositor and (b)
the transferee executes a representation letter, substantially in the form of
Exhibit D to the Agreement, and the transferor executes a representation letter,
substantially in the form of Exhibit E to the Agreement, each acceptable to and
in form and substance satisfactory to the Certificate Registrar, the Servicer
and the Depositor certifying the facts surrounding such transfer, which
representation letters shall not be an expense of the Trust, the Owner Trustee,
the Certificate Registrar, the Servicer or the Depositor and (B) the Certificate
of Non-Foreign Status (in substantially the form attached to the Agreement as
Exhibit D) acceptable to and in form and substance reasonably satisfactory to
the Certificate Registrar and the Depositor, which certificate shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor. The Holder of a Certificate desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trust, the Owner Trustee, the
Certificate Registrar, the Servicer and the Depositor against any liability that
may result if the transfer is not so exempt or is not made in accordance with
such federal and state laws.]
No transfer of Certificates or any interest therein shall be made to
any employee benefit plan or certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject to
ERISA, or Section 4975 of the Code (collectively, "Plan"), any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with "plan assets" of a Plan within the meaning of the Department
of Labor regulation promulgated at 29 C.F.R. ss.2510.3-101 ("Plan Assets")
unless the Depositor, the Owner Trustee, the Certificate Registrar and the
Servicer are provided with an Opinion of Counsel which establishes to the
satisfaction of the Depositor, the Owner Trustee, the Certificate Registrar and
the Servicer that the purchase of Certificates is permissible under applicable
law, will not constitute or result in any prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the Owner Trustee,
the Certificate Registrar or the Servicer to any obligation or liability
(including
<PAGE>
A-6
obligations or liabilities under ERISA or Section 4975 of the Code) in addition
to those undertaken in this Agreement, which Opinion of Counsel shall not be an
expense of the Depositor, the Owner Trustee, the Certificate Registrar or the
Servicer. In lieu of such Opinion of Counsel, a Plan, any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with Plan Assets of a Plan may provide a certification in the form
of Exhibit G to the Agreement, which the Depositor, the Owner Trustee, the
Certificate Registrar and the Servicer may rely upon without further inquiry or
investigation. Neither an Opinion of Counsel nor a certification will be
required in connection with the initial transfer of any such Certificate by the
Depositor to an affiliate of the Depositor (in which case, the Depositor or any
affiliate thereof shall have deemed to have represented that such affiliate is
not a Plan or a Person investing Plan Assets of any Plan) and the Owner Trustee
shall be entitled to conclusively rely upon a representation (which, upon the
request of the Owner Trustee, shall be a written representation) from the
Depositor of the status of such transferee as an affiliate of the Depositor.
No offer, sale, transfer, pledge, hypothecation or other disposition
(including any pledge, sale or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made to any transferee unless,
prior to such disposition, the proposed transferor delivers to the Owner Trustee
an Opinion of Counsel, rendered by a law firm generally recognized to be
qualified to opine concerning the tax aspects of asset securitization, to the
effect that such transfer (including any disposition permitted following any
default under any pledge or repurchase transaction) will not cause the Trust to
be (i) treated as an association taxable as a corporation for federal income tax
purposes, (ii) taxable as a taxable mortgage pool as defined in Section 7701(i)
of the Code or (iii) taxable as a "publicly traded partnership" as defined in
Treasury Regulation section 1.7704-1.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
<PAGE>
A-7
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
[OWNER TRUSTEE],
not in its individual capacity
but solely as Owner Trustee
Dated: ____________, 19___ By:_________________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within mentioned Agreement.
[OWNER TRUSTEE],
not in its individual capacity
but solely as Owner Trustee
By:___________________________________
Authorized Signatory
or____________________________________
as Authenticating Agent of the Trust
By:___________________________________
Authorized Signatory
<PAGE>
A-8
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Loans, all as more specifically set forth herein and in the Trust
Agreement. A copy of the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Depositor and at such other places, if any, designated
by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by an Opinion of Counsel to the Owner
Trustee to the effect that such amendment complies with the provisions of the
Trust Agreement and, if Superior Bank FSB was not the Holder of 100% of the
Certificates, would not cause the Trust to be subject to an entity level tax. If
the purpose of the amendment is to prevent the imposition of any federal or
state taxes at any time that any Security is outstanding, it shall not be
necessary to obtain the consent of the any Holder, but the Owner Trustee shall
be furnished with an Opinion of Counsel that such amendment is necessary or
helpful to prevent the imposition of such taxes and is not materially adverse to
any Holder. If the purpose of the amendment is to add or eliminate or change any
provision of the Trust Agreement, other than as specified in the preceding two
sentences, the amendment shall require the consent of Holders of the
Certificates evidencing a majority of the Percentage Interests of the
Certificates and the Indenture Trustee; PROVIDED, HOWEVER, that no such
amendment shall (i) reduce in any manner the amount of, or delay the time of,
payments received that are required to be distributed on any Certificate without
the consent of the related Certificateholder, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment without the consent of the Holders of all such Certificates then
outstanding.
[As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is ________________________.]
<PAGE>
A-9
Except as provided in the Trust Agreement, the Certificates are
issuable only in a minimum Certificate Percentage Interest of [10]%. As provided
in the Trust Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of authorized denominations
evidencing the same aggregate denomination, as requested by the Holder
surrendering the same. No service charge will be made for any such registration
of transfer or exchange, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate as and when provided in accordance
with the terms of the Trust Agreement.
<PAGE>
A-10
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
________________________________________*/
Signature Guaranteed:
___________________________________*/
- ---------------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE>
A-11
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to _______________________________________________________________________
for the account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
___________________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
<PAGE>
B-1
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
AFC Trust Series _____-__
--------------------------
THIS Certificate of Trust of AFC Trust Series _____-___ (the
"Trust"), dated ________________, 19___, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET
SEQ.). 1. NAME. The name of the business trust formed hereby is AFC Trust Series
________-____.
2. DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
----------------------,
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of ____________, 19___
By:_________________________________________
Name:
<PAGE>
B-2
Title:
<PAGE>
C-1
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of ____________, 19___, between Superior Bank FSB, as
Depositor and ______________________, as Owner Trustee pursuant to [Section
3.05] of the Agreement and __________________________________ as indenture
trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
<PAGE>
C-2
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
<PAGE>
C-3
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
________________________________ ___________________________________
Print Name of Seller Print Name of Buyer
By:_____________________________ By:________________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No._____________________________ No.________________________________
Date:___________________________ Date:______________________________
<PAGE>
C-4
ANNEX 1 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
--------------------------------------------------------
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
<PAGE>
C-5
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
<PAGE>
C-6
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
____________________________________
Print Name of Buyer
<PAGE>
C-7
By:_________________________________
Name:
Title:
Date:_______________________________
<PAGE>
C-8
ANNEX 2 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit Notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements,
<PAGE>
C-9
(v) securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition, the Buyer will only
purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
________________________________________
Print Name of Buyer
By:_____________________________________
Name:
Title:
IF AN ADVISER:
________________________________________
Print Name of Buyer
Date:___________________________________
<PAGE>
D-1
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of ____________, 19___
(the "Trust Agreement"), between Superior Bank FSB, as depositor and [OWNER
TRUSTEE], as Owner Trustee, in connection with the acquisition of, transfer to
or possession by the undersigned, whether as beneficial owner for U.S. federal
income tax purposes (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the AFC Trust Certificates, Series _____-__ (the
"Certificate"). Capitalized terms used but not defined in this certificate have
the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a
non-resident alien for purposes of U.S.
income taxation;
2. My (The Beneficial Owner's) name and home
address are:
_________________________
_________________________
_________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security
Number) is _____________________.
B. Corporate, Partnership or Other Entity as Beneficial
Owner
1. __________________ (Name of the Beneficial
Owner) is not a foreign corporation, foreign
partnership, foreign trust or foreign estate
(as those terms are defined in the Code and
Treasury Regulations;
<PAGE>
D-2
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is
___________________; and
3. The Beneficial Owner's U.S. employer
identification number is ________________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
______ an IRS Form W-9
______ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
<PAGE>
D-3
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
_______________________
Name
_______________________
Title (if applicable)
_______________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
<PAGE>
E-1
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: AFC Trust Series ___-__
AFC Trust Certificates,
Series _____-__, (the "Certificates")
-------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to
<PAGE>
E-2
an exemption from the Act, (2) the purchaser or transferee of such Certificate
has executed and delivered to you a certificate to substantially the same effect
as this certificate, and (3) the purchaser or transferee has otherwise complied
with any conditions for transfer set forth in the Trust Agreement.
Very truly yours,
[TRANSFEREE]
By:__________________________
Authorized Officer
<PAGE>
F-1
EXHIBIT F
TRANSFER CERTIFICATE
--------------------
[OWNER TRUSTEE], as Owner Trustee
_______________________
_______________________
_______________________
[INDENTURE TRUSTEE]
_______________________
_______________________
_______________________
Re: Proposed Transfer of Trust Certificates
---------------------------------------
Gentlemen:
This certification is being made by ______________ (the "Proposed Transferee")
in connection with the proposed Transfer to the Proposed Transferee of a trust
certificate (the "Trust Certificate") representing ___% fractional undivided
interest in AFC Trust Series _____-__ (the "Trust") created pursuant to a Trust
Agreement, dated as of ______________, (the "Deposit Trust Agreement") between
Superior Bank FSB and [OWNER TRUSTEE], as Owner Trustee. Initially capitalized
terms used but not defined herein have the meanings assigned to them in the
Trust Agreement. The Proposed Transferee hereby certifies as follows:
1. The undersigned is a Person involved in the organization or
operation of the Trust or an affiliate of such a Person within the meaning of
Rule 3a-7 of the Investment Company Act.
2. The Proposed Transferee understands that (a) the Trust Certificates
have not been and will not be registered or qualified under the Securities Act,
or the securities laws of any state, (b) neither the Trust nor the Owner Trustee
is required, and neither intends, to so register or qualify the Trust
Certificates, and (c) the Trust Certificates cannot be resold unless (i) they
are registered and qualified under the Securities Act and the applicable state
securities laws or (ii) an exemption from registration and qualification is
available.
3. The Proposed Transferee is acquiring the Trust Certificate for its
own account for investment only and not with a view to or for sale or other
transfer in connection with any
<PAGE>
F-2
distribution of the Trust Certificate in any manner that would violate the
Securities Act or any applicable state securities laws.
4. The Proposed Transferee (a) is an accredited investor having such
knowledge and experience in financial and business matters, and in particular in
such matters related to securities similar to the Trust Certificate, such that
it is capable of evaluating the merits and risks of investment in the Trust
Certificate and (b) is able to bear the economic risks of such an investment.
5. The Proposed Transferee will not authorize nor has it authorized any
person (a) to offer, pledge, sell, dispose of or otherwise transfer any Trust
Certificate, any interest in any Trust Certificate or any other similar security
to any person in any manner, (b) to solicit any offer to buy or to accept a
pledge, disposition or other transfer of any Trust Certificate, any interest in
any Trust Certificate or any other similar security from any person in any
manner, (c) otherwise to approach or negotiate with respect to any Trust
Certificate, any interest in any Trust Certificate or any other similar security
with any person in any manner, (d) to make any general solicitation by means of
general advertising or in any other manner, or (e) to take any other action that
would constitute a distribution of any Trust Certificate under the Securities
Act, that would render the disposition of any Trust Certificate a violation of
Section 5 of the Securities Act or any state securities law, or that could
require registration or qualification pursuant thereto. Neither the Proposed
Transferee nor anyone acting on its behalf has offered any Trust Certificate for
sale or made any general solicitation by means of general advertising or in any
other manner with respect to the Trust Certificate. The Proposed Transferee will
not sell or otherwise transfer any Trust Certificates, except in compliance with
the provisions of the Deposit Trust Agreement.
Date:_____________________ ___________________________________
Name of Proposed Transferee
___________________________________
Signature
___________________________________
Name
___________________________________
Titled
EXHIBIT 5.1
<PAGE>
Exhibit 5.1, 8.1 and 23.1
[LETTERHEAD OF THACHERPROFFITT & WOOD
July 22, 1999
Superior Bank FSB
One Lincoln Centre
Oakbrook Terrace, Illinois 60181
Superior Bank FSB
AFC Mortgage Loan Asset Backed Securities
Registration Statement on Form S-3
-----------------------------------------
Ladies and Gentlemen:
We are counsel to Superior Bank FSB, a federally chartered stock
savings bank (the "Registrant"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of AFC Mortgage Loan Asset
Backed Certificates (the "Certificates") and AFC Mortgage Loan Asset Backed
Notes (the "Notes"; collectively with the Certificates, the "Securities"), and
the related preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). The Certificates are issuable in series under
separate pooling and servicing agreements (each such agreement, a "Pooling and
Servicing Agreement") among the Registrant and a servicer and a trustee to be
identified in the prospectus supplement for such series of Certificates. Each
Pooling and Servicing Agreement will be substantially in the form filed as an
Exhibit to the Registration Statement. The Notes are issuable in series under
separate indentures (each such indenture, an "Indenture"), between an indenture
trustee and an issuer to be formed, each to be identified in the prospectus
supplement for such series of Notes. Each Indenture will be substantially in the
form filed as an Exhibit to the Registration Statement.
In rendering this opinion letter, we have examined the documents
described above and such other documents as we have deemed necessary including,
where we have deemed appropriate, representations or certifications of officers
of parties thereto or public officials.
Our opinions set forth below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality,
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Superior Bank FSB Page 2.
July 22, 1999
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance and injunctive relief, regardless of whether considered in
a proceeding in equity or at law, (ii) the effect of certain laws, regulations
and judicial and other decisions upon the availability and enforceability of
certain covenants, remedies and other provisions, including the remedies of
specific performance and self-help and any provision which purports or is
construed to require waiver of the obligation of good faith, materiality, fair
dealing, diligence or reasonableness or objection to venue or forum, to impose a
penalty or forfeiture or to release, exculpate or exempt a party from, or to
require indemnification of a party for, liability for its own action or inaction
to the extent that the action or inaction includes negligence, recklessness or
willful or unlawful conduct, (iii) bankruptcy, insolvency, receivership,
reorganization, liquidation, voidable preference, fraudulent conveyance and
transfer, moratorium and other similar laws affecting the rights of creditors or
secured parties and (iv) public policy considerations underlying the securities
laws, to the extent that such public policy considerations limit the
enforceability of any provision of any agreement which purports or is construed
to provide indemnification with respect to securities law violations.
In rendering this opinion letter, we do not express any opinion
concerning any laws other than the federal laws of the United States, the laws
of the State of New York and the General Corporation Law of the State of
Delaware. We do not express any opinion with respect to the securities laws of
any jurisdiction or any other matter not specifically addressed in the opinions
expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. Each Pooling and Servicing Agreement will be a valid and
legally binding agreement under the laws of the State of New
York, enforceable thereunder against the parties thereto in
accordance with its terms.
2. Each Indenture, upon the authorization, execution and delivery
thereof by the parties thereto, in connection with the related
series of Certificates, will be a valid and legally binding
agreement under the laws of the State of New York, enforceable
thereunder against the parties thereto in accordance with its
terms.
3. Each series of Certificates, upon the authorization thereof
and the authorization, execution and delivery of the related
Pooling and Servicing Agreement, the execution and
authentication of the offer and sale, those Certificates in
accordance with that Pooling and Servicing Agreement and the
payment therefor and delivery thereof as contemplated in the
Registration Statement and in the prospectus and prospectus
supplement delivered in connection with the offer and sale,
those Certificates, will be legally and validly issued and
outstanding, fully paid and non-assessable and entitled to the
benefits of that Pooling and Servicing Agreement.
4. Each series of Notes, upon the authorization, execution and
delivery of the related Indenture in accordance with the
related Indenture, the execution and authentication thereof in
accordance with the related Indenture and the payment
therefor, and the delivery thereof as contemplated in the
Registration Statement and in the prospectus and prospectus
supplement delivered in connection with the offer and sale no
those
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Superior Bank FSB Page 3.
July 22, 1999
Notes, will be legally and validly issued and outstanding,
fully paid and non-assessable and entitled to the benefits of
that Indenture.
5. The description of federal income tax consequences appearing
under the heading "Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement, while not
purporting to discuss all possible federal income tax
consequences of an investment in the Securities, is accurate
with respect to those tax consequences which are discussed,
and we hereby adopt and confirm that description as our
opinion.
We hereby consent to the filing of this opinion letter as an Exhibit to
the Registration Statement, and to the use of our name in the prospectus and
prospectus supplement included in the Registration Statement under the headings
"Federal Income Tax Consequences" and "Legal Matters", without admitting that we
are "persons" within the meaning of Section 7(a) or 11(a)(4) of the 1933 Act, or
"experts" within the meaning of Section 11 thereof, with respect to any portion
of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
