<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EQCC RECEIVABLES CORPORATION
EQCC ASSET BACKED CORPORATION
(DEPOSITORS OF THE TRUSTS DESCRIBED HEREIN)
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN GOVERNING INSTRUMENTS)
------------------------
10401 DEERWOOD PARK BLVD.
JACKSONVILLE, FLORIDA 32256
(904) 987-5000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
WILLIAM M. ROSS
EQUICREDIT CORPORATION OF AMERICA
10401 DEERWOOD PARK BLVD.
JACKSONVILLE, FLORIDA 32256
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JORDAN M. SCHWARTZ, ESQ. JAMES B. DODD, ESQ. MICHAEL NEDZBALA, ESQ.
CADWALADER, WICKERSHAM & TAFT EQUICREDIT CORPORATION OF AMERICA HUNTON & WILLIAMS
100 MAIDEN LANE 10401 DEERWOOD PARK BLVD. 101 SOUTH TRYON STREET
NEW YORK, NEW YORK 10038 JACKSONVILLE, FLORIDA 32256 CHARLOTTE, NORTH CAROLINA 28280
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE ON OR AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED(2) UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQCC Home Equity Loan Asset
Backed Certificates and
EquiCredit Funding Asset Backed
Certificates(2).................. $1,000,000 100% $1,000,000 $278.00
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</TABLE>
(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE.
(2) THIS REGISTRATION STATEMENT ALSO REGISTERS AN INDETERMINATE AMOUNT OF
SECURITIES TO BE SOLD BY NATIONSBANC MONTGOMERY SECURITIES LLC IN MARKET
MAKING TRANSACTIONS, TO THE EXTENT REQUIRED.
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 THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE OR SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THE PROSPECTUS AND PROSPECTUS SUPPLEMENT CONTAINED IN
THIS REGISTRATION STATEMENT ALSO RELATE TO REGISTRATION STATEMENT NO. 333-48053
PREVIOUSLY FILED BY THE REGISTRANTS.
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<PAGE> 2
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 JANUARY 29, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 199 )
$ (APPROXIMATE)
EQCC HOME EQUITY LOAN TRUST 199
ISSUER
EQCC HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199
EQCC RECEIVABLES CORPORATION
EQCC ASSET BACKED CORPORATION
DEPOSITORS
EQUICREDIT CORPORATION OF AMERICA
SERVICER
A SUBSIDIARY OF
BANKAMERICA CORPORATION
PRINCIPAL AND INTEREST PAYABLE MONTHLY, BEGINNING 199 .
<TABLE>
<CAPTION>
<S> <C>
------------------------------
THE TRUST WILL ISSUE--
CAREFULLY CONSIDER
THE RISK FACTORS - Four classes of certificates, of which the following Class
BEGINNING ON PAGE S-12 A Certificates are offered by this prospectus supplement and
OF THIS PROSPECTUS the accompanying prospectus:
SUPPLEMENT AND ON PAGE 9 IN
THE ACCOMPANYING PROSPECTUS. ORIGINAL PRINCIPAL
CLASS BALANCE PRINCIPAL TYPE INTEREST TYPE
Neither the offered ----- ------------------ -------------- -------------
certificates nor the Class A-1F $ Senior Floating
underlying mortgage Class A-1A $ Senior Floating
loans are insured or
guaranteed by any An expanded summary of the initial class balances,
governmental agency pass-through rates, payment characteristics and ratings of
or instrumentality. all classes of certificates is set forth on page S-4.
The offered THE ASSETS OF THE TRUST WILL INCLUDE--
certificates represent
interests in the trust - A pool of fixed and adjustable rate mortgage loans that
only and will not be were originated or acquired by EquiCredit Corporation of
obligations of or America or an affiliate. All of the mortgage loans are
represent interests in secured by first or second liens on one- to four-family
any other entity. properties.
This prospectus - Any money received on the mortgage loans on and after
supplement may be , 199 (excluding all prepayment penalties and
used to offer and sell premiums under the mortgage loans that are paid to
the offered EquiCredit Corporation of America and interest accrued on
certificates only if it the mortgage loans prior to , 199 ).
is accompanied by - An irrevocable certificate guaranty insurance policy
the prospectus. issued by [Insurer] which will guarantee timely payments of
principal and interest on the Class A Certificates to the
extent described in this prospectus supplement.
------------------------------
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE OFFERED CERTIFICATES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Class A Certificates will be purchased by the underwriters and offered by
the underwriters to investors at varying prices to be determined at the time of
sale. The Depositors expect that the Class A Certificates will be available for
delivery to investors in book-entry form through The Depository Trust Company,
Cedel Bank, societe anonyme or the Euroclear System on , 199 .
------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
[OTHER UNDERWRITER]
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199 .
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The Depositors describe the certificates in two separate documents that
progressively provide more detail:
- the accompanying prospectus, which provides general information,
some of which may not apply to your certificates, and
- this prospectus supplement, which describes the specific terms of
your certificates.
IF THE DESCRIPTION OF THE TERMS OF YOUR CERTIFICATES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references are included 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 and the Table of
Contents included in the accompanying prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Prospectus Supplement Definitions" beginning on page S-56 in
this document and under the caption "Index of Significant Definitions" beginning
on page 98 in the accompanying prospectus. Any capitalized terms used but not
defined in this prospectus supplement have the meanings assigned in the
accompanying prospectus.
---------------------------
This prospectus supplement and the accompanying prospectus contain
forward-looking statements relating to future economic performance or
projections and other financial items. Such forward-looking statements, together
with related qualifying language and assumptions, are found in the material,
including each of the tables, set forth under "Risk Factors" and "Certain Yield
and Prepayment Considerations." Forward-looking statements are also found
elsewhere in this prospectus supplement and the accompanying prospectus, and may
be identified by, among other things, the use of forward-looking words such as
"expects," "intends," "anticipates," "estimates," "believes," "may" or other
comparable words. Such statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results or performance
to differ materially from such forward-looking statements. Those risks,
uncertainties and other factors include, among others, general economic and
business conditions, competition, changes in political, social and economic
conditions, regulatory initiatives and compliance with government regulations,
customer preference and various other matters, many of which are beyond the
Depositors' control. These forward-looking statements speak only as of the date
of this prospectus supplement. The Depositors expressly disclaim any obligation
or undertaking to update or revise forward-looking statements to reflect any
change in the Depositors' expectations or any change in events, conditions or
circumstances on which any forward-looking statement is based.
S-2
<PAGE> 4
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY INFORMATION............... S-5
RISK FACTORS...................... S-12
Risks of the Mortgage Loans..... S-12
Rate of Prepayments May
Adversely Affect Average Life
or Yield of the
Certificates................. S-13
Risks Associated with the
Mortgage Loans............... S-14
Consumer Protection Laws May
Limit Remedies............... S-15
Book-Entry Certificates......... S-15
Year 2000 Readiness
Disclosure................... S-15
DESCRIPTION OF THE MORTGAGE
POOL............................ S-17
General......................... S-17
Fixed Rate Group................ S-17
Adjustable Rate Group........... S-24
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS.................. S-31
THE ORIGINATORS AND THE
SERVICER -- ORIGINATION,
FORECLOSURE AND LOSS
EXPERIENCE...................... S-36
General......................... S-36
Loan Origination History........ S-36
Underwriting Criteria........... S-36
Servicing Portfolio............. S-37
Delinquency and Loss
Experience................... S-37
Outstanding Real Estate Owned... S-38
DESCRIPTION OF THE CERTIFICATES... S-38
General......................... S-38
Book-Entry Registration......... S-39
Distributions................... S-39
Securities Insurance Policy..... S-45
Payment of Certain Expenses..... S-45
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Advances from the Principal and
Interest Account............. S-46
Servicing Compensation.......... S-46
Termination; Purchase of
Mortgage Loans............... S-46
Amendment....................... S-47
THE TRUSTEE....................... S-47
THE SECURITIES INSURANCE POLICY
AND THE INSURER................. S-48
The Insurer..................... S-48
The Securities Insurance
Policy....................... S-49
FEDERAL INCOME TAX CONSEQUENCES... S-50
Taxation of Class A Regular
Interests.................... S-51
Taxation of Basis Risk
Arrangements................. S-51
Termination Payments............ S-52
Application of the Straddle
Rules........................ S-52
ERISA CONSIDERATIONS.............. S-52
LEGAL INVESTMENT.................. S-53
USE OF PROCEEDS................... S-53
UNDERWRITING...................... S-54
SECONDARY MARKET.................. S-55
EXPERTS........................... S-55
RATINGS........................... S-55
LEGAL MATTERS..................... S-55
INDEX OF PROSPECTUS SUPPLEMENT
DEFINITIONS..................... S-56
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES.... Annex I
</TABLE>
S-3
<PAGE> 5
THE EQCC HOME EQUITY LOAN TRUST 199 CERTIFICATES
<TABLE>
<CAPTION>
INITIAL RATING
ORIGINAL PASS-THROUGH OF OFFERED
CLASS PRINCIPAL BALANCE(1) RATE PRINCIPAL TYPES(2) INTEREST TYPES(2) CERTIFICATES(3)
- ----- -------------------- ------------ ------------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OFFERED CERTIFICATES
Class A-1F........... (4) Senior Floating Rate
Class A-1A........... (5) Senior Floating Rate
NON-OFFERED CERTIFICATES
Class X.............. (6) (7) Subordinated Interest Only N/A N/A
Class R.............. (8) (8) (8) (8) N/A N/A
</TABLE>
- ---------------
(1) Approximate. The original principal balances are subject to adjustment as
described herein.
(2) See "Description of the Certificates -- Categories of Classes of
Certificates" in the accompanying prospectus for a description of the
principal and interest categories listed.
(3) A description of the ratings of the Certificates offered by this prospectus
supplement is set forth under the heading "Rating of Certificates" in the
Summary Information and under "Ratings" in the main text of this prospectus
supplement.
(4) During each Accrual Period, interest will accrue on the Class A-1F
Certificates at a rate equal to the lesser of (i) LIBOR as of the related
LIBOR Determination Date plus (a) % per annum on each Payment Date on
or prior to the Optional Purchase Date and (b) % per annum on each
Payment Date following the Optional Purchase Date and (ii) the Class A-1F
Net Funds Cap Rate. See "Description of the
Certificates -- Distributions -- Interest" and "-- Calculation of LIBOR" in
this prospectus supplement.
(5) During each Accrual Period, interest will accrue on the Class A-1A
Certificates at a rate equal to the lesser of (i) LIBOR as of the related
LIBOR Determination Date plus (a) % per annum on each Payment Date on
or prior to the Optional Purchase Date and (b) % per annum on each
Payment Date following the Optional Purchase Date and (ii) the Class A-1A
Net Funds Cap Rate. See "Description of the
Certificates -- Distributions -- Interest" and "-- Calculation of LIBOR" in
this prospectus supplement.
(6) The Class X Certificates are interest-only certificates and have no
principal balance.
(7) On any Payment Date, the Class X Certificates will be entitled to the amount
of Excess Spread on the mortgage loans, except for any portion required to
be retained in or withdrawn from the Spread Account as credit enhancement
for the Class A Certificates. See "Description of the
Certificates -- Distributions -- Spread Account" in this prospectus
supplement.
(8) The Class R Certificates have no principal balance and will not be entitled
to distributions of interest or principal.
S-4
<PAGE> 6
SUMMARY INFORMATION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN
INVESTMENT DECISION. PLEASE READ THIS ENTIRE DOCUMENT (THE "PROSPECTUS
SUPPLEMENT") AND THE ACCOMPANYING PROSPECTUS (THE "PROSPECTUS") CAREFULLY FOR
ADDITIONAL DETAILED INFORMATION ABOUT THE OFFERED CERTIFICATES.
<TABLE>
<S> <C>
RELEVANT PARTIES RELEVANT DATES
ISSUER CLOSING DATE
EQCC Home Equity Loan Trust 199 (the , 199 .
"TRUST" or the "TRUST FUND").
DEPOSITORS CUT-OFF DATE
EQCC Receivables Corporation and EQCC Asset , 199 .
Backed Corporation.
ORIGINATORS PAYMENT DATE
EquiCredit Corporation of America The [fifteenth] day of each month (or, if
("EQUICREDIT" or the "REPRESENTATIVE") and such day is not a business day, the next
certain affiliates of EquiCredit. business day). The first payment date is
, 199 .
SERVICER DETERMINATION DATE
EquiCredit Corporation of America. The [seventh] business day of each month.
TRUSTEE RECORD DATE
[Trustee] The last calendar day of each month
preceding a Payment Date.
INSURER
[Insurer]
RATING AGENCIES
[Rating Agencies].
</TABLE>
S-5
<PAGE> 7
DESCRIPTION OF CERTIFICATES
The EQCC Home Equity Loan Asset Backed Certificates, Series 199 (the
"CERTIFICATES") will be issued on the Closing Date pursuant to a pooling and
servicing agreement to be dated as of , 199 (the "POOLING AND
SERVICING AGREEMENT"), among the Depositors, the Servicer and the Trustee.
The Certificates will consist of:
- the Class A-1F and Class A-1A Certificates (collectively, the "CLASS A
CERTIFICATES");
- the Class X Certificates; and
- the Class R Certificates.
Only the Class A Certificates are being offered by this Prospectus
Supplement and the Prospectus. The Class X and Class R Certificates are not
being offered and will initially be held by the Depositors.
The Class A Certificates will have an approximate aggregate original
principal balance of $ . The approximate original principal balance of
each class of Class A Certificates is set forth on the front cover and may be
increased or decreased by up to 5%.
The Class A Certificates represent interests in the assets of the Trust.
See page S-4 for more information with respect to each class of
Certificates.
THE ASSETS OF THE TRUST
The assets of the Trust will consist primarily of:
- a pool of fixed and adjustable rate residential mortgage loans;
- any money received on the mortgage loans on and after , 199
(excluding all prepayment penalties and premiums under the mortgage loans
that are paid to EquiCredit and interest accrued on the mortgage loans
prior to , 199 );
- an irrevocable certificate guaranty insurance policy issued by [Insurer]
which will guarantee timely payments of principal and interest on the
Class A Certificates to the extent described in this Prospectus
Supplement; and
- certain rights to excess interest deposited in a reserve fund established
by the Trustee (the "SPREAD ACCOUNT").
THE MORTGAGE POOL
The "MORTGAGE POOL" will consist of fixed and adjustable rate mortgage
loans (the "MORTGAGE LOANS"). The Mortgage Loans will consist of promissory
notes (each, a "MORTGAGE NOTE") secured by mortgages, deeds of trust or other
instruments (each, a "MORTGAGE") creating first or second liens on one-to
four-family properties (each, a "MORTGAGED PROPERTY"). All of the Mortgage Loans
were originated or acquired by the Originators.
The Mortgage Pool will be divided into two groups of Mortgage Loans (each,
a "MORTGAGE LOAN GROUP"). The Class A-1F Certificates will have an ownership
interest in a group of fixed-rate Mortgage Loans (the "FIXED RATE GROUP") and
will receive distributions of principal and interest from the Fixed Rate Group.
The Class A-1A Certificates will have an ownership interest in a group of
Mortgage Loans that are subject to periodic interest rate adjustments (the
"ADJUSTABLE RATE GROUP") and will receive distributions of principal and
interest from the Adjustable Rate Group.
The Mortgage Loans will be acquired by the Depositors from the Originators.
Each Depositor will then transfer the Mortgage Loans acquired by it to the Trust
under the Pooling and Servicing Agreement on the Closing Date. See "Description
of the Certificates -- Assignment of the Mortgage Loans" in the Prospectus.
S-6
<PAGE> 8
The Mortgage Pool is expected to have the following approximate
characteristics:
SELECTED MORTGAGE LOAN DATA AS OF , 199
<TABLE>
<CAPTION>
ADJUSTABLE
MORTGAGE POOL FIXED RATE GROUP RATE GROUP
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Number of Mortgage Loans........
Aggregate Unpaid Principal
Balance....................... $ $ $
Range of Unpaid Principal
Balance....................... $ to $ $ to $ $ to $
Percentage of First Lien
Mortgage Loans................ % % %
Percentage of Second Lien
Mortgage Loans................ % % %
Range of Mortgage Interest
Rates......................... % to% % to% % to%
Weighted Average Mortgage
Interest Rate................. % % %
Weighted Average Combined Loan-
to-Value Ratio................ % % %
Range of Remaining Term to
Maturity (in months).......... to to to
Weighted Average Remaining Term
to Maturity (in months).......
Weighted Average Original Term
to Maturity (in months).......
Range of Origination Dates...... to to to
Percentage of Balloon Loans..... % % %
Range of Minimum Mortgage
Interest Rates................ N/A N/A % to%
Weighted Average Minimum
Mortgage Interest Rate........ N/A N/A %
Range of Maximum Mortgage
Interest Rates................ N/A N/A % to%
Weighted Average Maximum
Mortgage Interest Rate........ N/A N/A %
Range of Gross Margins.......... N/A N/A % to%
Weighted Average Gross Margin... N/A N/A %
Number of States with Geographic
Concentration of Mortgaged
Properties in Excess of 5% of
the Aggregate Unpaid Principal
Balance.......................
</TABLE>
CHANGES TO MORTGAGE POOL
The Depositors may remove Mortgage Loans from the Mortgage Pool, or may
make substitutions for certain Mortgage Loans, in advance of the Closing Date.
After the issuance of the Certificates, the Depositors may remove certain
Mortgage Loans from the Mortgage Pool through repurchase or substitution because
of breaches of representations and warranties or defective documentation.
Additional information about the Mortgage Pool appears under "The
Description of the Mortgage Pool" in this Prospectus Supplement.
S-7
<PAGE> 9
PRIORITY OF DISTRIBUTIONS
Distributions to holders of the Certificates (the "CERTIFICATEHOLDERS")
will generally be made from the sum of (i) payments received or advanced on the
Mortgage Loans in the related Mortgage Loan Group, less Servicing Fees and
certain amounts which are reimbursable to the Servicer, (ii) any amounts
available from the Spread Account and (iii) any payments received from the
Insurer.
Distributions will be made on each Payment Date generally in the following
order of priority:
- First, to the Insurer an amount equal to its monthly premium;
- Second, to the Spread Account an amount equal to the Excess Spread;
- Third, to each class of Class A Certificates to pay interest;
- Fourth, to the extent not payable in priority First, to the Insurer an
amount equal to its monthly premium;
- Fifth, concurrently to each class of Class A Certificates to pay
principal;
- Sixth, to the Trustee an amount in payment for its services for such
Payment Date, to the extent not previously paid by the Servicer;
- Seventh, to the Servicer and/or the Representative in payment of certain
unreimbursed expenses;
- Eighth, to the Servicer in payment of certain unreimbursed advances;
- Ninth, to the Class X Certificateholders; and
- Tenth, to the Class R Certificates any remaining amounts.
Additional information on the source and priority of distributions appears under
"Description of the Certificates -- Distributions" in this Prospectus
Supplement.
INTEREST DISTRIBUTIONS
The Class A-1F Certificates accrue interest for each interest period at an
annual rate equal to the lesser of (i) LIBOR plus (a) % for each Payment
Date prior to the first date on which the Servicer is entitled to purchase the
remaining assets of the Trust (the "OPTIONAL PURCHASE DATE") or (b) % for
each Payment Date following the Optional Purchase Date and (ii) an interest rate
cap (the "CLASS A-1F NET FUNDS CAP RATE"). If, on any Payment Date, the Class
A-1F Net Funds Cap Rate is less than the alternative calculations of the
interest rate set forth above, the amount of any such shortfall plus interest
accrued thereon at the applicable LIBOR-based rate (the "CLASS A-1F LIBOR
INTEREST CARRYOVER") will be carried forward and distributed subject to certain
limitations, on subsequent Payment Dates.
The Class A-1A Certificates accrue interest for each interest period at an
annual rate equal to the lesser of (i) LIBOR plus (a) % for each Payment
Date prior to the Optional Purchase Date or (b) % for each Payment Date
following the Optional Purchase Date and (ii) an interest rate cap (the "CLASS
A-1A NET FUNDS CAP RATE" and together with the Class A-1F Net Funds Cap Rate, a
"NET FUNDS CAP RATE"), the calculation for which is set forth in detail under
"Description of the Certificates -- Distributions -- Interest" in this
Prospectus Supplement. If, on any Payment Date, the Class A-1A Net Funds Cap
Rate is less than the alternative calculations of the interest rate set forth
above, the amount of any such shortfall plus interest accrued thereon at the
applicable LIBOR-based rate (the "CLASS A-1A LIBOR INTEREST CARRYOVER" and
together with the Class A-1F LIBOR Interest Carryover, each a "LIBOR INTEREST
CARRYOVER") will be carried forward and distributed, subject to certain
limitations, on subsequent Payment Dates. Payment of each LIBOR Interest
Carryover is not covered by the Securities Insurance Policy.
Each interest period begins on and includes a Payment Date and ends on and
excludes the next Payment Date (an "ACCRUAL PERIOD"). However, the first Accrual
Period will begin on and include , 199 , and end on and exclude
, 199 , the first Payment Date.
S-8
<PAGE> 10
The amount of interest which will accrue on your Certificates each month is
based on the actual number of days in the Accrual Period over a 360-day year
multiplied by the product of:
- the Pass-Through Rate for your class of Certificates, and
- the outstanding principal balance of such class at the beginning of that
Accrual Period.
"LIBOR" is the rate for deposits in U.S. dollars for a one-month period
which appears on the Dow Jones Telerate page 3750 (or similar replacement page
as of 11:00 a.m., London time, on the related LIBOR determination date. In
addition, see "Description of the Certificates -- Distributions -- Calculation
of LIBOR" in this Prospectus Supplement for a discussion of the determination of
LIBOR if that rate does not appear on Dow Jones Telerate page 3750.
The LIBOR determination date is the second London business day prior to the
first day of the related Accrual Period.
Additional information on the payment of interest appears under
"Description of the Certificates -- Distributions -- Interest" in this
Prospectus Supplement.
PRINCIPAL DISTRIBUTIONS
On each Payment Date, you will receive a distribution of principal on your
Certificates if there is cash available on that date for the payment of
principal. Monthly principal distributions will generally be a function of
principal receipts on the Mortgage Loans in the related Mortgage Loan Group.
You should review the priority of payments described under "Description of
the Certificates -- Distributions -- Principal" in this Prospectus Supplement.
The "FINAL SCHEDULED PAYMENT DATE" for each class of Class A Certificates
is , 20 , although it is expected that the actual final Payment
Date will occur significantly earlier. See "Description of the
Certificates -- General" and "Certain Yield and Prepayment Considerations" in
this Prospectus Supplement.
DENOMINATIONS
The Class A Certificates will be issued in minimum denominations of
$ and integral multiples of $ in excess thereof.
REGISTRATION OF THE CLASS A CERTIFICATES
Your certificates will be issued in book-entry form ("BOOK-ENTRY
CERTIFICATES") and registered in the name of Cede & Co., as the nominee of The
Depository Trust Company ("DTC").
You may elect to hold your Certificates through DTC, in the United States,
or Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System ("EUROCLEAR"),
in Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be
made in accordance with the usual rules and operating procedures of those
systems. Cross-market transfers between persons holding directly or indirectly
through DTC and counterparties holding directly or indirectly through CEDEL or
Euroclear will be made in DTC through the relevant depositaries of CEDEL or
Euroclear.
The Depositors expect that the Book-Entry Certificates will be delivered in
book-entry form through the facilities of DTC, CEDEL and Euroclear on or about
, 199 .
Additional information on registration of the Class A Certificates appears
under "Description of the Certificates -- Book-Entry Registration" in this
Prospectus Supplement.
EXCESS SPREAD
The Trustee will establish a separate trust account (the "SPREAD ACCOUNT")
for the benefit of the Certificateholders and the Insurer. On each Payment Date,
the Trustee will deposit into the Spread Account
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<PAGE> 11
an amount (the "EXCESS SPREAD"), generally equal to the excess, if any, of
interest received or advanced on the Mortgage Loans over the sum of interest
accrued on the Certificates and the fees payable to the Servicer and the
Insurer.
The maximum amount of Excess Spread that the Trustee will be required to
retain in the Spread Account at any time will be specified by the Insurer in the
Pooling and Servicing Agreement and may be reduced at the discretion of the
Insurer.
Funds on deposit in the Spread Account will be used on each Payment Date to
pay the shortfall between (i) the amount available to pay the Class A
Certificateholders and (ii) the amount of principal and interest due to the
Class A Certificateholders.
Any amounts in excess of the maximum amount required to be retained by the
Trustee in the Spread Account or which the Pooling and Servicing Agreement
permits the Trustee to release from the Spread Account will be distributed,
after payment to the Servicer of certain unreimbursed servicing advances:
- First, concurrently, to the Class A-1A and Class A-1F Certificates to pay
any Class A-1A LIBOR Interest Carryover and Class A-1F LIBOR Interest
Carryover, respectively, and
- Second, to the Class X Certificateholders.
Additional information on the Spread Account appears under "Description of
Certificates -- Distributions -- Spread Account" in this Prospectus Supplement.
THE SECURITIES INSURANCE POLICY
The certificate guaranty insurance policy (the "SECURITIES INSURANCE
POLICY") is issued by [Insurer] (the "INSURER"). With respect to the Class A
Certificates, the Insurer will guarantee timely payments of interest and
principal on the Certificates to the extent described in this Prospectus
Supplement.
The Insurer will not guarantee any LIBOR Interest Carryover.
Additional information on the Securities Insurance Policy appears under
"Description of the Certificates -- Securities Insurance Policy" and "The
Securities Insurance Policy and the Insurer" in this Prospectus Supplement.
ADVANCES
The Servicer will make cash advances with respect to delinquent payments of
interest on the Mortgage Loans from amounts on deposit with the Servicer and
held for future remittance to the Trustee. The Servicer generally will not be
required to make advances from its own funds. See "Description of the
Certificates -- Advances from the Principal and Interest Account" in this
Prospectus Supplement.
OPTIONAL TERMINATION OF THE TRUST
The Servicer may purchase all remaining Mortgage Loans in the Mortgage Pool
and thereby effect early retirement of the Certificates on any Payment Date on
which the aggregate principal balance of the Mortgage Loans is less than [10%]
of the aggregate principal balance of the Mortgage Loans as of ,
199 .
See "Description of the Certificates -- Termination; Purchase of Mortgage
Loans" in this Prospectus Supplement."
RATING OF CERTIFICATES
The Trust will not issue the Class A Certificates unless they have received
at least the ratings set forth on page S-55 of this Prospectus Supplement from
[Rating Agencies] (collectively, the "RATING AGENCIES").
- The ratings assigned to the Class A Certificates will be based on the
financial strength of the Insurer.
- The ratings on the Class A Certificates do not address the payment of any
LIBOR Interest Carryover.
S-10
<PAGE> 12
- The ratings of the Rating Agencies are not recommendations to buy, sell
or hold the Certificates rated. A rating may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
- If the ratings on your Certificates are downgraded or withdrawn, you may
have difficulty selling your Certificates.
See "Ratings" in this Prospectus Supplement and "Risk Factors" and
"Ratings" in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat a
portion of the Trust Fund as a real estate mortgage investment conduit (the
"REMIC").
- The Class A Certificates and the Class X Certificates will represent
regular interests in the REMIC and such regular interests will be treated
as debt instruments for federal income tax purposes.
- The Class R Certificates will be the sole class of residual interest in
the REMIC.
The rights of the Class A Certificateholders to receive interest shortfalls
from the Spread Account will not be assets of the REMIC, but will be treated as
the assets of a grantor trust for federal income tax purposes.
Interest on the Class A Certificates must be included in your income under
an accrual method of tax accounting, even if you are otherwise a cash method
taxpayer.
For additional information see "Federal Income Tax Consequences" in this
Prospectus Supplement and "Federal Income Tax Consequences for REMIC
Certificates -- Original Issue Discount" in the Prospectus.
ERISA CONSIDERATIONS
If you are a fiduciary or other person acting on behalf of any employee
benefit plan or arrangement, including an individual retirement account (an
"IRA"), subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "CODE"),
or any federal, state or local law ("SIMILAR LAW") which is similar to ERISA or
the Code (collectively, "PLANS"), you should carefully review with your legal
advisors whether the purchase or holding of a Class A Certificate could give
rise to a transaction that is prohibited or not otherwise permissible under
ERISA, the Code or Similar Law.
For additional information see "ERISA Considerations" in this Prospectus
Supplement and in the Prospectus.
LEGAL INVESTMENT
If your investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory
authorities, then you may be subject to restrictions on investment in the Class
A Certificates. You should consult your legal, tax and accounting advisors for
assistance in determining the suitability of and consequences to you of the
purchase, ownership and sale of Class A Certificates.
- The Class A Certificates [will not] constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act
of 1984, as amended ("SMMEA").
For additional information see "Legal Investment" in this Prospectus
Supplement.
S-11
<PAGE> 13
RISK FACTORS
- The Class A Certificates are not suitable investments for all investors.
- The Class A Certificates are complex financial instruments, so you should
not purchase any Class A Certificates unless you or your financial
advisor possess the necessary expertise to analyze the potential risks
associated with an investment in mortgage-backed securities.
- You should carefully consider the risk factors discussed below and those
discussed under "Risk Factors" in the Prospectus, in addition to the
other information contained in this Prospectus Supplement and the
Prospectus, before making an investment decision.
- You should not purchase any Class A Certificates unless you understand,
and are able to bear, the prepayment, credit, liquidity and market risks
associated with those Class A Certificates.
RISKS OF THE MORTGAGE LOANS
The following description refers to the Mortgage Loans included in the
Fixed Rate Group and the Mortgage Loans included in the Adjustable Rate Group.
References to percentages of the Mortgage Loans refer to the total Mortgage Pool
as of the Cut-off Date.
GEOGRAPHIC CONCENTRATION MAY INCREASE RISK OF LOSS. Certain geographic
regions of the United States from time to time may experience weaker regional
economic conditions and housing markets, and consequently, may experience higher
rates of loss and delinquency on mortgage loans generally. Any concentration of
the Mortgage Loans in such regions may present risks in addition to those
generally present for similar mortgage-backed securities without such
concentration.
Any deterioration in housing prices in a state or region due to adverse
economic conditions, natural disaster or other factors, and any deterioration of
economic conditions in a state or region that adversely affects the ability of
borrowers to make payments on the Mortgage Loans, may result in losses on the
Mortgage Loans. Any losses may adversely effect the yield to maturity of the
Class A Certificates.
See "Description of the Mortgage Pool" in this Prospectus Supplement for
further information regarding the geographic concentration of the Mortgage Loans
in the Mortgage Pool.
RISK OF LOSS MAY BE GREATER ON SECOND LIEN MORTGAGE LOANS. Approximately
% of the Mortgage Loans, all of which are in the Fixed Rate Group, are
secured by second Mortgages. Mortgage Loans secured by second Mortgages will be
entitled to proceeds that remain from the sale of the related mortgaged property
after any related first mortgage loans and prior statutory liens have been
satisfied. In the event that such proceeds are insufficient to satisfy the total
amount of the first mortgage loans and prior liens and the Insurer fails to
perform its obligations under the Securities Insurance Policy, the Class A
Certificates may bear:
- the risk of delay in distributions while a deficiency judgment against
the borrower is obtained, and
- the risk of loss if the deficiency judgment is not realized upon or if a
deficiency judgment is not permitted under the applicable law.
See "Risk Factors -- Risks Associated with the Mortgage Loans -- Risk of
Loss May Be Greater on Second Lien Mortgage Loans" in the Prospectus. In
addition, the rate of default of second mortgage loans may be greater than that
of mortgage loans secured by first liens on comparable properties.
DEFAULTS MAY BE MORE LIKELY ON NEWER LOANS. A substantial number of the
Mortgage Loans in the Mortgage Pool were recently originated. Although little
data is available, defaults on mortgage loans are generally expected to occur
with greater frequency in their early years.
INCLUSION OF DELINQUENT MORTGAGE LOANS INCREASES RISK OF LOSS. As of the
Cut-off Date, approximately % of the Mortgage Loans were 30 days or more
contractually delinquent. As a result, the Mortgage Pool may bear more risk than
a pool of mortgage loans without any delinquencies but with otherwise comparable
characteristics. It is possible that a delinquent Mortgage Loan will not ever
become current or, if it does become current, that the mortgagor has an above
average likelihood of becoming delinquent again.
See "Description of the Mortgage Pool" in this Prospectus Supplement and
"Risk Factors -- Risks Associated with the Mortgage Loans -- Special Risks of
Certain Mortgage Loans" in the Prospectus.
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<PAGE> 14
BALLOON MORTGAGE LOANS MAY HAVE A GREATER DEFAULT RISK AT
MATURITY. Approximately % of the Mortgage Loans in the Mortgage Pool
provide for a lump-sum payment (a "BALLOON PAYMENT") of the unamortized
principal balance of the Mortgage Loan at the maturity of the Mortgage Loan
("BALLOON LOANS"). Balloon Loans involve a greater degree of risk than fully
amortizing mortgage loans because the ability of a mortgagor to make a Balloon
Payment typically will depend upon its ability:
- to fully refinance the Balloon 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. See "Certain Yield and Prepayment
Considerations" in this Prospectus Supplement and "Description of the Mortgage
Pool" and "Risk Factors -- Risks Associated with the Mortgage Loans -- Balloon
Mortgage Loans May Have a Greater Default Risk at Maturity" in the Prospectus.
ASSIGNMENT OF MORTGAGE WILL ONLY BE RECORDED UNDER LIMITED
CIRCUMSTANCES. Under the terms of the Pooling and Servicing Agreement, during
the period that the Certificates are outstanding and so long as the long-term
senior unsecured debt of BankAmerica Corporation or its successor in interest is
rated at least " " by [Rating Agency] and at least " " by [Rating Agency],
assignments of the Mortgages in favor of the Trustee will be delivered in
recordable form but will not be recorded. The failure to record assignments of
the Mortgages in favor of the Trustee in many states in which the mortgaged
properties are located will have the result of making the sale of the Mortgage
Loans potentially ineffective against:
- any creditors of the Originators or the Depositors who may have been
fraudulently or inadvertently induced to rely on the Mortgage Loans as
assets of the Originators or the Depositors, or
- any purchaser (in the event the Originators or the Depositors
fraudulently or inadvertently sell a Mortgage Loan to a purchaser) who
had no notice of the prior sale to the Trust and such purchaser takes
possession of the Mortgage.
If the long-term senior unsecured debt rating of BankAmerica Corporation or
its successor in interest does not satisfy the above-described conditions,
assignments of the Mortgages in favor of the Trustee will be required to be
recorded.
MORTGAGED PROPERTIES MAY BE LOCATED IN AREAS AFFECTED BY NATURAL
DISASTER. Mortgaged properties may be located in states that have recently
experienced natural disasters. Neither the Depositors nor the Originators has
undertaken the physical inspection of those mortgaged properties. The
Originators and the Depositors will represent, for risk allocation purposes,
that each mortgaged property has not been damaged by natural disaster which
affects adversely the value of such mortgaged property or the use for which such
premises were intended. Were a mortgaged property materially adversely affected
as a result of such a natural disaster occurring prior to the Closing Date, the
Depositors, in accordance with the terms of the Pooling and Servicing Agreement,
may either provide qualifying Mortgage Loans in substitution for the related
Mortgage Loans or repurchase those Mortgage Loans from the Trust. In the event
those Mortgage Loans are repurchased, the effect on the Class A Certificates
would be the same as if those Mortgage Loans were prepaid in full. See "Certain
Yield and Prepayment Considerations" in this Prospectus Supplement.
RATE OF PREPAYMENTS MAY ADVERSELY AFFECT AVERAGE LIFE OR YIELD OF THE
CERTIFICATES
The average life of the Class A Certificates and, if purchased at a price
other than par, the yield to maturity of the Class A Certificates, will depend
on the rate and timing of principal payments on the Mortgage Loans in the
related Mortgage Loan Group, including:
- the rate of principal prepayments on the Mortgage Loans;
- liquidations on defaulted Mortgage Loans; and
- repurchases of Mortgage Loans as a result of defective documentation or
breaches of representations and warranties.
S-13
<PAGE> 15
Prepayments are influenced by a number of factors, including prevailing
mortgage market interest rates, local and regional economic conditions and
homeowner mobility.
- If prevailing rates for similar mortgage loans fall below the interest
rates on the Mortgage Loans, the rate of prepayment would generally be
expected to increase.
- Conversely, if interest rates on similar mortgage loans rise above the
interest rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease.
The rate of prepayment on the Mortgage Loans may also be influenced by
programs offered by mortgage originators (including EquiCredit or its
affiliates), on a general or targeted basis, to encourage refinancing. Any such
program refinancings may result in a rate of prepayment that is higher than you
might otherwise expect.
If you are purchasing Class A Certificates at a discount, you should
consider the risk that if principal payments on the Mortgage Loans occur at a
rate slower than you expected, your yield may be lower than you expected.
If you are purchasing Class A Certificates at a premium, you should
consider the risk that if principal payments on the Mortgage Loans occur at a
rate faster than you expected, your yield may be lower than you expected.
See "Certain Yield and Prepayment Considerations" in this Prospectus
Supplement and in the Prospectus and "Risk Factors -- Risks Associated with the
Certificates -- Rate of Prepayment on Mortgage Loans May Adversely Affect
Average Lives and Yields on Certificates" in the Prospectus.
RISKS ASSOCIATED WITH THE MORTGAGE LOANS
The amount of interest available on the Mortgage Loans in the Adjustable
Rate Group may be insufficient to make full interest distributions on the Class
A-1A Certificates on any Payment Date because:
- the index on which interest on the Mortgage Loans accrues is based on
[six-month LIBOR], while the pass-through rate on the Class A
Certificates is based on [one-month LIBOR];
- the mortgage interest rates of the Mortgage Loans are subject to periodic
and lifetime caps; and
- the Mortgage Loans may have been originated with "teaser" rates which are
lower than the sum of the applicable index plus the related margin, and
therefore may produce less interest and be more likely to be limited by a
periodic rate cap when the mortgage interest rate is first adjusted.
If interest on the Mortgage Loans in the Adjustable Rate Group is
insufficient to pay interest on the Class A-1A Certificates on a Payment Date at
a LIBOR based pass-through rate, interest on the Class A-1A Certificates will be
payable at the lower Class A-1A Net Funds Cap Rate and the difference (together
with interest thereon at the related LIBOR based pass-through rate) will
constitute a Class A-1A LIBOR Interest Carryover.
If the Class A-1A Net Funds Cap Rate results in a lower interest payment to
the Class A-1A Certificates for a Payment Date, the value of the Class A-1A
Certificates may be temporarily or permanently reduced. Any Class A-1A LIBOR
Interest Carryover will be payable only to the extent of certain amounts which
would otherwise be available to be distributed to the holders of the Class X
Certificates ("CLASS X CERTIFICATEHOLDERS") and such Class A-1A LIBOR Interest
Carryover may remain unpaid on the final Payment Date.
If interest on the Mortgage Loans in the Fixed Rate Group, which accrue
interest at fixed rates, is insufficient to pay interest on the Class A-1F
Certificates on a Payment Date at a LIBOR based pass-through rate, interest on
the Class A-1F Certificates will be payable at the lower Class A-1F Net Funds
Cap Rate and the difference (together with interest thereon at the related LIBOR
based pass-through rate) will constitute a Class A-1F LIBOR Interest Carryover.
If the Class A-1F Net Funds Cap Rate results in a lower interest payment to
the Class A-1F Certificates for a Payment Date, the value of the Class A-1F
Certificates may be temporarily or permanently reduced. Any Class A-1F LIBOR
Interest Carryover will be payable only to the extent of certain amounts which
would
S-14
<PAGE> 16
otherwise be available to be distributed to the Class X Certificateholders and
such Class A-1F LIBOR Interest Carryover may remain unpaid on the final Payment
Date.
The Securities Insurance Policy does not guarantee the payment of any LIBOR
Interest Carryover.
CONSUMER PROTECTION LAWS MAY LIMIT REMEDIES
There are various federal and state laws, public policies and principles of
equity that protect consumers.
Among other things, these laws, policies and principles:
- regulate interest rates and other charges;
- require certain disclosures;
- require licensing of mortgage loan originators;
- prohibit discriminatory lending practices;
- regulate the use of consumer credit information; and
- regulate debt collection practices.
Violations of certain provisions of these laws may limit the ability of the
Servicer to collect all or part of the principal of or interest on the Mortgage
Loans, may entitle the mortgagor to a refund of amounts previously paid and may
subject the Depositors or the Servicer to damages and administrative
enforcement. The Depositors will be required to repurchase any Mortgage Loans
which, at the time of origination, did not comply with such federal and state
laws or regulations. See "Certain Legal Aspects of the Mortgage Loans" in the
Prospectus.
BOOK-ENTRY CERTIFICATES
All of the Class A Certificates will be held through the book-entry system
of DTC, CEDEL and Euroclear. Transactions in the Class A Certificates can be
effected through DTC, CEDEL, Euroclear, participating organizations, indirect
participants and certain banks. As a result:
- your ability to pledge your Certificates to entities that do not
participate in the DTC, CEDEL or Euroclear system, or to otherwise act
with respect to your Certificates, may be limited due to the lack of a
physical certificate;
- under a book-entry format, you may experience delays in the receipt of
payments, since distributions will be made by the Trustee to DTC, Cedel
and Euroclear, and not directly to you; and
- the liquidity of your Certificates may be reduced in the secondary
trading market since investors may be unwilling to purchase Certificates
for which they cannot obtain physical certificates.
See "Description of the Certificates -- Book-Entry Registration" in this
Prospectus Supplement, "Annex I" attached to this Prospectus Supplement and
"Risk Factors -- Risks Associated with the Certificates", "Description of the
Certificates -- General" and " -- Registration and Transfer of Certificates" in
the Prospectus.
YEAR 2000 READINESS DISCLOSURE
General.
- The transition from the year 1999 to the year 2000 may disrupt the
ability of computerized systems to process information.
- The Servicer has committed to acquire computer systems that are year 2000
compliant or to modify its computer systems and applications so that they
will be year 2000 compliant. The Depositors anticipate that the
Servicer's computer systems will be year 2000 compliant by January 1,
2000.
If the Servicer is unable to complete its year 2000 compliance by January
1, 2000, or if the Trustee's or the Insurer's computer systems are not fully
year 2000 compliant, the resulting disruptions in the collection and
distribution of receipts on the Mortgage Loans or amounts under the Securities
Insurance Policy could negatively affect the Class A Certificates.
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<PAGE> 17
The Depository Trust Company.
With respect to year 2000 issues, DTC has informed 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 interest payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately on and after
January 1, 2000. 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, its participating
organizations (through which certificateholders will hold their offered
certificates), as well as the computer systems of third party service providers.
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 has stated that it is
in the process of developing such contingency plans as it deems appropriate.
If problems associated with the year 2000 issue were to occur with respect
to DTC and the services described above, distributions to certificateholders
could be delayed or otherwise adversely affected.
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<PAGE> 18
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
Unless otherwise noted, the statistical information presented herein
concerning the Mortgage Pool is based on the Mortgage Loans included in such
pool as of the Cut-off Date. References herein to "Mortgage Loans" and the
"Mortgage Pool" refer to the Mortgage Loans included in the Fixed Rate Group and
the Mortgage Loans included in the Adjustable Rate Group. In addition, certain
loans included in such pool as of the Cut-off Date may prepay in full, or may be
determined not to meet the eligibility requirements for the final pool, and thus
may not be included in the final pool. The Mortgage Pool consists of Mortgage
Loans with an aggregate principal balance outstanding as of the Cut-off Date,
after giving effect to payments received prior to such date, of approximately
$ (such aggregate principal balance as of the Cut-off Date, after
giving effect to payments received prior to the Cut-off Date, the "ORIGINAL POOL
PRINCIPAL BALANCE"). This section describes generally certain characteristics of
the Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of Mortgage Loans refer in each case to the approximate percentage
of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date,
based on the outstanding principal balances of the Mortgage Loans in the
applicable Mortgage Loan Group, in each case as of the Cut-off Date, and giving
effect to all payments received prior to the Cut-off Date. The Mortgage Pool
consists of fixed-rate and adjustable-rate Mortgage Loans with remaining terms
to maturity of not more than months (including both fully amortizing Mortgage
Loans and Balloon Loans). All of the Mortgage Loans were originated by or
purchased and re-underwritten by the Representative or by a wholly-owned
subsidiary of the Representative. The Mortgage Loans have the characteristics
set forth below as of the Cut-off Date. Percentages expressed herein based on
principal balances and number of Mortgage Loans have been rounded, and in the
tables set forth herein the sum of the percentages may not equal the respective
totals due to such rounding.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups (the "FIXED RATE GROUP" and the "ADJUSTABLE RATE GROUP,"
respectively, and each a "MORTGAGE LOAN GROUP") comprised of Mortgage Loans
which bear fixed interest rates only, in the case of the Fixed Rate Group, and
Mortgage Loans which bear adjustable interest rates only, in the case of the
Adjustable Rate Group. The Class A-1F Certificates (defined below) represent
undivided ownership interests in all Mortgage Loans contained in the Fixed Rate
Group, and distributions on the Class A-1F Certificates will be based primarily
on amounts available for distribution in respect of Mortgage Loans in the Fixed
Rate Group, and the Class A-1A Certificates (defined below) represent undivided
ownership interests in all Mortgage Loans contained in the Adjustable Rate
Group, and distributions on the Class A-1A Certificates will be based primarily
on amounts available for distribution in respect of Mortgage Loans in the
Adjustable Rate Group.
FIXED RATE GROUP
All of the Mortgage Loans in the Fixed Rate Group were originated between
and and have a scheduled maturity date no later
than . No Mortgage Loan in the Fixed Rate Group has a remaining
term to maturity as of the Cut-off Date of less than months. The weighted
average original term to maturity of the Mortgage Loans in the Fixed Rate Group
as of the Cut-off Date is approximately months. The weighted average
remaining term to maturity of the Mortgage Loans in the Fixed Rate Group as of
the Cut-off Date is approximately months.
The weighted average Mortgage Interest Rate of the Mortgage Loans in the
Fixed Rate Group as of the Cut-off Date was approximately % per annum. All
of the Mortgage Loans in the Fixed Rate Group had Mortgage Interest Rates as of
the Cut-off Date of at least % per annum but not more than % per annum.
The average principal balance outstanding of the Mortgage Loans in the Fixed
Rate Group as of the Cut-off Date was approximately $ , and the principal
balances of the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date
ranged from approximately $ to $ . The original principal balances
of the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date ranged from
$ to $ .
Approximately % of the Mortgage Loans in the Fixed Rate Group are
secured by a second Mortgage that is junior to a mortgage lien (a "FIRST LIEN")
on the related Mortgage Property, and approximately %
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<PAGE> 19
of the Mortgage Loans in the Fixed Rate Group are secured by a first Mortgage on
the related Mortgage Property. None of the Mortgage Loans in the Fixed Rate
Group are secured by more than one property. The First Liens related to the
Mortgage Loans in the Fixed Rate Group secured by second Mortgages are not
included in the Mortgage Pool.
As used in this Prospectus Supplement, the "COMBINED LOAN-TO-VALUE RATIO"
of any Mortgage Loan is the ratio (expressed as a percentage) of (i) the sum of
(a) the principal balance of such Mortgage Loan at the Cut-off Date plus (b) the
outstanding balance of the Senior Lien at the date of origination of the
Mortgage Loan, if any, divided by (ii) the lesser of (a) the value of the
related Mortgaged Property, based upon the appraisal made at the time of
origination of the Mortgage Loan and (b) the purchase price of the Mortgaged
Property if the Mortgage Loan proceeds were used to purchase the Mortgaged
Property. As of the Cut-off Date, the weighted average Combined Loan-to-Value
Ratio of the Mortgage Loans in the Fixed Rate Group was approximately %.
Approximately % of the Mortgage Loans in the Fixed Rate Group had a Combined
Loan-to-Value Ratio in excess of %.
Approximately % of the Mortgage Loans in the Fixed Rate Group are
secured by fee simple interests in detached single-family dwelling units,
including units in de minimis planned unit developments and townhouses, with the
remaining Mortgage Loans secured by fee simple interests in attached or detached
two-to four-family dwelling units, manufactured housing and condominiums.
Approximately % of the Mortgage Loans in the Fixed Rate Group are secured by
manufactured housing. With respect to at least approximately % of the
Mortgage Loans in the Fixed Rate Group, the Mortgagor represented at the time of
the origination of the Mortgage Loan that the related Mortgaged Property would
be occupied by the Mortgagor as a primary or secondary residence (an "OWNER
OCCUPIED MORTGAGED PROPERTY").
No more than approximately % of the Mortgage Loans in the Fixed Rate
Group are secured by Mortgaged Properties located in any one five-digit zip code
area in the State of California, and no more than % of the Mortgage Loans
in the Fixed Rate Group are secured by Mortgaged Properties located in any one
five-digit zip code area outside the State of California. Approximately %,
%, % and % of the Mortgage Loans in the Fixed Rate Group are secured by
Mortgaged Properties located in [States], respectively. Except as indicated in
the preceding sentence, no more than 5.00% of the Mortgage Loans in the Fixed
Rate Group are secured by Mortgaged Properties located in any one state.
Approximately % of the Mortgage Loans in the Fixed Rate Group are
Balloon Loans. Approximately %, %, % and % of the Mortgage Loans
in the Fixed Rate Group are Balloon Loans based on approximately a year
amortization schedule (except for approximately % of the Mortgage Loans in
the Fixed Rate Group) and a single payment of the remaining loan balance
approximately , , and years after origination, respectively.
Approximately % of the Mortgage Loans in the Fixed Rate Group are
Bankruptcy Mortgage Loans. Approximately % of the Mortgage Loans in the Fixed
Rate Group are 30 days or more contractually delinquent.
Approximately % of the Mortgage Loans in the Fixed Rate Group were
originated in connection with the sale of properties acquired by the Originators
through foreclosure.
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<PAGE> 20
MORTGAGE POOL STATISTICS -- FIXED RATE GROUP
The following table sets forth the number and outstanding principal balance
as of the Cut-off Date and the percentage of the Fixed Rate Group represented by
Mortgage Loans in the Fixed Rate Group having outstanding principal balances as
of the Cut-off Date in the ranges described therein:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
$ to $ .................... $ %
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
to .....................
------ --------------- ------
Total............................... $ %
====== =============== ======
</TABLE>
S-19
<PAGE> 21
The following table sets forth the geographic distribution of the Mortgaged
Properties related to the Mortgage Loans in the Fixed Rate Group by geographic
area as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
GEOGRAPHIC AREA MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
.............................................. $ %
------ --------------- ------
Total............................... $ %
====== =============== ======
</TABLE>
S-20
<PAGE> 22
The following table sets forth the Combined Loan-to-Value Ratios of the
Mortgage Loans in the Fixed Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF COMBINED LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
% to %........................................ $ %
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
------ --------------- ------
Total............................... $ %
====== =============== ======
</TABLE>
S-21
<PAGE> 23
The following table sets forth the Mortgage Interest Rates borne by the
Mortgage Notes relating to the Mortgage Loans in the Fixed Rate Group as of the
Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MORTGAGE INTEREST RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
% to %........................................ $ %
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
% to %........................................
------ --------------- ------
%................................... $ %
====== =============== ======
</TABLE>
S-22
<PAGE> 24
The following table sets forth the range of original months to stated
maturity of the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL MONTHS TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
to ............................ $ %
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
------ --------------- ------
Total.......................... $ %
====== =============== ======
</TABLE>
The following table sets forth the range of remaining months to stated
maturity of the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF REMAINING MONTHS TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
to ............................ $ %
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
------ --------------- ------
Total.......................... $ %
====== =============== ======
</TABLE>
S-23
<PAGE> 25
The following table sets forth the number of months since origination of
the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF FIXED RATE
AGGREGATE GROUP BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MONTHS SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
to ................................... $ %
to ...................................
Greater than .........................
------ --------------- ------
Total........................ $ %
====== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP
All of the Mortgage Loans in the Adjustable Rate Group were originated
between and and have a scheduled maturity date no later
than . No Mortgage Loan in the Adjustable Rate Group has a remaining
term to maturity as of the Cut-off Date of less than months. The weighted
average original term to maturity of the Mortgage Loans in the Adjustable Rate
Group as of the Cut-off Date is approximately months. The weighted average
remaining term to maturity of the Mortgage Loans in the Adjustable Rate Group as
of the Cut-off Date is approximately months.
The average principal balance outstanding of the Mortgage Loans in the
Adjustable Rate Group as of the Cut-off Date was approximately $ and the
principal balances of the Mortgage Loans in the Adjustable Rate Group as of the
Cut-off Date ranged from approximately $ to $ . The original
principal balances of the Mortgage Loans in the Adjustable Rate Group as of the
Cut-off Date ranged from approximately $ to $ .
The Mortgage Loans in the Adjustable Rate Group bear interest rates that
adjust based on the London interbank offered rate for [six-month United States
dollar deposits ("SIX-MONTH LIBOR")] and accrue interest on the basis of a
360-day year consisting of twelve 30-day months.
All of the Mortgage Loans in the Adjustable Rate Group are secured by a
first Mortgage on the related Mortgaged Property.
As of the Cut-off Date the weighted average Mortgage Interest Rate of the
Mortgage Loans in the Adjustable Rate Group was approximately % per annum.
The Mortgage Interest Rates of the Mortgage Loans in the Adjustable Rate Group
ranged from % per annum to % per annum. The Mortgage Loans in the
Adjustable Rate Group had a weighted average gross margin as of the Cut-off Date
of approximately % per annum. The gross margin for the Mortgage Loans in
the Adjustable Rate Group as of the Cut-off Date ranged from % per annum to
% per annum. All of the Mortgage Loans in the Adjustable Rate Group had
periodic adjustment caps of % as of the Cut-off Date. The Mortgage Loans in
the Adjustable Rate Group had a weighted average maximum Mortgage Interest Rate
as of the Cut-off Date of approximately % per annum, with maximum Mortgage
Interest Rates (i.e., lifetime caps) that ranged from approximately % per
annum to % per annum and a weighted average minimum Mortgage Interest Rate
as of the Cut-off Date of approximately % per annum, with minimum Mortgage
Interest Rates (i.e., lifetime floors) that range from approximately % per
annum to % per annum.
As of the Cut-off Date, the weighted average Combined Loan-to-Value Ratio
of the Mortgage Loans in the Adjustable Rate Group was approximately %.
Approximately % of the Mortgage Loans in the Adjustable Rate Group are
secured by fee simple interests in detached single-family dwelling units, which
may include units in de minimis planned unit developments and townhouses, with
the remaining Mortgage Loans secured by fee simple interests in attached or
detached two- to four-family dwelling units and condominiums. None of the
Mortgage Loans in the Adjustable Rate Group are secured by manufactured housing
units. Approximately % of the Mortgage Loans in the Adjustable Rate Group
are Owner Occupied Mortgaged Properties.
No more than approximately % of the Mortgage Loans in the Adjustable
Rate Group are secured by Mortgaged Properties located in any one five-digit zip
code area in the State of California, and no more than approximately % of
the Mortgage Loans in the Adjustable Rate Group are secured by Mortgaged
Properties located in any one five-digit zip code area outside the State of
California. Approximately %,
S-24
<PAGE> 26
%, %, % and % of the Mortgage Loans in the Adjustable Rate
Group are secured by Mortgaged Properties located in [States], respectively.
Except as indicated in the preceding sentence, no more than approximately %
of the Mortgage Loans in the Adjustable Rate Group are secured by Mortgaged
Properties located in any one state.
Approximately % of the Mortgage Loans in the Adjustable Rate Group are
Balloon Loans. Approximately %, % and % of the Mortgage Loans in
the Adjustable Rate Group are Balloon Loans based on approximately a year
amortization schedule and a single payment of the remaining loan balance
approximately , , and years after origination, respectively.
Approximately % of the Mortgage Loans in the Adjustable Rate Group are
Bankruptcy Mortgage Loans. Approximately % of the Mortgage Loans in the
Adjustable Rate Group are contractually delinquent 30 or more days.
Approximately % of the Mortgage Loans in the Adjustable Rate Group were
originated in connection with the sale of properties acquired by the Originators
through foreclosure.
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE GROUP
The following table sets forth the number and outstanding principal balance
as of the Cut-off Date and the percentage of the Adjustable Rate Group
represented by Mortgage Loans in the Adjustable Rate Group having outstanding
principal balances as of the Cut-off Date in the ranges described therein:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
$ to $ ..................... $ %
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
to ......................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
S-25
<PAGE> 27
The following table sets forth the geographic distribution of the Mortgaged
Properties in the Adjustable Rate Group by geographic area as of the Cut-off
Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE CUT-OFF DATE CUT-OFF DATE
GEOGRAPHIC AREA LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
............................................... $ %
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
S-26
<PAGE> 28
The following table sets forth the Combined Loan-to-Value Ratios of the
Mortgage Loans in the Adjustable Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF COMBINED LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
to ................................. $ %
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The following table sets forth the Mortgage Interest Rates borne by the
Mortgage Notes relating to the Mortgage Loans in the Adjustable Rate Group as of
the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MORTGAGE INTEREST RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
to ................................. $ %
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
to ..................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
S-27
<PAGE> 29
The following table sets forth the range of original months to stated
maturity of the Mortgage Loans in the Adjustable Rate Group as of the Cut-off
Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL MONTHS TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
to ................................ $ %
to ................................
to ................................
to ................................
to ................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The following table sets forth the range of remaining months to stated
maturity of the Mortgage Loans in the Adjustable Rate Group as of the Cut-off
Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF REMAINING MONTHS TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
to ................................ $ %
to ................................
to ................................
to ................................
to ................................
to ................................
to ................................
to ................................
to ................................
to ................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The following table sets forth the number of months since origination of
the Mortgage Loans in the Adjustable Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MONTHS SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
to .................................... $ %
to .................................
Greater than .................................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
S-28
<PAGE> 30
The following table sets forth the maximum Mortgage Interest Rates borne by
the Mortgage Notes relating to the Mortgage Loans in the Adjustable Rate Group
as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MAXIMUM MORTGAGE INTEREST RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
% to %........................... $ %
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The following table sets forth the minimum Mortgage Interest Rates borne by
the Mortgage Notes relating to the Mortgage Loans in the Adjustable Rate Group
as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MINIMUM MORTGAGE INTEREST RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
% to %........................... $ %
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
% to %...........................
Greater than %..........................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
S-29
<PAGE> 31
The following table sets forth the gross margins borne by the Mortgage
Notes relating to the Mortgage Loans in the Adjustable Rate Group as of the
Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF GROSS MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
Less than %............................... $ %
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
% to % ..........................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The following table sets forth the month of the next Mortgage Interest Rate
change for each of the Mortgage Notes relating to the Mortgage Loans in the
Adjustable Rate Group as of the Cut-off Date:
<TABLE>
<CAPTION>
PERCENT OF ADJUSTABLE
RATE GROUP BY
AGGREGATE AGGREGATE
MONTH OF NEXT MORTGAGE NUMBER OF CUT-OFF DATE CUT-OFF DATE
INTEREST RATE CHANGE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C>
% to % ......................... $ %
% to % .........................
% to % .........................
% to % .........................
% to % .........................
% to % .........................
% to % .........................
% to % .........................
--- -------------- ------
Total................................ $ %
=== ============== ======
</TABLE>
The months shown in the preceding table are the months in which the
Mortgage Interest Rates on the related Mortgage Loans were scheduled to be
adjusted. In the case of a Mortgage Loan which was delinquent in the month in
which such adjustment was scheduled to occur, such adjustment will not occur
until such Mortgage Loan has become current.
S-30
<PAGE> 32
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the aggregate
amount of each interest payment on the Class A Certificates and the yield to
maturity of such Certificates are related to the rate and timing of payments of
principal on the Mortgage Loans in the related Mortgage Loan Group, which may be
in the form of scheduled and unscheduled payments. 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. Defaults on mortgage loans are expected to occur with greater
frequency in their early years, although little data is available with respect
to the rate of default on second mortgage loans. 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 repurchases of the
Mortgage Loans will result in distributions to the Class A Certificateholders of
amounts of principal which would otherwise be distributed over the remaining
terms of the Mortgage Loans.
In addition, the Servicer may, at its option, purchase from the Trust all
of the outstanding Mortgage Loans and REO Properties, and thus effect the early
retirement of the Class A Certificates, on any Payment Date on or following the
first Payment Date on which the Pool Principal Balance (as defined herein) as of
the last day of the related Due Period is less than [10%] of the Original Pool
Principal Balance. See "Description of the Certificates -- Termination; Purchase
of Mortgage Loans" herein.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans with fixed rates such as the Mortgage Loans in the Fixed Rate
Group 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
interest rate, 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. No assurance
can be given as to the level of prepayments that the Mortgage Loans in the Fixed
Rate Group will experience.
Investors in the Class A Certificates should understand that the timing of
changes in LIBOR may affect the actual yields to such investors even if the
average rate of LIBOR is consistent with such investors' expectations. Each
investor must make an independent decision as to the appropriate LIBOR
assumptions to be used in deciding whether to purchase a Class A Certificate.
All of the Mortgage Loans in the Adjustable Rate Group are adjustable-rate
mortgage loans. As is the case with conventional fixed-rate mortgage loans,
adjustable-rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable-rate mortgage loans such as the
Mortgage Loans in the Adjustable Rate Group could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage mortgagors to refinance their adjustable-rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given as to the
level of prepayments that the Mortgage Loans in the Adjustable Rate Group will
experience. The Mortgage Loans in the Adjustable Rate Group bear interest rates
that adjust based on [Six-Month LIBOR,] which may differ from the rate of LIBOR
used to calculate interest on the Class A-1A Certificates.
To the extent that the amount of interest otherwise distributable in
respect of the Class A-1A and Class A-1F Certificates is greater than the amount
of available interest on the Mortgage Loans in the Adjustable Rate Group and
Fixed Rate Group, respectively, with respect to any Payment Date, the related
LIBOR Interest Carryovers may occur in respect of the Class A-1A and Class A-1F
Certificates. Although the holders of the Class A-1A and Class A-1F Certificates
are entitled to be reimbursed for any such shortfalls as and to the extent
described herein, the yield to such holders on the Class A-1A and Class A-1F
Certificates may be adversely affected by the occurrence of such shortfalls. See
"Risk Factors -- Risks Associated with the Mortgage Loans" herein.
S-31
<PAGE> 33
No representation is made as to the particular factors that will affect the
prepayment of the Mortgage Loans, as to the relative importance of such factors,
as to the percentage of the principal balance of the Mortgage Loans that will be
paid as of any date or as to the overall rate of prepayment on the Mortgage
Loans. See "Certain Yield and Prepayment Considerations" in the Prospectus.
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 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 in the related Mortgage Loan Group and the recoveries, if any, on
defaulted Mortgage Loans and foreclosed properties in such Mortgage Loan Group.
The Balloon Loans in the Trust Fund will not be fully amortizing over their
terms to maturity, and will, in most cases, require substantial principal
payments at their stated maturity. Balloon Loans involve a greater degree of
risk than self-amortizing loans because the ability of a mortgagor to make the
final payment due upon maturity of a Balloon Loan (a "BALLOON PAYMENT")
typically will depend upon its ability either to fully refinance the Balloon
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, tax laws, prevailing general conditions and the
availability of credit for loans secured by residential property. Because the
ability of a mortgagor to make a Balloon Payment typically will depend upon its
ability either to refinance the Balloon Loan or to sell the related Mortgaged
Property, there is a risk that the Balloon Loans may default at maturity. Any
defaulted Balloon Payment that extends the maturity of a Balloon Loan may delay
distributions of principal on the related Class A Certificates and thereby
extend the weighted average life of such Class A Certificates and, if such Class
A Certificates were purchased at a discount, reduce the yield thereon.
The "WEIGHTED AVERAGE LIFE" of a Class A Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The weighted
average life of any Class of the Class A Certificates will be influenced by,
among other factors, the rate at which principal payments are made on the
Mortgage Loans in the related Mortgage Loan Group, including Balloon Payments.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement with
respect to the Mortgage Loans in the Fixed Rate Group (the "PREPAYMENT VECTOR"),
represents an assumed rate of prepayment on the Mortgage Loans in the Fixed Rate
Group. % Prepayment Vector assumes a constant prepayment rate ("CPR") of
% per annum of the outstanding principal balance of the Mortgage Loans in the
Fixed Rate Group in the first month of the life of such Mortgage Loans and an
additional approximate % per annum in each month thereafter until the
twelfth month; beginning in the twelfth month and in each month thereafter
during the life of such Mortgage Loans, a CPR of % per annum each month is
assumed. As used in the table below, % Prepayment Vector assumes a CPR of %
on the outstanding principal balance of the Mortgage Loans in the Fixed Rate
Group. Correspondingly, % Prepayment Vector assumes a CPR of % per annum
on the outstanding principal balance of the Mortgage Loans in the Fixed Rate
Group in the first month of the life of such Mortgage Loans and an additional
approximate % per annum in each month thereafter until the twelfth month,
and each month thereafter a CPR of %. The model used in this Prospectus
Supplement with respect to the Mortgage Loans in the Adjustable Rate Group is
CPR. Neither the Prepayment Vector nor CPR purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans. The
Depositors believe that no existing statistics of which they are aware provide a
reliable basis for holders of Class A Certificates to predict the amount or the
timing of receipt of prepayments on the Mortgage Loans.
S-32
<PAGE> 34
Since the tables were prepared on the basis of the assumptions in the
preceding and the following paragraphs, there are discrepancies between
characteristics of the actual Mortgage Loans and the characteristics of the
Mortgage Loans assumed in preparing the table. Any such discrepancy may have an
effect upon the percentages of the Principal Balances outstanding and weighted
average lives of the Class A Certificates set forth in the tables. In addition,
since the actual Mortgage Loans in the Trust have characteristics which differ
from those assumed in preparing the tables set forth below, the distributions of
principal on the Class A Certificates may be made earlier or later than as
indicated in the table.
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Mortgage
Loans(1)..............
Adjustable Rate Mortgage
Loans(2)..............
</TABLE>
- ---------------
(1) As a percentage of the Prepayment Vector.
(2) As a percentage of CPR.
The tables below were prepared on the basis of the following assumptions
(the "MODELING ASSUMPTIONS"): (i) the Mortgage Loans of each Mortgage Loan Group
consist of loans with the weighted average characteristics and amortization
methodologies set forth below, (ii) the Closing Date for the Class A
Certificates is , 199 , (iii) distributions on the Class A
Certificates are made on the 15th day of each month regardless of the day on
which the Payment Date actually occurs, commencing in , 199 in
accordance with the priorities described herein, (iv) the scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely
delivered to the Servicer each month (with no defaults), (v) the Mortgage
Interest Rate for each Mortgage Loan in the Adjustable Rate Group is adjusted on
its next rate adjustment date (and on subsequent rate adjustment dates, if
necessary) to equal the sum of (a) an assumed level of [Six-Month LIBOR] (which
remains constant at % per annum) and (b) the respective gross margin
(such sum being subject to the applicable periodic adjustment cap, maximum
interest rate and minimum interest rate), (vi) LIBOR remains constant at
% per annum, (vii) all prepayments are prepayments in full received on
the last day of each month (commencing , 199 ) and include 30
days' interest thereon, (viii) optional termination is exercised by the Servicer
on the Optional Purchase Date, (ix) each Class of Class A Certificates will have
the respective pass-through rate ("PASS-THROUGH RATE") and original principal
balance ("ORIGINAL PRINCIPAL BALANCE") as set forth on page S-[ ], (x) the
numbers under the "Months to Rate Change" heading for the Adjustable Rate Group
table below indicate the number of months from the Cut-off Date to the first
interest rate change date for the applicable pools of loans and (xi) each
Mortgage Interest Rate of each Mortgage Loan in the Adjustable Rate Group is
reduced by % per annum with respect to the first twelve Accrual
Periods and % per annum with respect to subsequent Accrual Periods.
FIXED RATE GROUP
<TABLE>
<CAPTION>
ORIGINAL ORIGINAL REMAINING
MORTGAGE AMORTIZATION TERM TO TERM TO
AMORTIZATION PRINCIPAL INTEREST TERM MATURITY MATURITY
METHODOLOGY BALANCE RATE (MONTHS) (MONTHS) (MONTHS)
- ------------ --------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
$
</TABLE>
S-33
<PAGE> 35
ADJUSTABLE RATE GROUP
<TABLE>
<CAPTION>
PERIODIC ORIGINAL ORIGINAL
MONTHS MORTGAGE MAXIMUM MINIMUM RATE AMORTIZATION TERM
AMORTIZATION PRINCIPAL TO RATE INTEREST GROSS INTEREST INTEREST ADJUSTMENT TERM TO MATURITY
METHODOLOGY BALANCE CHANGE RATE MARGIN RATE RATE CAP (MONTHS) (MONTHS)
- ------------ --------- ------- -------- ------ -------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
..................... $ % % % % %
<CAPTION>
REMAINING TERM
AMORTIZATION TO MATURITY
METHODOLOGY (MONTHS)
- ------------ --------------
<S> <C>
.....................
</TABLE>
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each Class of Class A Certificates
indicated, and set forth the percentages of the Original Principal Balance of
each such Class of Class A Certificates that would be outstanding after each of
the dates shown under various prepayment scenarios based on the assumptions
described above.
S-34
<PAGE> 36
PERCENT OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING UNDER THE FOLLOWING PREPAYMENT
SCENARIOS
<TABLE>
<CAPTION>
CLASS A-1F CLASS A-1A
---------------------------------------------------------------------------------------- ----------
PAYMENT DATE IN SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7 SCENARIO 1
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...
Weighted Average
Life (Years)*........
<CAPTION>
CLASS A-1A
---------------------------------------------------------------------------
PAYMENT DATE IN SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
--------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...
Weighted Average
Life (Years)*........
</TABLE>
- ---------------
* The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each distribution in reduction of the related
Principal Balance by the number of years from the date of issuance of the
Certificate to the related Payment Date, (ii) adding the results and (iii)
dividing the sum by the highest related Principal Balance of the Certificate.
This table has been prepared based on the Modeling Assumptions (including the
assumptions regarding the characteristics and performance of the Mortgage
Loans, which differ from the actual characteristics and performance thereof)
and the Prepayment Scenarios and should be read in conjunction therewith.
S-35
<PAGE> 37
THE ORIGINATORS AND THE SERVICER -- ORIGINATION,
FORECLOSURE AND LOSS EXPERIENCE
GENERAL
For a general discussion of the Depositors, the Servicers and the
Originators, see "The Depositors, the Servicer, the Representative and the
Originators" in the Prospectus. In the discussion that follows, references to
the "COMPANY" include EquiCredit Corporation, EquiCredit Corporation of America
("EQUICREDIT") and its subsidiaries (including the other Originators) and
EquiCredit's predecessor in interest, OSCC-Florida.
On January 9, 1998, Barnett Banks, Inc., the parent and sole stockholder of
EquiCredit Corporation, merged with NationsBank Corporation. On September 30,
1998, BankAmerica Corporation was merged with and into NationsBank Corporation,
with the latter entity surviving. Upon completion of the merger, NationsBank
Corporation changed its name to BankAmerica Corporation. As a result, EquiCredit
is now an indirect wholly-owned subsidiary of BankAmerica Corporation.
As of , 199 , the Company had a total of employees;
employees at its Jacksonville, Florida headquarters and an additional
employees in branch offices located nationwide. As of , 199 , the
total stockholder's equity of the Company was approximately $ million. Copies
of the audited financial statements of the Company for the fiscal years ended
December 31, 199 , 199 and 199 , prepared on the basis of generally accepted
accounting principles, may be obtained upon request from EquiCredit Corporation
of America, 10401 Deerwood Park Boulevard, Jacksonville, Florida 32256,
Attention: Controller, or by telephoning (904) 987-5788.
LOAN ORIGINATION HISTORY
At , 199 , the Company conducted loan origination and/or
wholesale operations in a number of states, including but not limited to
[Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the
District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia and Wisconsin.]
The dollar amounts of first and second lien mortgage loans originated or
purchased and re-underwritten by the Company during the years ended December 31,
199 , 199 and 199 were approximately $ billion, approximately $ billion and
approximately $ billion, respectively. The dollar amount of the first and
second lien mortgage loans originated or purchased and re-underwritten by the
Company during the [months] months ended , 199 was approximately
$ billion.
UNDERWRITING CRITERIA
The following table sets forth the distribution of the Mortgage Loans among
the Company's designated credit grades as of the date of their origination:
<TABLE>
<CAPTION>
PERCENT OF MORTGAGE
NUMBER OF POOL BY
COMPANY CREDIT GRADE* MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------- -------------- ----------------- -------------------
<S> <C> <C> <C>
Class A....................................... $ %
Class B.......................................
Class C.......................................
------ --------------- ------
Total............................... $ %
====== =============== ======
</TABLE>
- ---------------
* Class A refers collectively to the Company's Class A+ and Class A credit
grades, Class B refers collectively to the Company's Class B+ and Class B
credit grades and Class C refers collectively to the Company's Class C+ and
Class C credit grades.
See "The Depositors, the Servicer, the Representative and the
Originators -- Specific Underwriting Criteria" in the Prospectus for a
discussion of the Company's underwriting policies.
S-36
<PAGE> 38
SERVICING PORTFOLIO
At , 199 and , 199 , the Company serviced a total
portfolio of and mortgage loans, respectively, having aggregate
unpaid principal balances of approximately $ billion and approximately $
billion, respectively, for itself and others.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the Company's delinquency and charge-off
experience at the dates indicated on mortgage loans included in its servicing
portfolio, including loans in foreclosure proceedings, but excluding loans
serviced by the Company that were not originated or acquired and re-underwritten
by the Company (such portfolio, excluding such loans, the "PRIMARY SERVICING
PORTFOLIO").
<TABLE>
<CAPTION>
AT OR FOR THE
[ MONTHS]
AT OR FOR THE YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- 30,
199 199 199 199
---------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Portfolio Unpaid Principal
Balance(1)................................... $ $ $ $
Average Portfolio Unpaid
Principal Balance............................ $ $ $ $
Period of Delinquency(2):
30-59 Days................................... % % % %
60-89 Days................................... % % % %
90 Days or More.............................. % % % %
Total Delinquencies............................ % % % %
Total Credit Losses(3)......................... $ $ $ $
Total Credit Losses as a Percent of Average
Portfolio Unpaid Principal Balance........... % % % %(4)
</TABLE>
- ---------------
(1) Portfolio Unpaid Principal Balance is the net amount of principal to be paid
on each mortgage loan, excluding unearned finance charges and other charges,
and excludes the principal balance of each mortgage loan as to which the
related mortgaged property has been previously acquired through foreclosure.
(2) Delinquency percentages are calculated as the dollar amount of mortgage loan
principal delinquent as a percent of the Portfolio Unpaid Principal Balance.
Delinquency percentages include the principal balance of all mortgage loans
in foreclosure proceedings. Generally, all Mortgage Loans in foreclosure
proceedings are 90 days or more delinquent. Delinquency percentages do not
include the principal balance of mortgage loans which are real estate owned.
(3) Total Credit Losses includes (a) charge-offs of principal, net of subsequent
recoveries, relating to mortgage loans written off as uncollectible or
charge-offs relating to properties securing any mortgage loans which have
been foreclosed upon and for which, in the opinion of management,
liquidation proceeds would not exceed estimated expenses of liquidation plus
the unpaid principal balance, (b) expenses associated with maintaining,
repairing, and selling foreclosed properties and real estate owned, and (c)
losses (gains) on the disposition of foreclosed properties and real estate
owned.
(4) Annualized.
S-37
<PAGE> 39
The delinquency percentages set forth in the preceding table are calculated
on the basis of the unpaid principal balances of mortgage loans included in the
Primary Servicing Portfolio as of the end of the periods indicated. The
charge-off experience percentages set forth above are calculated on the basis of
the average outstanding unpaid principal balance of mortgage loans included in
the Primary Servicing Portfolio during the periods indicated. However, because
the amount of loans included in the Primary Servicing Portfolio has increased
over these periods as a result of new originations, the Primary Servicing
Portfolio as of the end of any indicated period includes many loans that will
not have been outstanding long enough to give rise to some or all of the
indicated periods of delinquency or to have resulted in losses. In the absence
of such substantial and continual additions of newly originated loans to the
Primary Servicing Portfolio, the delinquency and charge-offs percentages
indicated above would be higher and could be substantially higher. The actual
delinquency percentages and loss experience with respect to the Mortgage Loans
may be expected to be substantially higher than the delinquency percentages
indicated above because the composition of the Mortgage Pool will not change.
OUTSTANDING REAL ESTATE OWNED
At each of , 199 and , 199 , and properties,
respectively, acquired through foreclosure were owned by the Company for its own
account or on behalf of owners of other mortgage loans included in the Company's
Primary Servicing Portfolio. Such properties, at December 31, 199 and
, 199 , had recorded book values of approximately $ million and
approximately $ million, respectively.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The EQCC Home Equity Loan Asset Backed Certificates, Series 199 (the
"CERTIFICATES"), will consist of four classes of Certificates, designated as (i)
the Class A-1F Certificates and Class A-1A Certificates (collectively, the
"CLASS A CERTIFICATES"), (ii) the Class X Certificates and (iii) the Class R
Certificates (the "RESIDUAL CERTIFICATES"). Only the Class A Certificates are
offered hereby.
The following summary describes certain terms of the Certificates and the
Pooling and Servicing Agreement. Reference is made to the accompanying
Prospectus for important additional information regarding the terms of the
Certificates and the underlying documents. A form of the Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
the Prospectus forms a part. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the Certificates and the Pooling and Servicing Agreement. Where particular
provisions or terms used in any of such documents are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
The Certificates represent interests in the Trust created and held pursuant
to the Pooling and Servicing Agreement. The Trust Fund will consist primarily of
(i) the Mortgage Loans and all proceeds thereof, (ii) REO Property, (iii)
amounts on deposit in the Collection Account (as defined herein), Principal and
Interest Account (as defined herein), Insurance Account and Spread Account,
including amounts on deposit in such accounts and all investments of amounts
therein, (iv) certain rights of the Depositors under the Transfer Agreement and
(v) the Securities Insurance Policy; provided, however, that the Trust Fund does
not include prepayment penalties and premiums under the Mortgage Loans which are
paid to EquiCredit (the "REPRESENTATIVE'S YIELD") or amounts received on or
after the Cut-off Date in respect of interest accrued on the Mortgage Loans
prior to the Cut-off Date.
Each Class A Certificate will be issued in minimum denominations of
$ and integral multiples of $ in excess thereof. Each Class A
Certificate will represent a percentage interest (a "PERCENTAGE INTEREST") in
the Class A Certificates of the applicable Class determined by dividing the
original dollar amount represented by such Class A Certificate by the original
aggregate principal amount of all Class A Certificates of such Class.
S-38
<PAGE> 40
The "FINAL SCHEDULED PAYMENT DATE" for each Class of the Class A
Certificates is .
The Final Scheduled Payment Date for each Class of Class A Certificates is
the Payment Date in the month following the calendar month in which the stated
maturity of the Mortgage Loan in the related Mortgage Loan Group having the
latest stated maturity occurs.
The date on which the final payment on any Class A Certificate is
distributed could occur significantly earlier than its Final Scheduled Payment
Date, because, among other things, (i) prepayments on Mortgage Loans are likely
to occur, (ii) defective Mortgage Loans may be purchased from the Trust under
certain circumstances described herein, (iii) the Servicer may purchase all of
the Mortgage Loans when the aggregate outstanding principal amount of the
Mortgage Loans is less than 10% of the sum of Original Pool Principal Balance
and (iv) shortfalls in principal due to losses on the Mortgage Loans could
result in Insured Payments in respect of principal on the Class A Certificates.
The Servicer will service the Mortgage Loans either directly or through
subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Offered Certificates -- Servicing Standards" and "Use of
Subservicers" in the Prospectus for a further description of the provisions of
the Pooling and Servicing Agreement relating to servicing standards and the use
of subservicers.
BOOK-ENTRY REGISTRATION
Each Class of Class A Certificates will be represented by one or more
certificates registered in the name of Cede & Co. ("CEDE"), the nominee of DTC.
No person acquiring an interest in the Class A Certificates ("CERTIFICATE
OWNER") will be entitled to receive a physical certificate representing such
person's interest (a "DEFINITIVE CERTIFICATE"), except as set under "Description
of the Certificates -- Registration and Transfer of the Certificates" in the
Prospectus. Unless and until Definitive Certificates are issued for the Class A
Certificates under the limited circumstances described therein, all references
to actions by Certificateholders with respect to the Class A Certificates will
refer to actions taken by DTC upon instructions from DTC Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders with respect to the Class A Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates, for distribution to Certificate Owners by
DTC in accordance with DTC procedures. Holders of Class A Certificates may hold
their Certificates through DTC (in the United States) or Cedel Bank, societe
anonyme ("CEDEL") or the Euroclear System ("EUROCLEAR") in Europe. Transfers
within DTC, CEDEL or Euroclear, as the case may be, will be in accordance with
the usual rules and operating procedures of the relevant system (in Europe) if
they are participants of such systems, or indirectly through organizations that
are participants in such systems. Cross-market transfers between persons holding
directly or indirectly through DTC, on the one hand, and counterparties holding
directly or indirectly through CEDEL or Euroclear, on the other, will be
effected in DTC through Citibank N.A. ("CITIBANK") or The Chase Manhattan Bank
("CHASE"), the relevant depositaries (collectively, the "DEPOSITARIES") of DTC.
See "Annex I" hereto and "Description of the Certificates -- Registration and
Transfer of the Certificates" in the Prospectus.
DISTRIBUTIONS
General. The Trustee is required to establish a trust account (the
"COLLECTION ACCOUNT") for the remittance of payments on the Mortgage Loans to
the Certificateholders. The Collection Account is required to be maintained as
an Eligible Account.
On each Payment Date, commencing in 199 , the Trustee will
distribute to each person in whose name a Certificate is registered (which, as
to each Class of Class A Certificates, initially will be only Cede, the nominee
of DTC) on the related Record Date, the portion of the aggregate distribution to
which such Certificateholder is entitled, if any, based on the Percentage
Interest of the Certificates held by such holder. Distributions will be made by
wire transfer of immediately available funds to the account of such
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder of
S-39
<PAGE> 41
record owns Certificates aggregating in excess of $1,000,000, and shall have
provided complete wiring instructions to the Trustee at least five business days
prior to the related Record Date, and otherwise by check mailed to the address
of the person entitled thereto as it appears on the Certificate Register.
Certificate Owners may experience some delays in the receipt of their payments
due to the operation of DTC. See "Risk Factors -- Book-Entry Certificates"
herein, "Annex I" hereto and "Risk Factors -- Risks Associated with the
Certificates" and "Description of the Certificates -- Registration and Transfer
of the Certificates" in the Prospectus.
Except with respect to certain Payment Dates following the depletion of the
Spread Account as described below, on each Payment Date, the Trustee shall
withdraw from the Collection Account and distribute, based on the information
provided in the most recent Trustee's Remittance Report, the following amounts
to the extent available, in the priority indicated:
(i) first, except as otherwise specified in the Pooling and Servicing
Agreement, for deposit into the Insurance Account for the benefit of the
Insurer, the Monthly Premium payable to the Insurer;
(ii) second, for deposit into the Spread Account, the Excess Spread;
(iii) third, to each Class of Class A Certificates, from the amounts
attributable to the related Mortgage Loan Group, the related Interest
Remittance Amount;
(iv) fourth, to the extent not payable pursuant to clause (i) above,
as specified in the Pooling and Servicing Agreement, for deposit into the
Insurance Account for the benefit of the Insurer, the Monthly Premium
payable to the Insurer;
(v) fifth, to the Class A Certificates, from the amounts attributable
to the related Mortgage Loan Group, the Class A Principal Remittance Amount
concurrently as follows:
(a) to the Class A-1F Certificates, to be applied to reduce the
Principal Balance of such Class to zero, the Principal Remittance Amount
for the Fixed Rate Group; and
(b) to the Class A-1A Certificates, to be applied to reduce the
Principal Balance of such Class to zero, the Principal Remittance Amount
for the Adjustable Rate Group;
(vi) sixth, to the Trustee, any amounts then due and owing
representing fees of the Trustee, provided that the Trustee certifies in
writing that such amount is due and owing and has not been paid by the
Servicer within 30 days after written demand therefor;
(vii) seventh, to the Servicer and/or the Representative, an amount
equal to the amounts expended by the Servicer or the Representative and
reimbursable thereto under the Pooling and Servicing Agreement but not
previously reimbursed;
(viii) eighth, to the Servicer, an amount equal to Nonrecoverable
Advances previously made by the Servicer and not previously reimbursed;
(ix) ninth, to the Class X Certificateholders, to the extent of such
Class's entitlement under the Pooling and Servicing Agreement; and
(x) tenth, to the Class R Certificateholders, the balance, if any, in
the manner provided in the Pooling and Servicing Agreement.
The amount available to make the payments described above will generally
equal the sum of (i) the Available Payment Amount for the related Due Period,
(ii) any Spread Account Draw deposited into the Collection Account from the
Spread Account with respect to the related Payment Date and (iii) any Insured
Payments deposited into the Collection Account with respect to the related Due
Period.
The Pooling and Servicing Agreement provides that, to the extent the
Insurer makes Insured Payments, the Insurer will be subrogated to the rights of
the Class A Certificateholders with respect to such Insured Payments and shall
be deemed, to the extent of the payments so made, to be a registered holder of
Class A Certificates, and shall be entitled to reimbursement for such Insured
Payments, with interest thereon at the
S-40
<PAGE> 42
applicable Pass-Through Rate on each Payment Date following the making of an
Insured Payment, only after the Class A Certificateholders have received the
Class A Remittance Amount for such Payment Date.
Interest. Interest on each Class of Class A Certificates will accrue from
and including the Closing Date, in the case of the initial Payment Date, or from
and including the most recent Payment Date on which interest has been paid, to
but excluding the next succeeding Payment Date. The period referred to above
relating to the accrual of interest is the "ACCRUAL PERIOD" for the related
Class of Class A Certificates. Interest will accrue on the Class A-1F
Certificates during each Accrual Period at a Pass-Through Rate equal to the
lesser of (i) the London interbank offered rate for one-month U.S. dollar
deposits ("LIBOR") (calculated as described under "-- Calculation of LIBOR"
below) as of the second business day prior to the first day of such Accrual
Period (the "LIBOR DETERMINATION DATE") plus (a) % per annum on each
Payment Date on or prior to the Optional Purchase Date (as defined herein) and
(b) % per annum on each Payment Date following the Optional Purchase Date
(the "CLASS A-1F LIBOR RATE") and (ii) the Class A-1F Net Funds Cap Rate with
respect to such Accrual Period. The "CLASS A-1F NET FUNDS CAP RATE" for any
Accrual Period will be a rate equal to the weighted average of the Mortgage
Interest Rates on the Mortgage Loans in the Fixed Rate Group as of the first day
of the related Due Period less either (i) % per annum, with respect to
the first twelve Accrual Periods or (ii) % per annum, with respect to
each subsequent Accrual Period. The applicable Pass-Through Rate on the Class
A-1F Certificates for any Accrual Period is referred to as the "CLASS A-1F
PASS-THROUGH RATE". Interest will accrue on the Class A-1A Certificates during
each Accrual Period at a Pass-Through Rate equal to the lesser of (i) LIBOR as
of the related LIBOR Determination Date plus (a) % per annum on each
Payment Date on or prior to the Optional Purchase Date and (b) % per
annum on each Payment Date following the Optional Purchase Date (the "CLASS A-1A
LIBOR RATE") and (ii) the Class A-1A Net Funds Cap Rate with respect to such
Accrual Period. The "CLASS A-1A NET FUNDS CAP RATE" for any Accrual Period will
be a rate equal to the weighted average of the Mortgage Interest Rates on the
Mortgage Loans in the Adjustable Rate Group as of the first day of the related
Due Period less either (i) % per annum, with respect to the first twelve
Accrual Periods or (ii) % per annum, with respect to each subsequent
Accrual Period. The applicable Pass-Through Rate on the Class A-1A Certificates
for any Accrual Period is referred to as the "CLASS A-1A PASS-THROUGH RATE." The
Class A-1A Net Funds Cap Rate and the Class A-1F Net Funds Cap Rate are each
referred to as a "NET FUNDS CAP RATE". Interest will be distributed to each
Class of Class A Certificates on each Payment Date to the extent of available
funds (including any permitted withdrawals from the Spread Account and any
Insured Payments received). Interest with respect to the Class A Certificates on
each Payment Date will accrue on the basis of the actual number of days from,
and including, the preceding Payment Date to, but excluding, such Payment Date,
over a 360-day year. With respect to each Payment Date and each Class of Class A
Certificates, interest accrued during the Accrual Period at the related
Pass-Through Rate on the related Principal Balance (as defined below)
outstanding on the immediately preceding Payment Date (after giving effect to
all payments of principal made on such Payment Date) or the related Original
Principal Balance, in the case of the initial Accrual Period, is referred to
herein as the "INTEREST REMITTANCE AMOUNT" for such Class of Class A
Certificates. The sum of the Interest Remittance Amounts for each Class of Class
A Certificates is referred to herein as the "CLASS A INTEREST REMITTANCE
AMOUNT." See "Description of the Certificates -- Distributions" in the
Prospectus.
If on any Payment Date the Class A-1F Pass-Through Rate is equal to the
Class A-1F Net Funds Cap Rate, an amount equal to the Class A-1F LIBOR Interest
Carryover (as defined below) will be distributed on subsequent Payment Dates to
the Class A-1F Certificates from any Excess Spread with respect to the Mortgage
Loans in the Fixed Rate Group which would otherwise be distributed to the
holders of the Class X Certificates on such Payment Date. The "CLASS A-1F LIBOR
INTEREST CARRYOVER" for any Payment Date will equal (i) the difference between
(a) the amount of interest the Class A-1F Certificates would be entitled to
receive on such Payment Date without regard to the Class A-1F Net Funds Cap Rate
and (b) the amount of interest actually distributed to the Class A-1F
Certificates on such Payment Date, plus (ii) the portion of any amount
calculated pursuant to clause (i) remaining unpaid from prior Payment Dates (and
interest accrued thereon at the then-applicable Class A-1F LIBOR Rate).
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If on any Payment Date the Class A-1A Pass-Through Rate is equal to the
Class A-1A Net Funds Cap Rate, an amount equal to the Class A-1A LIBOR Interest
Carryover (as defined below) will be distributed on subsequent Payment Dates to
the Class A-1A Certificates from any Excess Spread with respect to the Mortgage
Loans in the Adjustable Rate Group which would otherwise be distributed to the
holders of the Class X Certificates on such Payment Date. The "CLASS A-1A LIBOR
INTEREST CARRYOVER" for any Payment Date will equal (i) the difference between
(a) the amount of interest the Class A-1A Certificates would be entitled to
receive on such Payment Date without regard to the Class A-1A Net Funds Cap Rate
and (b) the amount of interest actually distributed to the Class A-1A
Certificates on such Payment Date, plus (ii) the portion of any amount
calculated pursuant to clause (i) remaining unpaid from prior Payment Dates (and
interest accrued thereon at the then-applicable Class A-1A LIBOR Rate). The
Class A-1A LIBOR Interest Carryover and the Class A-1F LIBOR Interest Carryover
are each referred to as a "LIBOR INTEREST CARRYOVER."
The Class A-1A LIBOR Interest Carryover and the Class A-1F LIBOR Interest
Carryover will be distributed on subsequent Payment Dates, from the amount of
the Excess Spread allocable to the Mortgage Loans in the Adjustable Rate Group
and the Fixed Rate Groups, respectively, which is not required to be retained in
the Spread Account, to the holders of the Class A-1A and Class A-1F
Certificates, respectively. No LIBOR Interest Carryover will be paid to the
related Class A Certificates after the Principal Balance of such Class A
Certificates has been reduced to zero. The ratings assigned to the Class A
Certificates do not address the likelihood of the payment of the amount of any
LIBOR Interest Carryover. The Securities Insurance Policy does not guarantee
payment of any LIBOR Interest Carryover.
Calculation of LIBOR. On each LIBOR Determination Date (as defined above),
the Trustee will determine LIBOR for the next Accrual Period for the Adjustable
Rate Certificates on the basis of the British Bankers' Association ("BBA")
"INTEREST SETTLEMENT RATE" for one-month deposits in U.S. dollars as found on
Telerate page 3750 as of 11:00 a.m. London time on such LIBOR Determination
Date. Such Interest Settlement Rates currently are based on rates quoted by 16
BBA designated banks as being, in the view of such banks, the offered rate at
which deposits are being quoted to prime banks in the London interbank market.
Such Interest Settlement Rates are calculated by eliminating the four highest
rates and the four lowest rates, averaging the eight remaining rates, carrying
the results (expressed as a percentage) out to six decimal places, and rounding
to five decimal places. As used herein "TELERATE PAGE 3750" means the display
designated as page 3750 on the Dow Jones Telerate Service.
If, on any LIBOR Determination Date, the Trustee is unable to determine
LIBOR on the basis of the method set forth in the preceding paragraph, LIBOR
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 prime banks in the London interbank market for a period
equal to the related Accrual Period (commencing on the first day of such 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, LIBOR will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, LIBOR 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 period equal to
the related Accrual Period (commencing on the first day of such Accrual Period).
"REFERENCE BANKS" means four major banks in the London interbank market
selected by the Servicer.
Principal. Holders of the Class A Certificates will be entitled to receive
on each Payment Date, to the extent of the portion of the amount available for
distribution attributable to the principal of the Mortgage Loans in the related
Mortgage Loan Group (but not more than the Principal Balance of the related
Class then outstanding), a distribution allocable to principal which will
generally equal the sum of (a)(i) the principal portion of all scheduled
payments ("MONTHLY PAYMENTS") received on the Mortgage Loans in such Mortgage
Loan Group during the calendar month preceding the calendar month in which such
Payment Date occurs (the "DUE PERIOD"), (ii) any principal prepayments in full
of any such Mortgage Loans in such Mortgage
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Loan Group ("PRINCIPAL PREPAYMENTS") and partial prepayments on any such
Mortgage Loan in the related Mortgage Loan Group received during the related Due
Period that are not Principal Prepayments (each, a "CURTAILMENT"), (iii) the
principal portion of (A) the proceeds of any insurance policy relating to a
Mortgage Loan in such Mortgage Loan Group, a Mortgaged Property (as defined
below) or a REO Property (as defined below), net of proceeds to be applied to
the repair of the Mortgaged Property or released to the Mortgagor (as defined
herein) and net of expenses reimbursable therefrom ("INSURANCE PROCEEDS"), (B)
proceeds received during the related Due Period in connection with the
liquidation of any defaulted Mortgage Loans in such Mortgage Loan Group, whether
by trustee's sale, foreclosure sale or otherwise ("LIQUIDATION PROCEEDS"), net
of fees and advances reimbursable therefrom ("NET LIQUIDATION PROCEEDS") and (C)
proceeds received during the related Due Period in connection with a taking of a
related Mortgaged Property by condemnation or the exercise of eminent domain or
in connection with a release of part of any such Mortgaged Property with respect
to a Mortgage Loan in such Mortgage Loan Group from the related lien ("RELEASED
MORTGAGED PROPERTY PROCEEDS"), (iv) the principal portion of all amounts paid by
the Depositors (which are limited to amounts paid by the Representative or an
Originator pursuant to the obligation to purchase or substitute Mortgage Loans
contained in a transfer agreement among the Originators and the Depositors under
which the Mortgage Loans are transferred from the Originator to the Depositor
(the "TRANSFER AGREEMENT") in connection with the purchase of, or the
substitution of a substantially similar mortgage loan for, a Mortgage Loan in
such Mortgage Loan Group as to which there is defective documentation or a
breach of a representation or warranty contained in the Pooling and Servicing
Agreement and (v) the principal balance of each defaulted Mortgage Loan in such
Mortgage Loan Group or REO Property as to which the Servicer has determined that
all amounts expected to be recovered have been recovered (each, a "LIQUIDATED
MORTGAGE LOAN") to the extent not included in the amounts described in clauses
(i) through (iv) above (the sum of (i) through (v) above, the "BASIC PRINCIPAL
AMOUNT" with respect to such Mortgage Loan Group) and (b) the sum of (i) the
amount, if any, by which (A) the amount required to be distributed to Class A-1F
or Class A-1A Certificateholders, as the case may be, as of the preceding
Payment Date exceeded (B) the amount of the actual distribution to the Class
A-1F or Class A-1A Certificateholders, as the case may be, on such preceding
Payment Date, exclusive of any portion of any Insured Payment made to such
Certificateholders, and (ii) if any portion of the amount in the preceding
clause (i) represents Insured Payments made by the Insurer, interest on such
portion at the applicable Pass-Through Rate from such immediately preceding
Payment Date (with respect to the Certificates related to each Mortgage Loan
Group, the "CARRY-FORWARD AMOUNT" with respect to such Certificates, together
with the Basic Principal Amount for such Certificates, the "PRINCIPAL REMITTANCE
AMOUNT" for such Certificates and the aggregate Principal Remittance Amount,
with respect to all of the Class A Certificates, the "CLASS A PRINCIPAL
REMITTANCE AMOUNT").
On each Payment Date, the lesser of (i) the Principal Balance of the Class
A-1F Certificates then outstanding and (ii) the Principal Remittance Amount for
the Fixed Rate Group (together with the Interest Remittance Amount for the Class
A-1F Certificates, the "REMITTANCE AMOUNT" for the Fixed Rate Group) is payable
to the Class A-1F Certificates until the Principal Balance of such Class is
reduced to zero. Concurrently with such distribution to the Class A-1F
Certificates, on each Payment Date, the lesser of (i) the Principal Balance of
the Class A-1A Certificates then outstanding and (ii) the Principal Remittance
Amount for the Adjustable Rate Group (together with the Interest Remittance
Amount for the Class A-1A Certificates, the "REMITTANCE AMOUNT" for the
Adjustable Rate Group) is payable to the Class A-1A Certificates until the
Principal Balance of such Class is reduced to zero. On any Payment Date, the
aggregate Remittance Amount for the Class A Certificates is referred to herein
as the "CLASS A REMITTANCE AMOUNT."
As of any Payment Date, the "CLASS A PRINCIPAL BALANCE" will equal the sum
of the Original Principal Balance of each Class of Class A Certificates less all
amounts previously distributed on account of principal to holders of the Class A
Certificates. As of any Payment Date, the "PRINCIPAL BALANCE" for each Class of
Class A Certificates will equal the Original Principal Balance for such Class,
less all amounts previously distributed on account of principal to holders of
such Class.
Spread Account. The Trustee will establish a trust account (the "SPREAD
ACCOUNT") for the benefit of the Certificateholders and the Insurer into which
it will deposit upon receipt from the Servicer on each Payment Date the excess,
if any, of the aggregate interest received or advanced with respect to the
related Due
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Period on the Mortgage Loans at their respective annual rates of interest (each
such annual rate of interest referred to as the "MORTGAGE INTEREST RATE" for the
applicable Mortgage Loan) over the sum of (i) the Class A Interest Remittance
Amount, (ii) the monthly fee due to the Insurer (the "MONTHLY PREMIUM") and
(iii) the Servicing Fee for such Mortgage Loans (such aggregate amount, the
"EXCESS SPREAD"). The Trustee is required to retain 100% of the Excess Spread
(the "PERIODIC EXCESS SPREAD AMOUNT") in the Spread Account until the amount on
deposit therein is equal to an amount specified by the Insurer in the Pooling
and Servicing Agreement (the "BASE SPREAD ACCOUNT REQUIREMENT"). Excess Spread
amounts deposited into the Spread Account will be deemed to have been
distributed in respect of the regular interest represented by the Class X
Certificates and deposited into the Spread Account.
After the amount on deposit in the Spread Account is equal to the Base
Spread Account Requirement, the amount required to be on deposit in the Spread
Account at any time as specified by the Insurer in the Pooling and Servicing
Agreement (the "SPECIFIED SPREAD ACCOUNT REQUIREMENT") may be reduced as
specified by the Insurer, provided that such reduction shall not result in the
reduction of the rating of the Class A Certificates. The Base Spread Account
Requirement and the percentage used in determining the Periodic Excess Spread
Amount may be reduced at the sole discretion of the Insurer, in each case
without the consent of any Certificateholder.
On each Payment Date, amounts, if any, on deposit in the Spread Account
will be available to fund any shortfall between the available funds for
distributions to Class A Certificateholders and the Class A Remittance Amount
without regard to Mortgage Loan Group; provided, however, that, on and after
such date (the "CROSS-OVER DATE") on which the aggregate withdrawals from the
Spread Account to cover shortfalls in amounts payable on the Class A
Certificates attributable to Mortgage Loan Losses ("CUMULATIVE SPREAD ACCOUNT
RECEIPTS") equal an amount specified by the Insurer (the "SUBORDINATED AMOUNT")
in the Pooling and Servicing Agreement, no further withdrawals with respect to
shortfalls in the amounts required to be paid on the Class A Certificates may be
made from the Spread Account, and the Specified Spread Account Requirement will
thereafter be zero. The Pooling and Servicing Agreement provides that the
Specified Spread Account Requirement for any date will in no event be greater
than the Subordinated Amount as of such date. The Spread Account will be funded
with Excess Spread from all Mortgage Loans, without regard to Mortgage Loan
Group, and will be available for distributions to all of the Class A
Certificates.
On each Payment Date any amounts constituting (i) Excess Spread in excess
of the Periodic Excess Spread Amount (the "REMAINDER EXCESS SPREAD AMOUNT"),
(ii) amounts in the Spread Account in excess of the Specified Spread Account
Requirement (any such amount, a "SPREAD ACCOUNT EXCESS") and (iii) after the
Cross-Over Date, the entire Excess Spread, will be distributed, after payment of
unreimbursed Servicing Advances to the Servicer, first, concurrently, (a) to the
extent of Excess Spread with respect to the Mortgage Loans in the Adjustable
Rate Group, to the Class A-1A Certificateholders to pay any Class A-1A LIBOR
Interest Carryover and (b) to the extent of Excess Spread with respect to the
Mortgage Loans in the Fixed Rate Group, to the Class A-1F Certificates to pay
any Class A-1F LIBOR Interest Carryover and second, to the holders of the Class
X Certificates.
Neither the holders of the Class X Certificates nor the Servicer will be
required to refund any amounts previously distributed to them properly,
regardless of whether there are sufficient funds on a subsequent Payment Date to
make full distributions to the Class A Certificateholders of the amounts
required to be distributed to the Class A Certificateholders.
The funding and maintenance of the Spread Account is intended to enhance
the likelihood of timely payment to the Class A Certificateholders of the Class
A Remittance Amount and to afford limited protection against losses in respect
of the Mortgage Loans; however, in certain circumstances, the Spread Account
could be depleted and shortfalls could result. Notwithstanding the depletion of
the Spread Account, the Insurer will be obligated to make Insured Payments on
each Payment Date to fund the full amount of the Class A Remittance Amount on
such Payment Date.
Certain Definitions. For purposes of the provisions described above, the
following terms have the respective meanings ascribed to them below, each
determined as of any Payment Date. The use of any of the following terms with
respect to either the Fixed Rate Group or the Adjustable Rate Group shall have
the same
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meaning as set forth below, except that all amounts referred to shall include
only the Fixed Rate Group or the Adjustable Rate Group, as applicable.
"AVAILABLE PAYMENT AMOUNT" generally equals (a) collections on or with
respect to the Mortgage Loans in the related Mortgage Loan Group received by the
Servicer during the related Due Period, net of the Servicing Fee paid to the
Servicer during the related Due Period and reimbursements for accrued unpaid
Servicing Fees and for certain expenses paid by the Servicer, plus (b) the
amount of any Advances made by the Servicer, less (c) Excess Spread.
"INSURED PAYMENT" means the amount, if any, by which (A) the Class A
Remittance Amount exceeds (B) the sum of (i) the Available Payment Amount plus
any amounts transferred from the Spread Account to the Collection Account and
(ii) the aggregate amount of any previous Insured Payments for which the Insurer
has not been reimbursed.
"MORTGAGE LOAN LOSSES" means the aggregate sum of the amount, if any, by
which the sum of (i) the outstanding principal balance of each Mortgage Loan
that became a Liquidated Mortgage Loan during the related Due Period (such
principal balance determined immediately before such Mortgage Loan became a
Liquidated Mortgage Loan) and accrued and unpaid interest thereon at the
Mortgage Interest Rate to the date on which such Mortgage Loan became a
Liquidated Mortgage Loan exceeds (ii) the Net Liquidation Proceeds received
during such Due Period in connection with the liquidation of such Mortgage Loan
which have not theretofore been used to reduce the Principal Balance of such
Mortgage Loan.
"SPREAD ACCOUNT DRAW" means an amount deposited into the Collection Account
from the Spread Account equal to the excess of (i) the Class A Remittance
Amount, over (ii) the Available Payment Amount less the fee of the Insurer (as
reduced by any portion of the Available Payment Amount that has been deposited
in the Collection Account but may not be withdrawn therefrom pursuant to an
order of a United States bankruptcy court of competent jurisdiction imposing a
stay pursuant to Section 362 of the United States Bankruptcy Code).
SECURITIES INSURANCE POLICY
The Servicer will obtain the Securities Insurance Policy in favor of the
Trustee for the benefit of the Class A Certificateholders. In the event that, on
any Payment Date, the amount available for distribution (net of any Insured
Payments) is less than the Class A Remittance Amount, the Trustee will make a
draw on the Securities Insurance Policy for an Insured Payment, in an amount
equal to any such deficiency. The Securities Insurance Policy provides for 100%
coverage of the Class A Remittance Amount due on the Class A Certificates on
each Payment Date. The Securities Insurance Policy provides protection for
credit risk and does not guarantee any specified rate of principal payments or
prepayments to the Class A Certificateholders. The Securities Insurance Policy
does not guarantee payment of any LIBOR Interest Carryover. See "The Securities
Insurance Policy and the Insurer" herein.
PAYMENT OF CERTAIN EXPENSES
In order to provide for the payment of the fees of the Insurer, the Trustee
is required to establish and maintain one or more trust accounts (the "INSURANCE
ACCOUNT") into which the Trustee is required to deposit on each Payment Date,
from amounts on deposit in the Collection Account and before making any required
deposits into the Spread Account and, except under certain limited circumstances
as provided in the Pooling and Servicing Agreement, before making any required
distributions to the Class A Certificateholders, an amount that is sufficient to
pay the Monthly Premium.
The Servicer is required to pay to the Trustee from time to time the fees
of the Trustee and the reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with the Pooling and Servicing Agreement.
The Trustee is permitted on each Payment Date to pay to itself, from amounts on
deposit in the Collection Account after making any required distributions to
Class A Certificateholders and any required deposits into the Insurance Account,
any amounts then due and owing representing fees of the Trustee that have not
been paid by the Servicer after written demand therefor.
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ADVANCES FROM THE PRINCIPAL AND INTEREST ACCOUNT
Not later than the close of business on the third business day prior to
each Payment Date, the Servicer will withdraw from amounts on deposit in the
Principal and Interest Account and held for future distribution and remit to the
Trustee for deposit in the Collection Account an amount (the "ADVANCE"), to be
distributed on the related Payment Date, equal to the sum of the interest
portions of the aggregate amount of Monthly Payments for each Mortgage Loan
Group (net of the related Servicing Fee and, after the Cross-Over Date, the
Excess Spread) accrued during the related Due Period, but uncollected as of the
close of business on the last day of the related Due Period. The Servicer
generally will not be required to make such Advance from its own funds or be
liable for the recovery thereof from collections on the Mortgage Loans for each
Mortgage Loan Group or otherwise.
SERVICING COMPENSATION
As compensation for servicing and administering the Mortgage Loans, the
Servicer is entitled to a per annum fee (the "SERVICING FEE"), payable monthly
from the interest portion of monthly payments on the Mortgage Loans, Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and certain
other late collections on the Mortgage Loans. In addition to the Servicing Fee,
the Servicer is entitled under the Pooling and Servicing Agreement to retain as
additional servicing compensation any assumption and other administrative fees
(including bad check charges, late payment fees and similar fees), the excess of
any Net Liquidation Proceeds over the outstanding principal balance of a
Liquidated Mortgage Loan, to the extent not otherwise required to be remitted to
the Trustee for deposit into the Collection Account and not constituting any
part of the Representative's Yield, and interest paid on funds on deposit in the
Principal and Interest Account, earnings paid on Permitted Instruments, certain
amounts representing excess funds released from the Insurance Account and
similar items.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Advances of such payment or collection by the Servicer), or the disposition of
all funds with respect to the last Mortgage Loan and the remittance of all funds
due under the Pooling and Servicing Agreement and the payment of all amounts due
and payable to the Insurer and the Trustee or (b) mutual consent of the
Servicer, the Insurer and all Certificateholders in writing; provided, however,
that in no event will the Trust established by the Pooling and Servicing
Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of the person named in the Pooling and Servicing
Agreement, alive as of the date of the Pooling and Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the Servicer may, at its option,
terminate the Pooling and Servicing Agreement on any date, on or following the
first Payment Date (the "OPTIONAL PURCHASE DATE") on which the Pool Principal
Balance as of the last day of the related Due Period is less than 10% of the
Original Pool Principal Balance by purchasing, on such Payment Date, all of the
outstanding Mortgage Loans and all Mortgaged Properties acquired by foreclosure
or deed in lieu of foreclosure ("REO PROPERTIES") then remaining in the Trust at
a price equal to (i) the sum of (a) 100% of the aggregate outstanding principal
balances of the Mortgage Loans and REO Properties, (b) accrued and unpaid
interest thereon at a rate equal to the weighted average Mortgage Interest Rate
and (c) any unpaid LIBOR Interest Carryover minus (ii) any amounts representing
collections on the Mortgage Loans and REO Properties not yet applied to reduce
the principal balance thereof or interest related thereto (the "TERMINATION
PRICE"). In connection with such purchase, the Servicer is required to pay any
unpaid fees and expenses of the Trustee and the Insurer.
In connection with a purchase by the Servicer as described above, the
Servicer is required to remit to the Trustee all amounts then on deposit in the
Principal and Interest Account that would have constituted part of the Available
Payment Amount for subsequent Payment Dates absent such purchase. Any such
purchase is required to be accomplished by deposit of the Termination Price into
the Collection Account.
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AMENDMENT
The Pooling and Servicing Agreement may be amended from time to time by the
Servicer, the Depositors and the Trustee by written agreement, upon the prior
written consent of the Insurer, without notice to, or consent of, the
Certificateholders, to cure any ambiguity or mistake, to correct or supplement
any provisions therein, to comply with any changes in the Code, or to make any
other provisions with respect to matters or questions arising under the Pooling
and Servicing Agreement which is not inconsistent with the provisions of the
Pooling and Servicing Agreement, or any Custodial Agreement, provided that such
action does not adversely affect in any material respect the interests of any
Certificateholder as evidenced by an opinion of counsel or written notification
from each Rating Agency to the effect that such amendment will not cause such
Rating Agency to lower or withdraw the then current ratings on the Certificates;
and provided, further, that no such amendment is permitted to reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the holder of such Certificate, or change the rights or obligations
of any other party to the Pooling and Servicing Agreement without the consent of
such party.
The Pooling and Servicing Agreement also may be amended from time to time
by the Depositors, the Servicer and the Trustee, with the consent of the
Insurer, the Majority in Aggregate Voting Interest (as defined below) and the
holders of the majority of the Percentage Interest in the Class R Certificates
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment is permitted unless the Trustee receives an opinion of
counsel, at the expense of the party requesting the change, that such change
will not adversely affect the status of the designated portion of the Trust Fund
as a REMIC or cause any tax to be imposed on the REMIC, and provided further,
that no such amendment is permitted to reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the holder of each such
Certificate or reduce the percentage for each Class the holders of which are
required to consent to any such amendment without the consent of the holders of
100% of each Class of Certificates affected thereby.
The "MAJORITY IN AGGREGATE VOTING INTEREST" represents Class A and Class X
Certificates voting together as a single class evidencing an aggregate voting
interest of at least 51%. For purposes of determining the Majority in Aggregate
Voting Interest, the Class X Certificates will be deemed to hold 5% of the
aggregate voting interests and the Class A Certificates will be deemed to hold
in the aggregate 95% of the aggregate voting interests. The voting interest of
each Class of Class A Certificates will be its pro rata portion of the aggregate
voting interest of the Class A Certificates based on the respective outstanding
Principal Balances of the Classes of Class A Certificates.
Notwithstanding any contrary provision of the Pooling and Servicing
Agreement, the Trustee is not permitted to consent to any amendment to the
Pooling and Servicing Agreement unless it has first received an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Servicer, the Representative, any Depositor, the Insurer or the Trustee
in accordance with such amendment will not result in the imposition of tax on
the Trust or cause the Trust Fund (other than the Spread Account and certain
rights under the Securities Insurance Policy) to fail to qualify as a REMIC at
any time that any Certificate is outstanding.
THE TRUSTEE
[Trustee] organized under the laws of the United States of America with its
principal place of business in the State of , will be named Trustee
pursuant to the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement provides that any corporation into which the Trustee may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Trustee shall be a party, or any corporation to
which the Trustee may sell or transfer all or substantially all of its corporate
trust business, shall be the successor Trustee provided that such corporation
meets the requirements described below.
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Pursuant to the Pooling and Servicing Agreement, the Trustee is required at
all times to be a banking association organized and doing business under the
laws of the United States of America or of any State authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $ , whose long-term deposits, if any, are rated at least " " by
[Rating Agency] and by [Rating Agency], or such lower rating as may be
approved in writing by the Insurer, [Rating Agency] and [Rating Agency], subject
to supervision or examination by federal or state authority and reasonably
acceptable to the Insurer. If at any time the Trustee shall cease to be eligible
in accordance with the provisions described in this paragraph, the Trustee shall
give notice of such ineligibility to the Insurer and shall resign, upon the
request of the Insurer or the Majority in Aggregate Voting Interest, in the
manner and with the effect specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any time
by giving written notice to the Servicer, the Insurer and to all
Certificateholders in the manner set forth in the Pooling and Servicing
Agreement. Upon receiving notice of resignation, the Servicer, with the consent
of the Insurer, is required to promptly appoint a successor trustee or trustees
meeting the eligibility requirements set forth above in the manner set forth in
the Pooling and Servicing Agreement. The Servicer will deliver a copy of the
instrument used to appoint a successor trustee to the Certificateholders. If no
successor trustee shall have been appointed and have accepted appointment within
60 days after the giving of such notice of resignation, the resigning trustee
may petition any court of competent jurisdiction for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
The Majority in Aggregate Voting Interest or, if the Trustee fails to
perform in accordance with the terms of the Pooling and Servicing Agreement, the
Insurer, may remove the Trustee under the conditions set forth in the Pooling
and Servicing Agreement and appoint a successor trustee in the manner set forth
therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable.
THE SECURITIES INSURANCE POLICY
AND THE INSURER
The information set forth in this section has been provided by [Insurer]
(the "INSURER"). No representation is made by the Representative, the
Depositors, any Originator or any of their affiliates as to the accuracy or
completeness of any such information.
THE INSURER
The Insurer is a regulated by the Office of the Commissioner of
Insurance of the State of and licensed to do business in [50 states, the
District of Columbia, the Commonwealth of Puerto Rico and the Territory of
Guam]. The Insurer primarily insures newly issued municipal and structured
finance obligations. [Rating Agencies] have each assigned a triple-A financial
strength rating to the Insurer.
The consolidated financial statements of the Insurer and its subsidiaries
as of December 31, 199 and December 31, 199 and for the three years ended
December 31, 199 , prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of (which
was filed with the Securities and Exchange Commission (the "COMMISSION") on
, ; Commission File No. ) and the unaudited consolidated
financial statements of the Insurer and its subsidiaries as
S-48
<PAGE> 50
of , and for the periods ending , and
, included in the Quarterly Report on Form 10-Q of
for the period ended , (which was filed with the
Commission on , are hereby incorporated by reference into this
Prospectus Supplement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated herein by reference shall be modified or
superseded for the purposes of this Prospectus Supplement to the extent that a
statement contained herein by reference herein also modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), subsequent to the date of this Prospectus Supplement and prior
to the termination of the offering of the Class A Certificates shall be deemed
to be incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The following table sets forth the capitalization of the Insurer as of
December 31, 199 , December 31, 199 and December 31, 199 , respectively, in
conformity with generally accepted accounting principles.
[INSURER]
CONSOLIDATED CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
<S> <C> <C> <C>
Unearned premiums..........................................
Other liabilities..........................................
------ ------ ------
Total liabilities..........................................
------ ------ ------
Stockholder's equity(1)
Common stock.............................................
Additional paid-in capital...............................
Accumulated other comprehensive income...................
Retained earnings........................................
------ ------ ------
Total stockholder's equity.................................
------ ------ ------
Total liabilities and stockholder's equity.................
====== ====== ======
</TABLE>
- ---------------
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance
with the Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" adopted by the Insurer effective , .
As this new standard only requires additional information on the financial
statements, it does not affect the Insurer's financial position or results
of operations.
For additional financial information concerning the Insurer, see the
audited and unaudited financial statements of the Insurer incorporated by
reference herein. Copies of the financial statements of the Insurer incorporated
herein by reference and copies of the Insurer's annual statement for the year
ended December 31, 199 prepared in accordance with statutory accounting
standards are available, without charge, from the Insurer. The address of the
Insurer's administrative offices and its telephone number are .
The Insurer makes no representation regarding the Certificates or the
advisability of investing in the Certificates and makes no representation
regarding, nor has it participated in the preparation of, this Prospectus
Supplement other than the information supplied by the Insurer and presented
under this heading "The Securities Insurance Policy and the Insurer" and in the
financial statements incorporated herein by reference.
THE SECURITIES INSURANCE POLICY
The Insurer will issue its certificate guaranty insurance policy for the
Class A Certificates (the "SECURITIES INSURANCE POLICY"). The Securities
Insurance Policy unconditionally guarantees the payment of
S-49
<PAGE> 51
Insured Payments on the Class A Certificates. The Insurer will make each
required Insured Payment to the Trustee on the later of (i) the Payment Date on
which such Insured Payment is distributable to the Class A Certificateholders
pursuant to the Pooling and Servicing Agreement and (ii) the business day next
following the day on which the Insurer shall have received telephonic or
telegraphic notice, subsequently confirmed in writing, or written notice by
registered or certified mail, from the Trustee, specifying that an Insured
Payment is due in accordance with the terms of the Securities Insurance Policy.
The Insurer's obligation under the Securities Insurance Policy will be
discharged to the extent that funds are received by the Trustee for distribution
to the Class A Certificateholders, whether or not such funds are properly
distributed by the Trustee.
For purposes of the Securities Insurance Policy, "CLASS A
CERTIFICATEHOLDER" as to a particular Certificate, does not and may not include
the Trust, the Servicer, any Subservicer, the Representative, any Depositor or
any Originator.
The Insurer only insures the timely receipt of interest on the Class A
Certificates and the timely receipt of Class A Principal Remittance Amount on
the Class A Certificates. The Securities Insurance Policy does not guarantee to
the Class A Certificateholders any rate of principal payments on the Class A
Certificates. The Securities Insurance Policy does not guarantee payment of any
LIBOR Interest Carryover. The Securities Insurance Policy expires and terminates
without any action on the part of the Insurer or any other person on the date
that is one year and one day following the date on which the Class A
Certificates have been paid in full.
In the absence of payments under the Securities Insurance Policy,
Certificateholders will directly bear the credit and other risks associated with
their undivided interest in the Trust Fund.
The Securities Insurance Policy is non-cancelable.
The Securities Insurance Policy is issued under and pursuant to and shall
be construed under, the laws of the State of New York, without giving effect to
the conflict of laws principles thereof.
THE SECURITIES INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft, special tax counsel to the Depositors.
Assuming compliance with all provisions of the Pooling and Servicing
Agreement for federal income tax purposes, the Trust Fund, exclusive of the
Spread Account and certain rights under the Securities Insurance Policy, will
qualify as a REMIC (the "REMIC") under the Code. The REMIC will hold the
Mortgage Loans, proceeds therefrom, and any REO Property, and will issue (i) the
Class A and Class X regular interests (the "REGULAR INTERESTS") and (ii) the
Class R Certificates, which will represent the sole class of residual interests
in the REMIC. The rights of the Class A-1A and Class A-1F Certificates to
receive certain payments in respect of the applicable LIBOR Interest Carryovers
from the Spread Account (each, a "BASIS RISK ARRANGEMENT") will not be assets of
the REMIC, but will be treated as the assets of a grantor trust for federal
income tax purposes. In addition to representing beneficial interests in regular
interests in the REMIC, the Class A-1A and Class A-1F Certificates will
represent beneficial interests in the applicable Basis Risk Arrangement. Because
it appears that the value of the applicable Basis Risk Arrangement will be
minimal as of the Closing Date, initial holders of the Class A-1A and Class A-1F
Certificates should not be required to allocate any portion of their respective
purchase prices to such Basis Risk Arrangement. Investors in the Class A-1A and
Class A-1F Certificates should consult their own tax advisors in this regard.
S-50
<PAGE> 52
TAXATION OF CLASS A REGULAR INTERESTS
Based on the purchase price of the initial holders of the Class A-1F
Certificates and Class A-1A Certificates allocated as described in the preceding
paragraph, for federal income tax reporting purposes, the Class A-1F
Certificates will and the Class A-1A Certificates [will not] be treated as
having been issued with original issue discount. The prepayment assumption that
will be used with respect to the Class A Certificates in determining the rate of
accrual of original issue discount, 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 Mortgage Loans will prepay at a rate equal to
% of the Prepayment Vector, in the case of the Mortgage Loans in the Fixed
Rate Group and % CPR, in the case of the Mortgage Loans in the Adjustable Rate
Group (the "PREPAYMENT ASSUMPTION"). No representation is made that the Mortgage
Loans will prepay at the Prepayment Assumption or at any other particular rate.
See "Certain Federal Income Tax Consequences -- Federal Income Tax Consequences
for REMIC Certificates -- Original Issue Discount" in the Prospectus.
To the extent described below, 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 generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition, interest on
the Class A Certificates (other than payments under the applicable Basis Risk
Arrangement) 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. Moreover, the Class A Certificates (except as
described below) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. The foregoing discussion shall be applicable to the
Class A Certificates to the extent they represent a beneficial interest in the
related Regular Interest in the REMIC. See "Certain Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC Certificates" in the
Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC Certificates" in the
Prospectus.
TAXATION OF BASIS RISK ARRANGEMENTS
Each holder of a Class A Certificate will be treated for federal income tax
purposes as having entered into a notional principal contract pursuant to its
rights to receive payment with respect to its corresponding LIBOR Interest
Carryovers under the applicable Basis Risk Arrangement on the date it purchases
its Certificate. The Internal Revenue Service (the "IRS") has issued final
regulations under Section 446 of the Code relating to notional principal
contracts (the "SWAP REGULATIONS").
In general, the holders of the Class A Certificates must allocate the price
they pay for the Class A Certificates between their Regular Interest and the
Basis Risk Arrangement (unless such arrangement has a value of zero). For
purposes of tax information reporting, it is anticipated that the Trustee will
assume that the purchase price for the Class A Certificates will be wholly
allocable to such Certificates' proportionate interest in the corresponding
Regular Interest. To the extent rights to receive payment for the applicable
LIBOR Interest Carryovers under the related Basis Risk Arrangement are
determined to have a value on the Startup Day that is greater than zero, a
portion of such purchase price would be allocable to such rights, and such
portion would be treated as a cap premium (the "CAP PREMIUM") paid by the
related Class A Certificateholders. A holder of a Class A Certificate would be
required to amortize the Cap Premium under a level payment method as if the Cap
Premium represented the present value of a series of equal payments made over
the life of the applicable Basis Risk Arrangement (adjusted to take into account
decreases in notional principal amount), discounted at a rate equal to the rate
used to determine the amount of the Cap Premium (or some other reasonable rate).
Prospective purchasers of Class A Certificates should consult their own tax
advisors regarding the appropriate method of amortizing any Cap Premium. The
Swap Regulations treat a nonperiodic payment made under a cap contract as a loan
for federal income tax purposes if the payment is "significant." It is not known
whether any Cap Premium would be treated in part as a loan under the Swap
Regulations.
S-51
<PAGE> 53
Under the Swap Regulations, (i) all taxpayers must recognize periodic
payments with respect to a notional principal contract under the accrual method
of accounting, and (ii) any periodic payments received under the applicable
Basis Risk Arrangement must be netted against payments, if any, deemed made as a
result of the Cap Premiums over the recipient's taxable year, rather than
accounted for on a gross basis. Net income or deduction with respect to net
payments under a notional principal contract for a taxable year should
constitute ordinary income or ordinary deduction. The IRS could contend the
amount is capital gain or loss, but such treatment is unlikely, at least in the
absence of further regulations. Any regulations requiring capital gain or loss
treatment presumably would apply only prospectively.
Any amount of proceeds from the sale, redemption or retirement of a Class A
Certificate that is considered to be allocated to rights under the applicable
Basis Risk Arrangement would be considered a "termination payment" under the
Swap Regulations. It is anticipated that the Trustee will account for any
termination payments for reporting purposes in accordance with the Swap
Regulations, as described below.
TERMINATION PAYMENTS
Any amount of sales proceeds that is considered to be allocated to the
selling beneficial owner's rights under the applicable Basis Risk Arrangement in
connection with the sale or exchange of a Class A Certificate would be
considered a "termination payment" under the Swap Regulations allocable to the
related Class A Certificates. A Class A Certificateholder will have gain or loss
from such a termination of the applicable Basis Risk Arrangement equal to (i)
any termination payment it received or is deemed to have received minus (ii) the
unamortized portion of any Cap Premium paid (or deemed paid) by the beneficial
owner upon entering into or acquiring its interest in the related Basis Risk
Arrangement.
Gain or loss realized upon the termination of the applicable Basis Risk
Arrangement will generally be treated as capital gain or loss. Moreover, in the
case of a bank or thrift institution, Code Section 582(c) would likely not apply
to treat such gain or loss as ordinary.
APPLICATION OF THE STRADDLE RULES
The Class A Certificates representing beneficial ownership of the
corresponding Regular Interest and the related Basis Risk Arrangement may
constitute positions in a straddle, in which case, the straddle rules of Code
Section 1092 would apply. A selling beneficial owner's capital gain or loss with
respect to such Regular Interest would be short-term because the holding period
would be tolled under the straddle rules. Similarly, capital gain or loss
realized in connection with the termination of the applicable Basis Risk
Arrangement would be short-term. If the holder of a Class A Certificate incurred
or continued indebtedness to acquire or hold such Certificate, the holder would
generally be required to capitalize a portion of the interest paid on such
indebtedness until termination of the applicable Basis Risk Arrangement.
ERISA CONSIDERATIONS
As described in the Prospectus under "ERISA Considerations," Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Section 4975 of the Code impose certain duties and restrictions on employee
benefit plans and certain other retirement plans and arrangements subject
thereto (collectively, "PLANS") and on persons who have certain specified
relationships to Plans, including fiduciaries and service providers. Comparable
duties and restrictions may exist with respect to any "governmental plan" (as
defined in Section 3(32) of ERISA) subject to a federal, state or local law
("SIMILAR LAW") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an
investment by a Plan in the Class A Certificates, including the individual
administrative exemption described below. For a further discussion of the
individual administrative exemption, including the necessary conditions to its
applicability, and other important factors to be considered by a Plan
contemplating investing in the Class A Certificates, see "ERISA Considerations"
in the Prospectus.
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<PAGE> 54
The DOL has granted to NationsBank Corporation, the predecessor to
BankAmerica Corporation, the corporate parent of NationsBanc Montgomery
Securities LLC, an administrative exemption Prohibited Transaction Exemption
93-31 (the "NATIONSBANK EXEMPTION"), and on , the DOL issued to
[Other Underwriters] an individual administrative exemption, Prohibited
Transaction Exemption (the "[OTHER UNDERWRITERS]" and, together with the
NationsBank Exemption, the "EXEMPTIONS" and each, an "EXEMPTION") from certain
of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by a Plan of certificates in
pass-through trusts that meet the conditions and requirements of the Exemptions.
An Exemption might apply to the acquisition, holding and resale of the Class A
Certificates by a Plan, provided that specified conditions are met.
Among the conditions which would have to be satisfied for an Exemption to
apply to the acquisition by a Plan of the Class A Certificates is the condition
that the Plan investing in the Class A Certificates 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 "SECURITIES ACT").
Before purchasing a Class A Certificate, a fiduciary of a Plan should make
its own determination as to the availability of the exemptive relief provided in
the applicable Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will be applicable
to the Class A Certificates, and fiduciary of a governmental plan should make
its own determination as to the need for an availability of any exemptive relief
under Similar Law. Any fiduciary of a Plan or governmental plan considering
whether to purchase a Class A Certificate should also carefully review with its
own legal advisors the applicability of the fiduciary duty and prohibited
transaction provisions of ERISA, the Code or Similar Law to such investment. See
"ERISA Considerations" in the Prospectus.
INVESTMENTS BY PLANS ARE SUBJECT TO ERISA'S GENERAL FIDUCIARY REQUIREMENTS.
ACCORDINGLY, BEFORE INVESTING IN A CLASS A CERTIFICATE, A PLAN FIDUCIARY SHOULD
DETERMINE WHETHER SUCH AN INVESTMENT IS PERMITTED IN ACCORDANCE WITH THE
DOCUMENTS GOVERNING THE PLAN AND IS PRUDENT FOR THE PLAN IN VIEW OF ITS OVERALL
INVESTMENT POLICY AND THE COMPOSITION AND DIVERSIFICATION OF ITS PORTFOLIO.
The sale of Class A Certificates to a Plan is in no respect a
representation by the Depositors or Underwriters that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan.
LEGAL INVESTMENT
Although upon their initial issuance the Class A Certificates will be rated
" " by [Rating Agency] and " " by [Rating Agency], the Class A
Certificates [will not] constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA").
Prospective purchasers whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the Class
A Certificates and should consult their own legal, tax and accounting advisors
in determining the suitability of and consequences to them of the purchase,
ownership and disposition of the Class A Certificates. See "Legal Investment" in
the Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Class A Certificates will be received by the Depositors, which will apply such
proceeds to pay to the Originators a portion of the purchase price for the
Mortgage Loans.
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<PAGE> 55
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "UNDERWRITING AGREEMENT") among the Depositors, NationsBanc Montgomery
Securities LLC ("NATIONSBANC MONTGOMERY") and [Other Underwriter] ("[Other
Underwriter]" and, together with NationsBanc Montgomery, the "UNDERWRITERS"),
the Depositors have agreed to sell to the Underwriters, and the Underwriters
have agreed to purchase the Class A Certificates as follows: NationsBanc
Montgomery will acquire approximately % of the Class A Certificates and
[Other Underwriter] will acquire approximately % of the Class A
Certificates.
The distribution of the Class A Certificates by the Underwriters may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositors from the sale of the Class A Certificates, before deducting expenses
payable by the Depositors, will be approximately $ . The Class A
Certificates are offered by the Underwriters, when, as and if issued by the
Trust, delivered to and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. The Underwriters may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters. In connection with the sale of
the Class A Certificates, the Underwriters may be deemed to have received
compensation from the Depositors in the form of underwriting compensation. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Class A Certificates may be deemed to be underwriters and
any profit on the resale of the Class A Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Under the terms of the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A Certificates offered hereby if any of the Class A Certificates
are purchased.
This Prospectus Supplement and Prospectus may be used by NationsBanc
Montgomery, an affiliate of the Depositors, to the extent required, in
connection with market making transactions in the Class A Certificates.
NationsBanc Montgomery may act as principal or agent in such transaction.
The Underwriting Agreement provides that the Depositors will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
In connection with the offering, the Underwriters may purchase and sell the
Class A Certificates in the open market. These transactions may include
purchases to cover short positions created by an Underwriter in connection with
the offering. Short positions created by an Underwriter involve the sale by an
Underwriter of a greater number of Class A Certificates than they are required
to purchase from the Depositors in the offering. An Underwriter also may impose
a penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the securities sold in the offering may be reclaimed by such Underwriter if
such Class A Certificates are repurchased by such Underwriter in covering
transactions. These activities may maintain or otherwise affect the market price
of the Class A Certificates, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
S-54
<PAGE> 56
SECONDARY MARKET
There will not be any market for Class A Certificates prior to the issuance
thereof. The Underwriters intend to act as market makers in the Class A
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but are under no obligation to do so.
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. Further, no
application will be made to list the Class A Certificates on any securities
exchange. Accordingly, the liquidity of the Class A Certificates may be limited.
The primary source of information available to investors concerning the Class A
Certificates will be the monthly statements discussed under "Description of the
Certificates -- Reports to Holders" in the Prospectus. There can be no assurance
that any additional information regarding the Class A Certificates will be
available through any other source. In addition, the Depositors are 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 consolidated financial statements of the Insurer, as of December 31,
199 and 199 and for each of the years in the three-year period ended December
31, 199 are incorporated by reference herein and in the registration statement
in reliance upon the report of [Accountant] independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
RATINGS
The Class A Certificates will be rated at their initial issuance " "
by [Rating Agency] and " " by [Rating Agency]. Such ratings are the
highest long-term ratings that such Rating Agencies assign to securities. The
ratings assigned to the Class A Certificates will be based primarily on the
claims-paying ability of the Insurer.
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
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to the
Certificates upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. The ratings do not represent any assessment of
the likelihood or rate of principal prepayments or that holders of the Class A
Certificates may receive a lower than anticipated yield.
LEGAL MATTERS
Certain legal matters relating to the Class A Certificates will be passed
upon for the Originators, the Depositors and EquiCredit by Hunton & Williams,
Charlotte, North Carolina and for the Underwriters by Cadwalader, Wickersham &
Taft, New York, New York. Certain federal income tax matters and ERISA matters
will also be passed upon for the Depositors by Cadwalader, Wickersham & Taft,
New York, New York.
S-55
<PAGE> 57
INDEX OF PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<S> <C>
Accrual Period....................... S-41
Adjustable Rate Group................ S-17
Advance.............................. S-46
Available Payment Amount............. S-45
Balloon Loans........................ S-13
Balloon Payment...................... S-32
Base Spread Account Requirement...... S-44
Basic Principal Amount............... S-43
Basis Risk Arrangement............... S-50
BBA.................................. S-42
Book-Entry Certificates.............. S-9
Cap Premium.......................... S-51
Carry-Forward Amount................. S-43
Cede................................. S-39
CEDEL................................ S-39
Certificate Owner.................... S-39
Certificateholders................... S-8
Certificates......................... S-38
Chase................................ S-39
Citibank............................. S-39
Class A Certificateholder............ S-50
Class A Certificates................. S-38
Class A Interest Remittance Amount... S-41
Class A Principal Balance............ S-43
Class A Principal Remittance
Amount............................. S-43
Class A Remittance Amount............ S-43
Class A-1A Net Funds Cap Rate........ S-41
Class A-1A LIBOR Rate................ S-41
Class A-1A LIBOR Interest
Carryover.......................... S-42
Class A-1F LIBOR Interest
Carryover.......................... S-41
Class A-1F LIBOR Rate................ S-41
Class A-1F Net Funds Cap Rate........ S-41
Class A-1A Pass-Through Rate......... S-41
Class A-1F Pass-Through Rate......... S-41
Class X Certificateholders........... S-14
Closing Date......................... S-5
Code................................. S-11
Collection Account................... S-39
Combined Loan-to-Value Ratio......... S-18
Commission........................... S-48
Company.............................. S-36
CPR.................................. S-32
Cross-Over Date...................... S-44
Cumulative Spread Account Receipts... S-44
Curtailment.......................... S-43
Cut-off Date......................... S-5
Definitive Certificate............... S-39
Depositaries......................... S-39
Depositors........................... S-5
Determination Date................... S-5
DOL.................................. S-52
DTC.................................. S-9
Due Period........................... S-42
EquiCredit........................... S-36
ERISA................................ S-52
Euroclear............................ S-39
Exchange Act......................... S-49
Excess Spread........................ S-44
Exemption............................ S-53
Final Scheduled Payment Date......... S-39
First Lien........................... S-17
Fixed Rate Group..................... S-17
Issuer............................... S-5
Insurance Account.................... S-45
Insurance Proceeds................... S-43
Insured Payment...................... S-45
Insurer.............................. S-48
Interest Remittance Amount........... S-41
Interest Settlement Rate............. S-42
IRA.................................. S-11
IRS.................................. S-51
LIBOR................................ S-41
LIBOR Determination Date............. S-41
LIBOR Interest Carryover............. S-42
Liquidated Mortgage Loan............. S-43
Liquidation Proceeds................. S-43
Majority in Aggregate Voting
Interest........................... S-47
Modeling Assumptions................. S-33
Monthly Payments..................... S-42
Monthly Premium...................... S-44
Mortgage............................. S-6
Mortgage Interest Rate............... S-44
Mortgage Loans....................... S-6
Mortgage Loan Group.................. S-17
Mortgage Loan Losses................. S-45
Mortgage Note........................ S-6
Mortgage Pool........................ S-6
Mortgaged Property................... S-6
NationsBanc Montgomery............... S-54
NationsBank Exemption................ S-53
Net Funds Cap Rate................... S-41
Net Liquidation Proceeds............. S-43
</TABLE>
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<PAGE> 58
<TABLE>
<S> <C>
Optional Purchase Date............... S-46
Original Principal Balance........... S-33
Original Pool Principal Balance...... S-17
Originators.......................... S-5
Other Underwriters................... S-53
Owner-Occupied Mortgaged Property.... S-18
Pass-Through Rate.................... S-33
Payment Date......................... S-5
Percentage Interest.................. S-38
Periodic Excess Spread Amount........ S-44
Plans................................ S-52
Pooling and Servicing Agreement...... S-6
Prepayment Assumption................ S-51
Prepayment Vector.................... S-32
Primary Servicing Portfolio.......... S-37
Principal Balance.................... S-43
Principal Prepayments................ S-43
Principal Remittance Amount.......... S-43
Prospectus........................... S-5
Prospectus Supplement................ S-5
Rating Agencies...................... S-10
Record Date.......................... S-5
Reference Banks...................... S-42
Regular Interests.................... S-50
Released Mortgaged Property
Proceeds........................... S-43
Remainder Excess Spread Amount....... S-44
REMIC................................ S-50
Remittance Amount.................... S-43
REO Properties....................... S-46
Representative....................... S-5
Representative's Yield............... S-38
Residual Certificates................ S-38
Securities Act....................... S-53
Securities Insurance Policy.......... S-49
Servicer............................. S-5
Servicing Fee........................ S-46
Similar Law.......................... S-52
Six-Month LIBOR...................... S-24
SMMEA................................ S-53
Specified Spread Account
Requirement........................ S-44
Spread Account....................... S-43
Spread Account Draw.................. S-45
Spread Account Excess................ S-44
Subordinated Amount.................. S-44
Swap Regulations..................... S-51
Telerate page 3750................... S-42
Termination Price.................... S-46
Transfer Agreement................... S-43
Trust................................ S-5
Trust Fund........................... S-5
Trustee.............................. S-5
Underwriters......................... S-54
Underwriting Agreement............... S-54
weighted average life................ S-32
</TABLE>
S-57
<PAGE> 59
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered EQCC Home
Equity Loan Trust 199 Class A-1F Certificates and Class A-1A Certificates
(collectively, 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"), CEDEL or 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 CEDEL 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.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates 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 (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, CEDEL 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.
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.
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 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 purchaser. 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 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, calculated on the basis of a year of 360 days, in
each case for the actual number of days occurring in the period for which such
interest is payable. Payment will then be made by the respective
I-1
<PAGE> 60
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 debit 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 CEDEL or Euroclear cash debit
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 pre-position 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 accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants can elect not to pre-position 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 such overdraft charges, although
this 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 sending Global Securities to
the respective 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 Participant 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 deliver the bonds to
the DTC Participant's account 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, calculated on the basis of a year of 360
days, in each case for the actual number of days occurring in the period for
which such interest is payable. The payment will then be reflected in the
account of the 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
proceeding 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 debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over the 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
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 was taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures.
I-2
<PAGE> 61
(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 CEDEL 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 CEDEL Participant or Euroclear
Participant.
CERTAIN 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 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
Certificates 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 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).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificateholders 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 Certificateholder or
his agent.
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 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 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 effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. PERSON" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership (except to the extent provided in
applicable Treasury regulations) organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for United States tax purposes, regardless of its
source or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of such trust and one or more such
U.S. Persons have the authority to control all substantial decisions of such
trust (or, to the extent provided in applicable Treasury regulations, certain
trusts in existence on August 20, 1996 which are eligible to elect to be treated
as U.S. Persons). 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-3
<PAGE> 62
THE INFORMATION IN THIS PROSPECTUS 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 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 JANUARY 29, 1999
PROSPECTUS
EQCC RECEIVABLES CORPORATION
EQCC ASSET BACKED CORPORATION
DEPOSITORS
EQUICREDIT CORPORATION OF AMERICA
SERVICER
EQCC HOME EQUITY LOAN ASSET BACKED CERTIFICATES
EQUICREDIT FUNDING ASSET BACKED CERTIFICATES
(ISSUABLE IN SERIES)
------------------------
<TABLE>
<CAPTION>
<S> <C>
------------------------------
EACH TRUST--
YOU SHOULD CAREFULLY
CONSIDER THE RISK - will issue a series of asset-backed certificates that will
FACTORS BEGINNING ON consist of one or more classes of certificates; and
PAGE 9 OF THIS
PROSPECTUS. - will own--
Neither the certificates
of any series nor the - a pool or pools of fixed and/or adjustable rate mortgage
related underlying loans which are secured by first or second liens on one- to
mortgage loans will be four-family residential properties; and
insured or guaranteed
by any governmental - other assets described in this prospectus and the
agency or accompanying prospectus supplement.
instrumentality.
The certificates of each EACH POOL OF MORTGAGE LOANS--
series will represent
interests in the related - will be sold to the related trust by the Depositors, who
trust only and will not will have in turn purchased them from EquiCredit Corporation
represent interests in of America or an affiliate; and
or obligations of any
other entity. - will be serviced by EquiCredit Corporation of America
individually or together with other servicers.
This prospectus may
be used to offer and sell any EACH SERIES OF CERTIFICATES--
series of
certificates only - will represent interests in the related trust;
if accompanied by the
prospectus supplement for - may be entitled to one or more of the other types of
that series. credit support described in this prospectus; and
- will be paid only from the assets of the related trust.
------------------------------
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 199 .
<PAGE> 63
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
Information is provided to you about the certificates in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of certificates, including your series, and (b) the accompanying prospectus
supplement, which will describe the specific terms of your series of
certificates, including:
- the principal balances and/or interest rates of each class;
- the timing and priority of interest and principal payments;
- statistical and other information about the mortgage loans;
- information about credit enhancement, if any, for each class;
- the ratings for each class; and
- the method for selling the certificates.
IF THE TERMS OF A PARTICULAR SERIES OF CERTIFICATES VARY BETWEEN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement including the information incorporated by
reference. No one has been authorized to provide you with different information.
The certificates are not being offered in any state where the offer is not
permitted. The Depositors do not claim the accuracy of the information in this
prospectus or the accompanying prospectus supplement as of any date other than
the dates stated on their respective covers.
Cross-references are included in this prospectus and in the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Significant Definitions"
beginning on page [ ] in this prospectus.
The Depositors' principal executive office is located at 10401 Deerwood
Park Boulevard, Jacksonville, Florida 32256 and the Depositors' telephone number
is (904) 987-5000.
2
<PAGE> 64
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Important Notice About Information
Presented in This Prospectus and the
Accompanying Prospectus Supplement... 2
Summary of Prospectus.................. 5
Risk Factors........................... 9
Risks Associated with the
Certificates...................... 9
Risks Associated with the Mortgage
Loans............................. 11
Description of the Mortgage Pools...... 14
General.............................. 14
Payments on the Mortgage Loans....... 15
Certain Yield and Prepayment
Considerations....................... 17
General.............................. 17
Pass-Through Rate.................... 17
Timing of Payment of Interest........ 17
Payments of Principal; Prepayments... 17
Other Factors Affecting Weighted
Average Life...................... 18
Type of Mortgage Loan............. 18
Termination....................... 19
Defaults.......................... 20
Foreclosures...................... 20
Refinancing....................... 20
Due-on-Sale Clauses............... 20
Special Payments.................. 20
Prefunding Accounts............... 21
The Trusts............................. 21
The Depositors, The Servicer, The
Representative and the Originators... 21
General.............................. 21
Loan Origination History............. 22
General Loan Underwriting............ 22
Income Verification.................. 23
Appraisals; Title Companies and
Closing Agents.................... 24
Specific Underwriting Criteria....... 24
Balloon Mortgage Loans............... 27
Certain Calculations Relating to
Combined Loan-To-Value Ratios..... 27
Quality Control Procedures........... 27
Collection Procedures................ 28
Delinquency and Loss Experience...... 29
Outstanding Real Estate Owned........ 29
Description of the Certificates........ 30
General.............................. 30
Interest............................. 31
Principal............................ 31
Categories of Classes of
Certificates...................... 32
Assignment of the Mortgage Loans..... 34
Representations and Warranties of the
Originators and the Depositors.... 36
Payments on the Mortgage Loans....... 38
Advances from the Principal and
Interest Account; Servicing
Advances.......................... 40
Representative's Yield............... 40
Distributions........................ 41
Special Payments..................... 41
Optional Disposition of Mortgage
Loans............................. 42
Mandatory Disposition of Mortgage
Loans............................. 42
Forward Commitments; Prefunding...... 42
Cash Flow Agreements................. 43
Reports to Holders................... 43
Description of Credit Enhancement.... 44
Payment of Certain Expenses.......... 47
Servicing Compensation............... 47
Servicing Standards.................. 48
Use of Subservicers.................. 49
Servicing Certificates and Audits.... 50
Limitations on Liability of the
Servicer and Its Agents........... 50
Removal and Resignation of
Servicer.......................... 50
Registration and Transfer of the
Certificates...................... 51
Certain Legal Aspects of the Mortgage
Loans................................ 54
General.............................. 54
Types of Mortgage Instruments........ 55
Interest in Real Property............ 55
Cooperative Loans.................... 55
Land Sale Contracts.................. 56
Foreclosure.......................... 57
General........................... 57
Judicial Foreclosure.............. 57
Equitable Limitations on
Enforceability of Certain
Provisions...................... 57
Non-Judicial Foreclosure/Power of
Sale............................ 58
Public Sale....................... 58
Cooperative Loans................. 59
Junior Mortgages..................... 60
Rights of Redemption................. 60
Anti-Deficiency Legislation, the
Bankruptcy Code and Other
Limitations on Lenders............ 61
Enforceability of Certain
Provisions........................ 63
"Due-on-Sale" Clauses................ 63
Subordinate Financing................ 64
Applicability of Usury Laws.......... 64
Environmental Considerations......... 64
</TABLE>
3
<PAGE> 65
<TABLE>
<S> <C>
Soldiers' and Sailors' Civil Relief
Act of 1940....................... 66
Forfeitures in Drug and RICO
Proceedings....................... 67
Certain Federal Income Tax
Consequences......................... 67
General.............................. 67
Federal Income Tax Consequences for
REMIC Certificates................ 67
REMIC Elections................... 67
Status of REMIC Certificates...... 68
Tiered REMIC Structures........... 68
Regular Certificates.............. 69
Taxation of Residual
Certificates.................... 73
Residual Certificates Transferred
to or Held by Disqualified
Organizations................... 76
Mark to Market Regulations........ 77
Other Matters Relating to REMIC
Certificates.................... 77
Federal Income Tax Consequences for
Certificates as to Which No REMIC
Election is Made.................. 80
General........................... 80
Tax Status........................ 80
Premium and Discount.............. 81
Premium...................... 81
Original Issue Discount...... 81
Market Discount.............. 81
Recharacterization of Servicing
Fees............................ 82
Sale or Exchange of
Certificates.................... 82
Stripped Certificates............. 83
General...................... 83
Status of Stripped
Certificates............... 84
Taxation of Stripped
Certificates............... 84
Reporting Requirements and Backup
Withholding..................... 85
Taxation of Certain Foreign
Investors....................... 86
Certain State Tax Consequences......... 86
ERISA Considerations................... 86
Legal Investment....................... 89
Use of Proceeds........................ 90
Plan of Distribution................... 90
Ratings................................ 91
Legal Matters.......................... 91
Where You Can Find More Information.... 91
Incorporation of Certain Information by
Reference............................ 91
Index of Significant Definitions....... 93
</TABLE>
4
<PAGE> 66
SUMMARY OF PROSPECTUS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN INVESTMENT
DECISION. PLEASE READ THIS ENTIRE PROSPECTUS ("PROSPECTUS") AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT ("PROSPECTUS SUPPLEMENT") CAREFULLY TO UNDERSTAND ALL OF
THE TERMS OF A SERIES OF CERTIFICATES.
THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION TO AID YOUR UNDERSTANDING OF THE TERMS OF THE CERTIFICATES AND IS
QUALIFIED BY THE FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
DEPOSITORS
EQCC Receivables Corporation, a corporation organized under the laws of the
State of Delaware, and EQCC Asset Backed Corporation, a corporation organized
under the laws of the State of Delaware. All of the outstanding common stock of
each of the Depositors is owned by one or more of the Originators.
ISSUER
Each series (each, a "SERIES") of certificates (the "CERTIFICATES") will be
issued by a separate trust (the "TRUST" or the "ISSUER"). Each Trust will be
formed pursuant to a pooling and servicing agreement (each, a "POOLING AND
SERVICING AGREEMENT") among the Depositors, the Servicer and the Trustee
specified in the applicable Prospectus Supplement.
REPRESENTATIVE AND ORIGINATORS
EquiCredit Corporation of America, ("EQUICREDIT," the "REPRESENTATIVE" and an
"ORIGINATOR"), a corporation organized under the laws of the State of Delaware
and an indirect wholly-owned subsidiary of BankAmerica Corporation, certain
affiliates of EquiCredit, each of which is a wholly-owned subsidiary of the
Representative and Bank of America, FSB (each, an "ORIGINATOR").
SERVICER
EquiCredit Corporation of America.
TRUSTEE
The entity or entities named as trustee in the related Prospectus Supplement.
RELEVANT DATES
CUT-OFF DATE
The date specified in the related Prospectus Supplement.
CLOSING DATE
The date on which the Certificates of any Series are initially issued, as
specified in the related Prospectus Supplement.
PAYMENT DATE
The monthly, quarterly or other periodic date specified in the related
Prospectus Supplement on which payments will be made to holders of the
Certificates.
MONTHLY DEPOSIT DATE
If so specified in the related Prospectus Supplement, the day of each month
other than a month in which a Payment Date occurs on which certain deposits and
transfers will be made.
DETERMINATION DATE
The day of the month in which the related Monthly Deposit Date or Payment Date
occurs as specified in the related Prospectus Supplement.
RECORD DATE
The calendar day specified in the related Prospectus Supplement.
5
<PAGE> 67
DESCRIPTION OF CERTIFICATES
Each Series of Certificates will include one or more classes (each, a
"CLASS") representing an ownership interest in a segregated pool (the "MORTGAGE
POOL") of mortgage loans (the "MORTGAGE LOANS"). A Class of Certificates will be
entitled, to the extent of funds available, to one of the following:
- principal and interest payment in respect of the related Mortgage Loans;
- principal distributions, with no interest distributions;
- interest distributions, with no principal distributions; or
- such other distributions as are described in the applicable Prospectus
Supplement.
For additional information see "Description of the Certificates" in this
Prospectus.
INTEREST DISTRIBUTIONS
With respect to each Series of Certificates, interest on each Class of
Certificates (other than a Class of Certificates entitled to receive only
principal) will accrue during each period specified in the Prospectus Supplement
(each, an "ACCRUAL PERIOD") and will be passed through to the holders of the
related Classes of Certificates on each Payment Date in accordance with the
particular terms of each such Class of Certificates. The terms of each such
Class of Certificates will be described in the related Prospectus Supplement.
See "Description of the Certificates -- Interest" in this Prospectus.
PRINCIPAL DISTRIBUTIONS
With respect to each Series of Certificates, principal payments (including
prepayments) on the related mortgage loans will be passed through to holders of
the related Certificates or otherwise applied as described in the related
Prospectus Supplement on each Payment Date. Distributions in reduction of
principal balance will be allocated among the Classes of Certificates of a
Series in the manner specified in the applicable Prospectus Supplement.
See "Description of the Certificates -- Principal" in this Prospectus.
DENOMINATIONS
Each Class of Certificates of a Series will be issued in the minimum
denominations set forth in the related Prospectus Supplement.
REGISTRATION OF THE CERTIFICATES
The Certificates will be issued either:
- in book-entry form ("BOOK-ENTRY CERTIFICATES") initially held through The
Depository Trust Company ("DTC") in the United States, or Cedel Bank,
societe anonyme ("CEDEL") or the Euroclear System ("EUROCLEAR"), in
Europe; or
- in fully registered, certificated form ("DEFINITIVE CERTIFICATES").
See "Description of the Certificates -- General" and "-- Registration of
the Certificates" in this Prospectus.
ASSETS OF THE TRUST
The Trust related to each Series will consist primarily of:
- a segregated pool of fixed and/or adjustable rate mortgage loans (the
"MORTGAGE LOANS");
- any money received on the Mortgage Loans after the Cut-off Date
(excluding all prepayment penalties and premiums under the Mortgage Loans
that are paid to EquiCredit and interest accrued on the Mortgage Loans
prior to the Cut-off Date);
- certain rights of the Depositors to acquire the Mortgage Loans under a
transfer agreement; and
- certain other property.
6
<PAGE> 68
You should refer to the applicable Prospectus Supplement for the precise
characteristics or expected characteristics of the Mortgage Loans and a
description of the other property, if any, included in a particular Trust.
OPTIONAL TERMINATION OF THE TRUST
The Servicer, the Depositors or the holders of the Classes of Certificates
specified in the related Prospectus Supplement may cause the Issuer to sell all
of the Mortgage Loans in the pool and thereby cause early retirement of the
Certificates on any Payment Date on which the aggregate principal balance of the
pool is less than the percentage of the aggregate principal balance of the pool
as of the Cut-off Date specified in the related Prospectus Supplement.
See "Description of the Certificates -- Optional Disposition of the
Mortgage Loans" in this Prospectus.
MANDATORY TERMINATION OF THE TRUST
If so specified in the related Prospectus Supplement, the Trustee, the
Servicer or such other entities as may be specified in such Prospectus
Supplement, may be required to cause early retirement of a Series of
Certificates by seeking competitive bids for the purchase of the assets of the
related Trust or otherwise, under the circumstances and in the manner specified
under "Description of the Certificates -- Mandatory Disposition of Mortgage
Loans" in this Prospectus.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on each Class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Loans in the related Trust and the timing of receipt of such
payments.
See "Certain Yield and Prepayment Considerations" in this Prospectus and in
the related Prospectus Supplement.
FORWARD COMMITMENTS; PREFUNDING
If so specified in the related Prospectus Supplement, a portion of the
proceeds of the sale of one or more Classes of Certificates of a Series may be
deposited in a segregated account (a "PREFUNDING ACCOUNT") or all or a portion
of the payments on the Mortgage Loans may be set aside, to be used to acquire
additional Mortgage Loans from the Depositors as described in the related
Pooling and Servicing Agreement.
See "Description of the Certificates -- Forward Commitments; Prefunding" in
this Prospectus.
CREDIT ENHANCEMENT
If so specified in the applicable Prospectus Supplement, the Certificates
of any Series, or any one or more Classes of a Series, may be entitled to the
benefits of other types of credit enhancement, including but not limited to:
- - letter of credit
- - financial guaranty insurance policy
- - special hazard insurance policy
- - mortgage pool insurance policy
- - reserve fund
- - spread account
- - cash collateral account
- - overcollateralization
Credit support may also be provided by subordination. Any credit support
will be described in detail in the applicable Prospectus Supplement.
See "Description of the Certificates -- Description of Credit Enhancement"
in this Prospectus.
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RATING OF CERTIFICATES
The Certificates of any Series will not be offered pursuant to this
Prospectus and a Prospectus Supplement unless each offered Certificate ("OFFERED
CERTIFICATE") is rated in one of the four highest rating categories by at least
one nationally recognized statistical rating agency (a "RATING AGENCY").
- A certificate rating is not a recommendation to buy, sell or hold the
Certificates on any Series and is subject to revision or withdrawal at
any time by the assigning Rating Agency.
- Ratings do not address credit risk and do not represent any assessment of
the likelihood or rate of principal prepayments.
See "Risk Factors -- Risks Associated with the Certificates -- Ratings
Assigned to the Certificates Will Have Limitations" and "Ratings" in this
Prospectus.
TAX STATUS OF THE CERTIFICATES
The federal income tax treatment of the Certificates of any Series will
depend on:
- whether a real estate mortgage investment conduit ("REMIC") election is
made with respect to a Series of Certificates; and
- if a REMIC election is made, whether the Certificates of such Series
represent the regular interests or the residual interest in the REMIC.
For additional information see "Certain Federal Income Tax Consequences" in
this Prospectus and "Federal Income Tax Consequences" in the Prospectus
Supplement.
ERISA CONSIDERATIONS
If you are a fiduciary of any employee benefit plan or arrangement,
including an individual retirement account (an "IRA"), subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal
Revenue Code of 1986, as amended (the "CODE"), or any federal, state or local
law ("SIMILAR LAW") which is similar to ERISA or the Code (collectively,
"PLANS"), you should carefully review with your legal advisors whether the
purchase or holding of Certificates could give rise to a transaction that is
prohibited or not otherwise permissible under ERISA, the Code or Similar Law.
For additional information see "ERISA Considerations" in this Prospectus
and in the Prospectus Supplement.
LEGAL INVESTMENTS
The applicable Prospectus Supplement will specify whether the Class or
Classes of Certificates offered will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"). If your investment authority is subject to legal restrictions
you should consult your own legal advisors to determine whether and to what
extent such Certificates constitute a legal investment for you.
For additional information see "Legal Investments" in this Prospectus and
in the Prospectus Supplement.
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RISK FACTORS
YOU SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING FACTORS IN
CONNECTION WITH THE PURCHASE OF CERTIFICATES.
RISKS ASSOCIATED WITH THE CERTIFICATES
Certificates May Not be Liquid. The liquidity of your Certificates may be
limited. You should consider that:
- a secondary market for the Certificates of any Series may not develop, or
if it does, it may not provide you with liquidity of investment, or it
may not continue for the life of the Certificates of any Series; and
- issuance of any of the Certificates of any Series in book-entry form may
reduce the liquidity of such Certificates in the secondary trading market
because investors may not be willing to purchase Certificates for which
they cannot obtain physical certificates.
- Unless specified in the applicable Prospectus Supplement, the
Certificates will not be listed on any securities exchange.
The Depositors, the Representative, any Originator and the Servicer Will
Have Limited Obligations. No Class of Certificates of any Series will be an
interest in or obligation of the Depositors, the Representative, any Originator,
the Servicer or any of their affiliates. The only obligations of the foregoing
entities with respect to any of the Certificates or the related Mortgage Loans
will be:
- the Servicer's servicing obligations under the Pooling and Servicing
Agreement; and
- the obligations of the Depositors to purchase, or substitute
substantially similar mortgage loans for, or cause the Originators to
purchase or substitute, any Mortgage Loans as to which there is defective
documentation or a breach of certain representations and warranties made
with respect to such Mortgage Loans.
The Certificates and the underlying Mortgage Loans will not be guaranteed
or insured by any governmental agency or instrumentality, or by the Depositors,
the Representative, any Originator, the Servicer or any of their affiliates.
Credit Enhancement is Limited in Amount and Coverage. With respect to each
Series of Certificates, credit enhancement may be provided in limited amounts to
cover certain types of losses on the underlying Mortgage Loans. Credit
enhancement will be provided in one or more of the forms referred to in this
Prospectus, including, but not limited to: subordination of other Classes of
Certificates of the same Series; a letter of credit; a financial guaranty
insurance policy; a mortgage pool insurance policy; a special hazard insurance
policy; a reserve fund; a spread account; a cash collateral account; or other
type of credit enhancement. See "Description of the Certificates -- Description
of Credit Enhancement" in this Prospectus.
Regardless of the form of credit enhancement provided:
- the amount of coverage will be limited in amount and in most cases will
be subject to periodic reduction in accordance with a schedule or
formula;
- may provide only very limited coverage as to certain types of losses, and
may provide no coverage as to certain types of losses; and
- all or a portion of the credit enhancement for any Series of Certificates
may be permitted to be reduced, terminated or substituted for, if each
applicable Rating Agency indicates that the then-current ratings will not
be adversely affected.
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Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and
Yields on Certificates. The yield on the Certificates of each Series will depend
in part on the rate of principal payment on the Mortgage Loans (including
prepayments, liquidations due to defaults and mortgage loan repurchases). Such
yield may be adversely affected, depending upon whether a particular Certificate
is purchased at a premium or a discount, by a higher or lower than anticipated
rate of prepayments on the related Mortgage Loans. In particular:
- the yield on principal-only or interest-only Certificates will be
extremely sensitive to the rate of prepayments on the related Mortgage
Loans; and
- the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayments of specified Mortgage Loans than
other Classes of Certificates.
The rate of prepayments on Mortgage Loans is influenced by a number of
factors, including:
- the prevailing mortgage market interest rates;
- local and national economic conditions;
- homeowner mobility; and
- the ability of the borrower to obtain financing.
In addition, your yield may be adversely affected by interest shortfalls
which may result from the timing of the receipt of prepayments or liquidations
to the extent that such interest shortfalls are not covered by aggregate
servicing fees or other mechanisms specified in the applicable Prospectus
Supplement. Your yield will be also adversely affected to the extent that losses
on the Mortgage Loans in the related Trust are allocated to your Certificates
and may be adversely affected to the extent of unadvanced delinquencies on the
Mortgage Loans in the related Trust. Classes of Certificates identified in the
applicable Prospectus Supplement as subordinated certificates are more likely to
be affected by delinquencies and losses than other Classes of Certificates.
See "Certain Yield and Prepayment Considerations" in this Prospectus.
Ratings Assigned to the Certificates Will Have Limitations. The ratings
assigned to your Certificates will not:
- assess the likelihood that principal prepayments (including those caused
by defaults) on the related Mortgage Loan will be made, the degree to
which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination or redemption
of the Series of Certificates; and
- address the possibility that prepayments at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower
than anticipated yield or that an investor purchasing a Certificate at a
significant premium might fail to recoup its initial investment under
certain prepayment scenarios.
In addition, the ratings of any Series of Certificates by any applicable
Rating Agency may be lowered following the initial issuance of the Certificates.
The lowering of a rating on a Series or Class of Certificates may adversely
affect the market value of such Certificates and the liquidity of such
Certificates. The Depositors, the Servicer or any of their affiliates will not
have any obligation to maintain any rating of any Series of Certificates.
Book-Entry Certificates May Experience Certain Problems. Since
transactions in the Classes of Certificates of a Series issued in book-entry
form can be effected only through DTC, CEDEL, Euroclear, participating
organizations, indirect participants and certain banks:
- you may experience delays in your receipts of payments of interest and
principal; and
- your ability to pledge such Certificates to persons or entities that do
not participate in the DTC, CEDEL or Euroclear systems may be limited due
to the lack of a physical certificate.
See "Description of the Certificates -- Registration and Transfer of the
Certificates" in this Prospectus.
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RISKS ASSOCIATED WITH THE MORTGAGE LOANS
Risk of Loss May Be Greater on Subordinated Certificates.
The rights of holders of subordinated certificates to receive distributions
to which they would otherwise be entitled with respect to the Mortgage Loans
will be subordinate:
- to the rights of the Servicer (to the extent of its servicing fee,
including any unpaid servicing fees with respect to one or more prior due
periods, and its reimbursement for certain unreimbursed advances and
unreimbursed liquidation expenses); and
- the holders of senior certificates to the extent described in the related
Prospectus Supplement.
As a result of the foregoing, investors must be prepared to bear the risk
that they may be subject to delays in payment and may not recover their initial
investments in the subordinated certificates. See "Description of the
Certificates -- General" and "-- Description of Credit
Enhancement -- Subordination."
The yields on the subordinated certificates may be extremely sensitive to
the loss experience of the related Mortgage Loans and the timing of any such
losses. If the actual rate and amount of losses experienced by the Mortgage
Loans exceed the rate and amount of such losses assumed by an investor, the
yield to maturity on the subordinated certificates may be lower than
anticipated.
Sub-Prime Mortgage Loans May Experience Greater Rates of Delinquency and
Foreclosure. All or a portion of the Mortgage Loans may consist of mortgage
loans underwritten in accordance with the underwriting for sub-prime mortgage
loans. A sub-prime mortgage loan is a mortgage loan that is ineligible for
purchase by Fannie Mae ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") due to borrower credit characteristics, property characteristics, loan
documentation guidelines or other credit characteristics that do not meet FNMA
or FHLMC underwriting guidelines. As a consequence:
- delinquencies and foreclosures may be expected to be more likely with
respect to sub-prime mortgage loans than with respect to mortgage loans
originated in accordance with FNMA or FHLMC underwriting guidelines; and
- changes in the values of the mortgaged properties may have a greater
effect on the loss experience of sub-prime mortgage loans than on
mortgage loans originated in accordance with FNMA or FHLMC underwriting
guidelines.
General Economic Conditions Affect Mortgage Loan Performance. General
economic conditions have an impact on the ability of borrowers to repay mortgage
loans. Loss of earnings, illness and other similar factors may lead to an
increase in delinquencies and bankruptcy filings by borrowers. In the event of
personal bankruptcy of a borrower under a Mortgage Loan (a "MORTGAGOR"), it is
possible that the holders of the related Certificates could experience a loss
with respect to such Mortgagor's Mortgage Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan, thus
delaying the amount received by the holders of the related Certificates with
respect to such Mortgage Loan. Moreover, if a bankruptcy court prevents the
transfer of the related mortgaged property to the related Trust, any remaining
balance on such Mortgage Loan may not be recoverable.
See "The Depositors, the Servicer, the Representative and the
Originators -- Delinquency and Loss Experience" in this Prospectus and "The
Originators and the Servicer -- Origination, Foreclosure and Delinquency
Experience" in the related Prospectus Supplement for information regarding the
rates of delinquency and net losses experienced on the mortgage loans included
in the servicing portfolio of EquiCredit Corporation of America (together with
its wholly-owned subsidiaries, including the other Originators, the "COMPANY").
Real Estate Market Conditions Affect Mortgage Loan Performance. An
investment in securities such as the Certificates which are secured by or
represent interests in mortgage loans may be affected by, among other things, a
decline in real estate values. There is no assurance that the values of the
mortgaged properties will remain at the levels existing on the dates of
origination of the related Mortgage Loans.
If the residential real estate market should experience an overall decline
in property values such that the outstanding balances of the Mortgage Loans
contained in a particular Trust and any secondary financing on
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the mortgaged properties, become equal to or greater than the value of the
mortgaged properties, delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. See "The
Depositors, the Servicer, the Representative and the Originators -- Delinquency
and Loss Experience" in this Prospectus and "The Originators and the
Servicer -- Origination, Foreclosure and Delinquency Experience" in the related
Prospectus Supplement for further information regarding the rates of delinquency
and net losses experienced on the mortgage loans included in the Company's
servicing portfolio.
Geographic Concentration May Increase Rates of Loss and
Delinquency. Certain geographic regions of the United States from time to time
will experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. Any concentration of the Mortgage Loans relating to any Series
of Certificates in such a region may present risk considerations in addition to
those generally present for similar mortgage-backed securities without such
concentration. See "Description of the Mortgage Pool" in the related Prospectus
Supplement for further information regarding the geographic concentration of the
Mortgage Loans underlying the Certificates of any Series.
Risk of Loss May Be Greater on Second Lien Mortgage Loans. Certain of the
Mortgage Loans underlying the Certificates of a Series may be secured by
mortgages (the "MORTGAGES") junior or subordinate to one or more other mortgages
("SENIOR LIENS"), and the related Senior Liens may not be included in the
Mortgage Pool. Although little data is available, the rate of default of second
or more junior mortgage loans may be greater than that of mortgage loans secured
by senior liens on comparable properties. A primary risk to holders of Mortgage
Loans secured by junior Mortgages is the possibility that adequate funds will
not be received in connection with a foreclosure of the related Senior Lien to
satisfy fully both the Senior Lien and the Mortgage Loan. In such case, holders
of the Certificates would bear:
- the risk of delay in distributions while a deficiency judgement against
the borrower is obtained; and
- the risk of loss if the deficiency judgment is not realized upon.
Moreover, deficiency judgments may not be available in certain jurisdictions. In
addition, a junior mortgagee may not foreclose on the property securing a junior
Mortgage unless it forecloses subject to the Senior Lien.
In servicing second Mortgages, it is generally the Servicer's practice to
advance funds to keep the Senior Lien current if the Mortgagor is in default
thereunder. The Servicer intends to advance such amounts in accordance with its
normal servicing procedures, but only to the extent that it determines such
advances will be recoverable from future payments and collections on that
Mortgage Loan or otherwise. Such practice may not be followed in servicing loans
more junior than second mortgages or may be modified at any time. The related
Trust will have no source of funds to satisfy any Senior Lien or make payments
due to any senior mortgagee. The junior Mortgages securing the Mortgage Loans
are subject and subordinate to any Senior Liens affecting the related mortgaged
property, including limitations and prohibitions which may be contained in such
Senior Liens upon subordinate financing.
Special Risks of Certain Mortgage Loans. Certain Mortgage Loans that may
be included in the assets of a Trust may involve additional uncertainties not
present in other types of loans. Certain of the Mortgage Loans may provide for
escalating or variable payments that may be larger than the initial payment
amount; however, the borrowers under such Mortgage Loans are generally approved
on the basis of the initial payment amount and the borrower's income may not be
sufficient to enable them to pay the increased payment amounts. Therefore, in
such cases the likelihood of default may increase.
Certain of the Mortgage Loans underlying a Series of Certificates may be
delinquent in respect of the payment of principal and interest. In addition,
certain of the Mortgagors under the Mortgage Loans underlying a Series of
Certificates may be subject to personal bankruptcy proceedings. Credit
enhancement provided with respect to a particular Series of Certificates may not
cover all losses related to such Mortgage Loans. Prospective investors should
consider the risk that the inclusion in a Trust of delinquent Mortgage Loans and
Mortgage Loans with respect to which the Mortgagor is the subject of bankruptcy
proceedings may cause the rate of the defaults and prepayments on the Mortgage
Loans to increase and, in turn, may cause losses to exceed the available credit
enhancement for such Series and affect the yield on the Certificates of such
Series.
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See "Description of the Mortgage Pools" in this Prospectus and "Description of
the Mortgage Pool" in the related Prospectus Supplement.
Defaulted Mortgage Loans May Experience Delays in Liquidation. Even
assuming the mortgaged properties provide adequate security for the Mortgage
Loans underlying a Series of Certificates, substantial delays could result in
connection with the liquidation of defaulted Mortgage Loans. This could result
in corresponding delays in the receipt of the related proceeds by the related
Trust. See "Certain Legal Aspects of the Mortgage Loans -- Foreclosure,"
"-- Rights of Redemption" and "-- Anti-Deficiency Legislation, the Bankruptcy
Code and Other Limitations on Lenders" in this Prospectus.
Liquidation Expenses May be Disproportionate. Liquidation expenses with
respect to defaulted mortgage loans do not vary directly with the outstanding
principal balance of the Mortgage Loans at the time of default. Therefore,
assuming that the Servicer took 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 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 mortgage loan than would be
the case with the defaulted mortgage loan having a large remaining principal
balance. Because the average outstanding principal balance of the Mortgage Loans
is small relative to the size of the average outstanding principal balance of
the loans in a typical pool consisting only of conventional purchase-money
mortgage loans, net liquidation proceeds on liquidated Mortgage Loans may also
be smaller as a percentage of the principal balance of the Mortgage Loan that
would be the case in a typical pool consisting only of conventional
purchase-money mortgage loans.
Defaults May Be More Likely on Newer Loans. Certain of the Mortgage Loans
underlying a Series of Certificates may be recently originated as of the date of
the inclusion in the related Mortgage Pool. Although little data is available,
defaults on mortgage loans are generally expected to occur with greater
frequency in their early years.
Balloon Mortgage Loans May Have a Greater Default Risk at
Maturity. Certain of the Mortgage Loans underlying a Series of Certificates may
provide for a lump-sum payment of the unamortized principal balance of the
Mortgage Loan at the maturity of the Mortgage Loan ("BALLOON LOANS"). See
"Description of the Mortgage Pools" in this Prospectus and "Description of the
Mortgage Pool" in the related Prospectus Supplement.
Because borrowers under 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. The ability of a Mortgagor on a Balloon Loan to
repay the Mortgage Loan upon maturity frequently depends upon the Mortgagor's
ability:
- to refinance the Mortgage Loan, which will be affected by a number of
factors, including, without limitation, the level of mortgage rates
available in the primary mortgage market at the time, the Mortgagor's
equity in the related mortgaged property, the financial condition of the
Mortgagor, the condition of the mortgaged property, tax law, general
economic conditions and the general willingness of financial institutions
and primary mortgage bankers to extend credit; or
- to sell the related mortgaged property at a price sufficient to permit
the Mortgagor to make the lump-sum payment.
Texas Home Equity Loans Have Significant Limitations. Certain of the
Mortgage Loans may be home equity loans secured by mortgaged properties located
in Texas ("TEXAS HOME EQUITY LOANS"). The Texas Constitution permits Texas Home
Equity Loans, but significant limitations were imposed on permitted terms,
conditions and practices incident to their creation. For example, Texas Home
Equity Loans must be made without recourse for personal liability against the
homestead owner(s) or their spouse(s) (except in the case of actual fraud on
their part in obtaining the loan) and may be foreclosed upon only by court
order. Further, holders of Texas Home Equity Loans face unique legal risks and
uncertainties that they do not customarily confront with equity take-out
mortgages in other states. For example, if any of the requirements that are
addressed in the amendment to the Texas Constitution (such as limitations on
fees charged to the borrower, disclosures to the borrower or matters to be
provided for in the closing documents) are not met, the lien may
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be invalid. There are also similar risks involved in servicing Texas Home Equity
Loans (such as the failure to comply with an obligation to the borrower within a
reasonable time after receiving notification from the borrower) that can result
in the forfeiture of all principal and interest due on the mortgage loan.
DESCRIPTION OF THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of Mortgage Loans having the aggregate
principal balance outstanding as of the related Cut-off Date, after giving
effect to payments due or received prior to such date, specified in the related
Prospectus Supplement (the "ORIGINAL POOL PRINCIPAL BALANCE"). Unless otherwise
specified in the related Prospectus Supplement, each Mortgage Pool will consist
of fixed- or adjustable-rate Mortgage Loans (including fully amortizing Mortgage
Loans, Balloon Loans and/or revolving home equity loans or certain balances
thereof) originated and underwritten by the Representative or by a wholly-owned
subsidiary of the Representative or purchased and re-underwritten by the
Representative or by a wholly-owned subsidiary of the Representative. To the
extent specified in the related Prospectus Supplement, the Mortgage Loans will
be secured by first and/or junior mortgages or deeds of trust or other similar
security instruments (each, a "MORTGAGE") creating a first or junior lien on
one- to four-family dwellings, units in condominium developments, units in
planned unit developments, shares of stock in cooperative housing corporations,
manufactured housing units and long term residential leasehold interests (each,
a "MORTGAGED PROPERTY"). In addition, the Mortgage Loans may include certain
Mortgage Loans evidenced by contracts ("LAND SALE CONTRACTS") for the sale of
properties pursuant to which the Mortgagor promises to pay the amount due
thereon to the holder thereof with fee title to the related property held by
such holder until the Mortgagor has made all of the payments required pursuant
to such Land Sale Contract, at which time fee title is conveyed to the
Mortgagor.
The related Prospectus Supplement will describe certain characteristics of
the related Mortgage Loans, including without limitation (i) the range of dates
of origination and the latest scheduled maturity date, (ii) the minimum
remaining term to maturity, the weighted average original term to maturity and
the weighted average remaining term to maturity, (iii) the weighted average of
the annual rates of interest on the Mortgage Loans (each such annual rate of
interest hereinafter referred to as the "MORTGAGE INTEREST RATE") and the range
of Mortgage Interest Rates, (iv) in the case of Mortgage Loans with adjustable
interest rates ("ARMS" or "ADJUSTABLE RATE MORTGAGES"), the weighted average
outstanding current Mortgage Interest Rates, Gross Margins, Maximum Mortgage
Rates and Minimum Mortgage Rates and Periodic Caps and Payment Caps, if any (as
such terms are defined below under "-- Payments on the Mortgage Loans"), (v) the
range of principal balances outstanding, the range of original principal
balances and the weighted average outstanding principal balance, (vi) the
percentages of Mortgage Loans secured by first Mortgages, second Mortgages and
more junior Mortgages, respectively, (vii) the maximum Combined Loan-to-Value
Ratio (as defined below) at origination (as defined below) and the weighted
average Combined Loan-to-Value Ratio, (viii) the percentage of Mortgage Loans
secured by fee simple interests in single-family dwelling units, attached or
detached two- to four-family dwelling units, units in planned unit developments
and condominiums, respectively, the percentage of Mortgage Loans secured by
leasehold interests, the percentage of Mortgage Loans secured by manufactured
housing units and the percentage of Mortgage Loans secured by units in
cooperatives, (ix) the percentage of Mortgage Loans as to which the related
Mortgagor represented at the time of origination that the related Mortgaged
Property would be occupied by such Mortgagor as a primary or secondary
residence, (x) certain summary information relating to the geographic
concentration of the Mortgaged Properties securing the Mortgage Loans, (xi) the
percentage of Mortgage Loans which are Balloon Loans and the dates after
origination the balloon payment is due, and (xii) the percentage of Mortgage
Loans which are Bankruptcy Mortgage Loans (as defined below), the percentage of
Bankruptcy Loans which are 30 days or more contractually delinquent and the
percentages of Mortgage Loans other than Bankruptcy Mortgage Loans which are 30
days and 60 days or more contractually delinquent, respectively. If so specified
in the related Prospectus Supplement, such information may be approximate based
on the expected characteristics of the Mortgage Liens to be included in the
related Mortgage Pool and any significant variations therefrom provided on the
related Current Report on Form 8-K, as described below.
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For purposes of the foregoing, except to the extent otherwise specified in
the related Prospectus Supplement, the "COMBINED LOAN-TO-VALUE RATIO" of any
Mortgage Loan is the ratio (expressed as a percentage) of (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of origination plus
(b) the outstanding balance of the Senior Lien, if any, divided by (ii) the
lesser of (a) the value of the related Mortgaged Property, based upon the
appraisal made at the time of origination of the Mortgage Loan and (b) the
purchase price of the Mortgaged Property if the Mortgage Loan proceeds were used
to purchase the Mortgaged Property. The Combined Loan-to-Value Ratios of the
Mortgage Loans also reflect certain judgments of the Company's underwriters made
at the time the Mortgage Loans were originated or acquired and certain other
policies of the Company. See "The Depositors, the Servicer, the Representative
and the Depositors -- Specific Underwriting Criteria -- Balloon Mortgage Loans"
and "-- Certain Calculations Relating to Combined Loan-to-Value Ratios" herein.
A "BANKRUPTCY MORTGAGE LOAN" is a Mortgage Loan on which the related
Mortgagor is making payments pursuant to a personal bankruptcy plan or
proceeding (each, a "BANKRUPTCY PLAN"). The entire principal balance and the
right to receive interest accrued after the Cut-off Date with respect to each
Bankruptcy Mortgage Loan will generally be included in the assets of the related
Trust, while the right to interest accrued but unpaid prior to the related
Cut-off Date under each Bankruptcy Mortgage Loan will generally be retained by
the Originators. The Originators' right to collect interest accrued on a
Bankruptcy Mortgage Loan prior to the date of the related Bankruptcy Plan filing
will generally be subordinate to the related Trust's right to receive timely
payments of principal and interest with respect to such Bankruptcy Mortgage
Loan.
In addition, the related Prospectus Supplement or, if so specified therein,
the Current Report on Form 8-K to be filed within fifteen days after the
delivery of a Series of Certificates, will set forth in tabular form certain
more detailed information relating to the characteristics of the related
Mortgage Loans by number and outstanding principal balance and by percentage of
the Mortgage Pool including, without limitation, the outstanding principal
balances of the Mortgage Loans, the geographic distribution of the related
Mortgaged Properties (by state), the Combined Loan-to-Value Ratios, the Mortgage
Interest Rates, the remaining months to stated maturity and the number of months
since origination, in each case (except for geographic distribution) within the
ranges specified therein.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, a
substantial portion of the Mortgage Loans underlying a Series of Certificates
will provide for level monthly installments (except, in the case of Balloon
Loans, the final payment) consisting of interest equal to one-twelfth of the
applicable Mortgage Interest Rate times the unpaid principal balance, with the
remainder of such payment applied to principal (an "ACTUARIAL MORTGAGE LOAN").
No adjustment is made if a payment is made earlier or later than the due date,
although the Mortgagor may be subject to a late payment penalty. If such
Mortgage Loan is prepaid, the borrower is required to pay interest only to the
date of prepayment. Unless otherwise specified in the related Prospectus
Supplement, no Mortgage Loan will provide for deferred interest or negative
amortization.
The Mortgage Loans may have Mortgage Interest Rates which are fixed or may
be ARMs on which the Mortgage Interest Rates are adjusted periodically based on
an index (an "INDEX") or otherwise, as specified in the related Prospectus
Supplement. ARMs generally provide for a fixed initial Mortgage Interest Rate
until the first date on which such Mortgage Interest Rate is to be adjusted.
Thereafter, the Mortgage Interest Rate is subject to periodic adjustment
generally equal to the Index plus a fixed percentage spread over the Index
established contractually for each ARM at the time of its origination (the
"GROSS MARGIN"). The initial Mortgage Interest Rate for an ARM may be lower than
the sum of the then-applicable Index and the Gross Margin for such ARM. An ARM
may be convertible into a fixed-rate Mortgage Loan. To the extent specified in
the related Prospectus Supplement, any ARM so converted may be subject to
repurchase upon conversion by the party specified in such Prospectus Supplement.
An ARM may provide that its Mortgage Interest Rate may not exceed a rate
above a maximum rate (the "MAXIMUM MORTGAGE RATE") or be less than a minimum
rate (the "MINIMUM MORTGAGE RATE") established at the time of origination. In
addition, if so specified in the related Prospectus Supplement, an ARM may
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provide for limitations on the maximum amount by which the Mortgage Interest
Rate may adjust for any single adjustment period (a "PERIODIC CAP") or, in the
case of an ARM providing for negative amortization, may provide for limitations
on the amounts by which scheduled payments may be increased due to rising
interest rates (a "PAYMENT CAP").
Each Mortgage Loan may contain prohibitions on prepayment or require
payment of a premium or a yield maintenance penalty (a "PREPAYMENT PREMIUM") in
connection with a prepayment, in each case as described in the related
Prospectus Supplement. Any such Prepayment Premiums will generally be a part of
the Representative's Yield. However, in the event that holders of any Class or
Classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated.
A Simple Interest Mortgage Loan provides for the amortization of the amount
financed under the Mortgage Loan over a series of equal monthly payments
(except, in the case of a Balloon Loan, the final payment). Each monthly payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Mortgage Loan multiplied by the stated
Mortgage Interest Rate and further multiplied by a fraction, the numerator of
which is the number of days in the period elapsed since the preceding payment of
interest was made and the denominator of which is the number of days in the
annual period for which interest accrues on such Mortgage Loan. As payments are
received under a Simple Interest Mortgage Loan, 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 borrower pays a fixed
monthly installment on a Simple Interest Mortgage Loan 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, the next
succeeding payment will result in an allocation of a greater amount to interest
if such payment is made on its scheduled due date.
Conversely, if a borrower 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 under a Simple Interest Mortgage
Loan is made on or prior to its scheduled due date, the principal balance of the
Mortgage Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date the Mortgage Loan will amortize more slowly than scheduled.
If a Simple Interest Mortgage Loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
As more fully described in the related Prospectus Supplement, the Mortgage
Loans may consist, in whole or in part, of revolving home equity loans or
certain balances thereof ("REVOLVING CREDIT LINE LOANS"). Interest on each
Revolving Credit Line Loan, excluding introductory rates offered from time to
time during promotional periods, may be computed and payable monthly on the
average daily outstanding principal balance of such loan. From time to time
prior to the expiration of the related draw period specified in a Revolving
Credit Line Loan, principal amounts on such Revolving Credit Line Loan may be
drawn down (up to a maximum amount as set forth in the related Prospectus
Supplement) or repaid. If specified in the related Prospectus Supplement, new
draws by borrowers under the Revolving Credit Line Loans will automatically
become part of the Trust described in such Prospectus Supplement. Alternatively,
principal repayments may be used by the Trust during the period specified in the
related Prospectus Supplement to acquire additional Revolving Credit Line Loans.
As a result, the aggregate balance of the Revolving Credit Line Loans will
fluctuate from day to day as new draws by borrowers are added to the Trust and
principal payments are applied to such balances and such amounts will usually
differ each day, as more specifically described in the related Prospectus
Supplement. Under certain circumstances, under a Revolving Credit Line Loan, a
borrower may, during the related draw period, choose an interest only payment
option, during which the borrower is obligated to pay only the amount of
interest which accrues on the loan during the billing cycle, and may also elect
to pay all or a portion of the principal. An interest only payment option may
terminate at the end of the related draw
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period, after which the borrower must begin paying at least a minimum monthly
portion of the average outstanding principal balance of the loan.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
holder of the Certificate, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average remaining term to maturity of the Mortgage Loans in the related Trust
(which may be affected by prepayments, defaults, liquidations or repurchases).
See "Risk Factors."
PASS-THROUGH RATE
The Pass-Through Rate which may be applicable to any Class within a Series
may be fixed, variable or adjustable, and may or may not be based upon the
weighted average Mortgage Interest Rate of the Mortgage Loans in the related
Trust. The Prospectus Supplement with respect to any Series of Certificates will
specify the Pass-Through Rate for each Class of such Certificates or, in the
case of a variable or adjustable Pass-Through Rate, the method of determining
such Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Loan on the Pass-Through Rate of one or more Classes of Certificates; and
whether the distributions of interest on the Certificates of any Class will be
dependent, in whole or in part, on the performance of any obligor under a Cash
Flow Agreement.
If so specified in the related Prospectus Supplement, the effective yield
to maturity to each holder of Certificates entitled to payments of interest will
be below that otherwise produced by the applicable Pass-Through Rate and
purchase price of such Certificate because, while interest may accrue on each
Mortgage Loan during a specified Accrual Period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following such Accrual Period.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the principal
balance of a class of Accrual Certificates) on a Payment Date will include
interest accrued during the Accrual Period for such Payment Date. As indicated
above under "-- Pass-Through Rate," if the Accrual Period ends on a date other
than the day before a Payment Date for the related Series, the yield realized by
the holders of such Certificates may be lower than the yield that would result
if the Accrual Period ended on such day before the Payment Date.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The rate of principal payments on each Class of Certificates of a Series
entitled to principal, the aggregate amount of each interest payment on each
Class of Certificates of a Series entitled to interest and the yield to maturity
of each Class of Certificates of a Series will be related to the rate and timing
of payments of principal on the related Mortgage Loans, which may be in the form
of scheduled and unscheduled payments (including principal prepayments on the
Mortgage Loans resulting from both voluntary prepayments by the borrowers and
involuntary liquidations). 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. 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. Prepayments,
liquidations and purchases of the Mortgage Loans will result in distributions to
the holders of amounts of principal which would otherwise be distributed over
the remaining terms of the Mortgage Loans.
As described above, the rate of prepayment on a pool of mortgage loans is
affected by prevailing market rates for comparable mortgage loans. 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. No representation is made as to the particular
factors that will affect the prepayment
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of the Mortgage Loans underlying any Series of Certificates, as to the relative
importance of such factors, as to the percentage of the principal balance of the
Mortgage Loans that will be paid as of any date or as to the overall rate of
prepayment on the related Mortgage Loans.
The yield to maturity of certain Classes of Certificates of a Series may be
particularly sensitive to the rate and timing of principal payments (including
prepayments) of the Mortgage Loans, which may fluctuate significantly from time
to time. The Prospectus Supplement relating to such Certificates will provide
certain additional information with respect to the effect of such payments on
the yield to maturity of such Certificates under varying rates of prepayment,
including the rate of prepayment, if any, which would reduce the holder's yield
to zero.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Conversely, greater than
anticipated prepayments of principal will decrease the yield on 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 Certificates will not be entirely offset by a
subsequent like reduction (or increase) in the rate of principal payments. The
weighted average life of each Class of Certificates of a Series will also be
affected by the amount and timing of delinquencies and defaults on the related
Mortgage Loans and the recoveries, if any, on defaulted Mortgage Loans and
foreclosed properties in the related Mortgage Pool.
The "WEIGHTED AVERAGE LIFE" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
each Class of Certificates of a Series will be influenced by, among other
factors, the rate at which principal payments are made on the Mortgage Loans,
including final payments made upon the maturity of Balloon Loans.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan
If so specified in the related Prospectus Supplement, a number of Mortgage
Loans may have balloon payments due at maturity (which, based on the
amortization schedule of such Mortgage Loans, may be a substantial amount), 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 a number of Balloon Loans may default
at maturity. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required, including,
without limitation, real estate values, the mortgagor's financial situation,
prevailing mortgage loan interest rates, the mortgagor's equity in the related
Mortgaged Property, tax laws and prevailing general economic conditions. Neither
the Depositors, the Servicer, nor any of their affiliates will be obligated to
refinance or repurchase any Mortgage Loan or to sell the Mortgaged Property
except to the extent provided in the related Prospectus Supplement. 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 Loans,
the Servicer may modify Mortgage Loans that are in default or as to which a
payment default is reasonably foreseeable. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates and may thereby lengthen the
period of time elapsed from the date of issuance of a Certificate until it is
retired.
With respect to certain Mortgage Loans, including ARMs, the Mortgage
Interest Rate at origination may be below the rate that would result if the
Index and Margin relating thereto were applied at origination. Under the
underwriting procedures of the Company, the mortgagor or obligor under each
Mortgage Loan generally will be qualified on the basis of the Mortgage Interest
Rate in effect at origination. The repayment of any such Mortgage Loan may thus
be dependent on the ability of the mortgagor or obligor to make larger level
monthly payments following the adjustment of the Mortgage Interest Rate. In
addition, certain Mortgage Loans may be subject to temporary buydown plans
("BUYDOWN MORTGAGE LOANS") pursuant to which the monthly payments made by the
mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments thereon (THE "BUYDOWN PERIOD"). The periodic increase
in the amount paid by the
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Mortgagor of a Buydown Mortgage Loan during or at the end of the applicable
Buydown Period may create a greater financial burden for the Mortgagor, who
might not have otherwise qualified for a mortgage, and may accordingly increase
the risk of default with respect to the related Mortgage Loan.
The Mortgage Interest Rates on certain ARMs 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 (initial Mortgage Interest Rates are generally lower than the
sum of the applicable Index at origination and the related Margin over such
Index at which interest accrues), the amount of interest accruing on the
principal balance of such Mortgage Loans may exceed the amount of the minimum
scheduled monthly payment thereon. As a result, a portion of the accrued
interest on negatively amortizing Mortgage Loans may be added to the principal
balance thereof and will bear interest at the applicable Mortgage Interest Rate.
The addition of any such deferred interest to the principal balance of any
related Class or Classes of Certificates will lengthen the weighted average life
thereof and may adversely affect yield to holders thereof, depending upon the
price at which such Certificates were purchased. In addition, with respect to
certain ARMs subject to negative amortization, during a period of declining
interest rates, it might be expected that each minimum scheduled monthly payment
on such a Mortgage 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
Certificates, the weighted average life of such Certificates will be reduced and
may adversely affect yield to holders thereof, depending upon the price at which
such Certificates were purchased.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the Revolving Credit Line Loans may be
applied by the related Trustee to the acquisition of additional Revolving Credit
Line Loans during a specified period (rather than used to fund payments of
principal to holders of Certificates during such period) with the result that
the related Certificates possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest-only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in earlier than expected amortization
of the related Certificates.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Mortgage Loans) for a specified period prior to
being used to fund payments of principal to holders of Certificates.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related
Certificates relative to the amortization rate of the related Mortgage Loans, or
to attempt to match the amortization rate of the related Certificates to an
amortization schedule established at the time such Certificates are issued. Any
such feature applicable to any Certificates may terminate upon the occurrence of
events to be described in the related Prospectus Supplement, resulting in the
current funding of principal payments to the related holders of the Certificates
(the "CERTIFICATEHOLDERS") and an acceleration of the amortization of such
Certificates.
Termination
In addition, unless otherwise specified in the related Prospectus
Supplement, the Servicer, the Depositors or the holders of the Class of
Certificates of any Series specified in the related Prospectus Supplement may,
at their option, cause the related Trust to sell all of the outstanding Mortgage
Loans and all Mortgaged Properties acquired by foreclosure or deed in lieu of
foreclosure ("REO PROPERTIES") underlying the related Series of Certificates,
and thus effect the early retirement of the related Certificates, after the date
on which the Pool Principal Balance (as defined herein) is less than the
percentage of the Original Pool Principal Balance specified in the related
Prospectus Supplement. See "Description of the Certificates -- Optional
Disposition of Mortgage Loans" herein. Further, if so specified in the related
Prospectus Supplement, the Servicer or such other entities as may be specified
in such Prospectus Supplement may be required to effect early retirement of a
Series of Certificates by soliciting competitive bids for the purchase of the
assets of the
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related Trust or otherwise. See "Description of the Certificates -- Mandatory
Disposition of Mortgage Loans" herein.
Defaults
The rate of defaults on the Mortgage Loans will also affect the rate,
timing and amount of principal payments on the Mortgage Loans and thus the yield
on the Certificates. In general, defaults on mortgage loans are expected to
occur with greater frequency in their early years, although little data is
available with respect to the rate of default on second mortgage loans. The rate
of default on Mortgage Loans which are refinance or limited documentation
mortgage loans, and on Mortgage Loans with high Combined Loan-to-Value Ratios
may be higher than for other types of Mortgage Loans. In addition, the rate of
default on second or more junior mortgage loans may be greater than that of
mortgage loans secured by first liens on comparable properties. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values.
Foreclosures
The number of foreclosures or repossessions and the principal amount of the
Mortgage Loans that are foreclosed or repossessed in relation to the number and
principal amount of Mortgage Loans that are repaid in accordance with their
terms will affect the weighted average life of the Mortgage Loans and that of
the related Series of Certificates.
Refinancing
At the request of a Mortgagor, the Servicer may allow the refinancing of a
Mortgage Loan in any Trust by accepting prepayments thereon and permitting a new
loan secured by a mortgage on the same property. In the event of such a
refinancing, the new loan would not be included in the related Trust and,
therefore, such refinancing would have the same effect as a prepayment in full
of the related Mortgage Loan. The Servicer, the Company or the Originators may,
from time to time, implement programs designed to encourage refinancing. Such
programs may include, without limitation, modifications of existing loans,
general or targeted solicitations, the offering of pre-approved applications,
reduced origination fees or closing costs, or other financial incentives. In
addition, the Servicer may encourage the refinancing of Mortgage Loans,
including defaulted Mortgage Loans, that would permit creditworthy borrowers to
assume the outstanding indebtedness of such Mortgage Loans.
Due-on-Sale Clauses
Acceleration of mortgage payments on a Mortgage Loan as a result of certain
transfers of the 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. A number of the Mortgage Loans
underlying a Series may include "due-on-sale" clauses that allow the holder of
the Mortgage Loans to demand payment in full of the remaining principal balance
of the Mortgage Loans upon sale, transfer or conveyance of the related Mortgaged
Property. With respect to any Mortgage Loans, except as set forth in the related
Prospectus Supplement, the Servicer will generally enforce any due-on-sale
clause to the extent it has knowledge of the conveyance or proposed conveyance
of the underlying Mortgaged Property and it is entitled to do so under
applicable law. See "Certain Legal Aspects of the Mortgage Loans -- Due-on-Sale
Clauses" and "Description of the Certificates -- Servicing
Standards -- Enforcement of Due-on-Sale Clauses."
Special Payments
If any Class of Certificates of Series are subject to special redemption or
special remittances ("SPECIAL PAYMENTS") on a date other than a Payment Date
(each such date, a "SPECIAL PAYMENT DATE"), the holders will receive principal
earlier than would have been the case had no special redemption or special
remittance, as the case may be, occurred and such principal payments were made
on the next succeeding Payment Date. In such event, holders may not be able to
reinvest such payments at rates equal to the rates on such Class of
Certificates.
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Prefunding Accounts
If the Pooling and Servicing Agreement for a Series of Certificates
provides for a Prefunding Account or other means of funding the transfer of
additional Mortgage Loans to the related Trust, as described under "Description
of the Certificates -- Forward Commitments; Prefunding," herein, and the Trust
is unable to acquire such additional Mortgage Loans within any applicable time
limit, the amounts set aside for such purpose may be required to effect the
retirement of all or a portion of one or more Classes of Certificates of such
Series.
THE TRUSTS
Each Trust will be formed under a Pooling and Servicing Agreement (a
"POOLING AND SERVICING AGREEMENT") among the Depositors, the Servicer and the
Trustee named therein (a "TRUSTEE"). No Trust will engage in any activity other
than (i) acquiring, holding and managing the Mortgage Loans and the other assets
of the Trust and the proceeds therefrom, (ii) issuing the related Certificates,
(iii) making payments on the related Certificates and (iv) engaging in other
activities incidental to the foregoing.
The property of each Trust will include: (i) the related Mortgage Loans as
from time to time are subject to the related Pooling and Servicing Agreement and
all proceeds thereof, (ii) such assets as from time to time are identified as
REO Property or are deposited in the Collection Account (defined herein),
Principal and Interest Account (defined herein), or other accounts established
under any of the documents governing the Trust or the related Certificates,
including amounts on deposit in such accounts and invested in Permitted
Instruments, (iii) the Trustee's rights under all insurance policies with
respect to the Mortgage Loans required to be maintained pursuant to the Pooling
and Servicing Agreement and any Insurance Proceeds, (iv) Liquidation Proceeds,
(v) Released Mortgaged Property Proceeds; and (vi) certain other property;
provided, however, that unless otherwise specified in the related Prospectus
Supplement, the assets of a Trust will not include the Representative's Yield or
amounts received on or after the Cut-off Date in respect of interest accrued on
the Mortgage Loans prior to the Cut-off Date.
The Servicer will service the Mortgage Loans either directly or through
subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Certificates -- Servicing Standards" and "-- Use of
Subservicers" below for a further description of the provisions of the Pooling
and Servicing Agreement relating to servicing standards and the use of
subservicers.
THE DEPOSITORS, THE SERVICER, THE REPRESENTATIVE AND THE ORIGINATORS
GENERAL
EquiCredit Corporation of America (formerly known as Old Stone Credit
Corporation), the Servicer, the Representative and an Originator ("EQUICREDIT"),
was incorporated under the laws of the State of Delaware on September 4, 1991,
for the purpose of acquiring substantially all of the assets of Old Stone Credit
Corporation ("OSCC-FLORIDA"), a corporation organized under the laws of the
State of Florida and a wholly-owned subsidiary of Old Stone Corporation, a
corporation organized under the laws of the State of Rhode Island. EquiCredit is
a wholly-owned subsidiary of EquiCredit Corporation ("EQUICREDIT CORPORATION"),
a Delaware corporation organized on August 29, 1991. On November 7, 1991,
EquiCredit acquired substantially all of the assets and succeeded in the
business of OSCC-Florida, including the common stock of the wholly-owned
subsidiaries of OSCC-Florida. In the discussion that follows, references to the
"COMPANY" include EquiCredit Corporation, EquiCredit and its subsidiaries
(including the other Originators) and EquiCredit's predecessor in interest,
OSCC-Florida.
On January 9, 1998, Barnett Banks, Inc., the parent and sole stockholder of
EquiCredit Corporation, merged with NationsBank Corporation. On September 30,
1998, BankAmerica Corporation was merged with and into NationsBank Corporation,
with the latter entity surviving. Upon completion of the merger, NationsBank
Corporation changed its name to BankAmerica Corporation. As a result EquiCredit
Corporation is now an indirect wholly-owned subsidiary of BankAmerica
Corporation.
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The Depositors were incorporated in the State of Delaware on February 26,
1993 for the limited purposes of receiving the mortgage loans from one or more
Originators, transferring such mortgage loans to third parties, forming trusts
and engaging in related activities. All of the outstanding common stock of each
Depositor is owned by one or more of the Originators.
The transactions contemplated hereby have been structured to make the
voluntary or involuntary application for relief under the United States
Bankruptcy Code or similar applicable laws ("INSOLVENCY LAWS") by a Depositor
unlikely and that such application by an Originator would not result in
consolidation of the assets and liabilities of the Depositors with those of such
Originator. If, notwithstanding the measures so taken, a court concluded that
the assets and liabilities of the Depositors should be so consolidated with
those of an Originator, delays in distributions on the Certificates and possible
reductions in the amount of such distributions could occur.
LOAN ORIGINATION HISTORY
The Company originates mortgage loans on residential dwellings nationwide;
purchases mortgage loans from lenders, mortgage bankers, and brokers on a
wholesale basis; assembles and sells pools of mortgages to major commercial
banks and other financial institutions; and services mortgage portfolios placed
with such investors. The Company lends primarily on suburban and urban
single-family homes in major metropolitan areas. See "The Originators and the
Servicer -- Origination, Foreclosure and Loss Experience -- Loan Origination
History" in the related Prospectus Supplement for a current listing of the
states in which the Company conducts loan origination and/or wholesale
operations.
The related Prospectus Supplement will set forth the dollar amounts of
first and junior lien mortgage loans originated and purchased by the Company
during the three years immediately preceding the date of the Prospectus
Supplement and, if available, the dollar amounts of mortgage loans originated
and purchased by the Company during the most recent complete calendar quarters
in the current year.
GENERAL LOAN UNDERWRITING
The Company originates and acquires first and junior lien mortgage loans
using standard underwriting procedures based upon an applicant's general
creditworthiness and the extent of real estate equity used as collateral
security. The following is a general discussion of the underwriting standards
and procedures utilized by the Company, subject to such variations as are
specified in the related Prospectus Supplement.
Each borrower applicant completes an application which includes information
with respect to the applicant's liabilities, income, credit history, employment
history and personal information. The Company's underwriting guidelines require
a credit report on each applicant from a national credit bureau. The report
typically contains information relating to such matters as credit history with
local and national merchants and lenders, installment debt payments and any
record of defaults, bankruptcies, repossessions or judgments. In general, the
borrower should have resided at the property that will secure the loan for at
least six months and should have been employed for not less than two years with
the same employer or have established comparable stability in a particular field
of work.
All mortgage loan applications are underwritten, and collateral properties
appraised, prior to the closing or acquisition of a mortgage loan by the
Company. Loan underwriting and approval is centralized at the Company's
headquarters in Jacksonville, Florida. Loans are reviewed and approved by one of
the Company's underwriters, each of whom is granted specific credit approval
limits based on experience and seniority (which approval limits may be waived at
the discretion of management). Approval by the Company's Senior Vice President
of Underwriting is generally required for all loan applications over a dollar
limit established from time to time, currently $250,000, except that such
approval is not always obtained for loans acquired as part of a portfolio
acquisition.
The Company does not currently originate or acquire mortgage loans that
result in a lien position more subordinate than a second lien on real estate
and, unless otherwise specified in the related Prospectus Supplement, no loan
secured by a more subordinate mortgage will be included in a Mortgage Pool. The
Company will consider making a second mortgage loan in a subordinate position to
a first mortgage loan held by a party other than a bank, savings association or
a supervised lender, if a copy of the recorded security
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instrument and note are reviewed prior to credit approval. Second mortgage loans
may also be made behind adjustable or variable rate first mortgage loans if the
maximum payment (calculated at the current rate plus 200 basis points) is used
when calculating the debt ratio, and the note and mortgage relating to such
first mortgage loan accompany the loan application file for consideration during
the credit review process. Any first lien adjustable or variable rate loan is
required to have been in existence for at least one year and to have experienced
at least one rate adjustment.
With respect to the Company's loan and loan portfolio acquisition
activities, the Company reviews procedures and calculations used by each
individual seller to achieve a certain "level of confidence" that the process
used is correct and pragmatic. This is done by reviewing a sample size of loans
under each seller's pool. The Company's goal in underwriting loan purchases is
to follow the Company's published underwriting guidelines for each individual
loan. However, flexibility is used to some extent to include some loans outside
of the guidelines to successfully price and acquire the majority of the loan
pool being considered. This flexibility is only used on loans that are believed
to be acceptable by strong compensating factors, and exceptions to the
underwriting guidelines are reviewed on a case by case basis. Therefore, the
references to application to the underwriting guidelines to purchased loan
portfolios assumes the possibility of any of the aforementioned exceptions.
INCOME VERIFICATION
Loan applications are considered through a combination of reviews of credit
bureau reports and/or individual certifications. Income is verified through
various means, including, but not limited to, applicant interviews, written
verification, review of paycheck stubs, tax returns, and so forth, and the
potential borrower's demonstration of sufficient levels of disposable income to
satisfy debt repayment requirements. The following are certain of the key
factors considered by the Company.
Employment. A loan applicant's employer is always contacted to verify
employment in addition to receipt of the potential borrower's W-2s, last two to
four paycheck stubs or other similar items of verification as may be required by
the underwriter. With respect to any acquired loan, the Company relies upon the
supporting documentation in the loan application file relating to the
applicant's employment status.
Self-Employed Applicants -- Commissions/Bonuses/Tax Returns. Federal tax
returns for at least the most recent two years (with schedules) signed by the
potential borrower are required from self-employed applicants and applicants who
derive 100% of their income from commissions or 50% or more of their total
income from commissions and/or bonuses. Consistency in commission and/or bonus
income must be established. The Company's underwriters may, in the exercise of
their judgment, either accept personal and business related financial statements
prepared by the borrower or require financial statements prepared by a certified
public accountant. Checking account statements are used solely as additional
verification of income.
Rental Income. Rental income must be documented by leases, rental
agreements, tenant letters, or tax returns for the two most recent years. The
Company calculates 75% of total rents received and subtracts from that figure
the total mortgage payments on rental property to derive a cash flow, if any,
which amount is then treated as additional income in the credit review process.
If the subtraction of the mortgage payment from the rental income results in a
negative cash flow, such amount is subtracted from the applicant's monthly
income.
Social Security and Veterans Compensation. Compensation from the Social
Security Administration or the Department of Veterans Affairs must be supported
by an awards letter from the appropriate agency. If such a letter is
unavailable, copies of checks received from the appropriate agency or six to
twelve months of checking account statements indicating equal deposit amounts
are required.
Retirement Income. Retirement income must be supported by an annuity
letter or similar awards document describing all details of income. If such a
letter or document is unavailable, copies of checks received from the source of
income or six to twelve months of checking account statements indicating equal
deposit amounts are required.
Child and/or Spousal Support. A loan applicant must submit to the Company
a copy of the final decree of divorce specifically setting forth the amount and
term, if any, of support. If such award is a substantial portion of the
applicant's total monthly income, either copies of cancelled checks from the
former spouse,
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<PAGE> 85
collection receipts paid through a court ordered public service office or
checking account statements indicating equal monthly or otherwise periodic
deposit amounts are required.
No Income Verification Program. The Company has a No Income Verification
Program (the "NIV PROGRAM") for self-employed, and in limited instances,
salaried borrowers applying for first lien loans only. Under the NIV Program,
applicants are qualified based on monthly income as stated on the mortgage
application. Under the NIV Program, the borrower must be self-employed for at
least three years or a wage earner for at least two years. The maximum loan
amount for loans under the NIV Program is $200,000 and the maximum Combined
Loan-to-Value Ratio is 80%.
APPRAISALS; TITLE COMPANIES AND CLOSING AGENTS
All properties are required to be appraised by independent fee appraisers.
Each appraiser must be state certified with a copy of their current license or
certification with date of expiration attached to each report. Appraisers must
be independent from borrowers, referral brokers used by the Company and any
other mortgage loan originator from which the Company acquires mortgage loans.
If an appraisal with respect to a mortgaged property appears to be inconsistent
with appraisals previously conducted on comparable properties by the same or
other appraisers, the Company requires the appraiser to explain the
discrepancies. If the problems continue or are not resolved to the Company's
satisfaction, the appraisal firm is placed on the Company's exclusionary listing
of appraisers. See "-- Quality Control Audit Procedures Highlights" below.
Appraisals are completed on standard FNMA/FHLMC forms and conform to
current FNMA/FHLMC secondary market requirements for one- to four family
residential appraisals. Each such appraisal includes, among other things, an
inspection of the interior and exterior of the subject property, obtaining
front, rear and street view photographs and obtaining data from three recent
sales of similar properties within the same general location as such subject
property; provided, that for certain high loan-to-value loans, interior
inspections may not be included. The appraisals may take into account any
increased value in the residence due to improvements proposed to be made with
the proceeds of the Mortgage Loan. In such cases, the Company will escrow a
portion of the loan proceeds until such improvements are made.
Loans are generally closed by personnel at the respective branches of the
Company, the related approved Originator, approved attorneys, title insurers or
agents of title insurers, and title insurance is issued by one of several
nationally recognized title companies.
SPECIFIC UNDERWRITING CRITERIA
The Company originates and purchases loans under the underwriting criteria
summarized below, which may change from time to time, as described in the
related Prospectus Supplement. Management permits deviations from the specific
underwriting criteria to reflect local economic trends and real estate
valuations, as well as other credit factors specific to each loan application
and/or each portfolio acquired. From time to time, the Company purchases or
grants loans to applicants whose creditworthiness may not coincide with
underwriting criteria. In such circumstances, the Company strives to maintain
the overall integrity of these programs and simultaneously provide its lending
officers with the flexibility to consider the specific circumstances of the loan
application or purchase.
Credit Bureau Risk Scores. Beginning in November 1998, the Company revised
its underwriting criteria to utilize credit bureau risk scores (the "CREDIT
BUREAU RISK SCORES") to assist it in evaluating the credit quality of borrowers
and to simplify the origination process. In contrast to assignment of credit
grades according to traditional non-agency credit assessment methods, (i.e.,
mortgage and other credit delinquencies and problems), the Company's revised
underwriting policies generally rely upon a borrower's Credit Bureau Risk Score
initially to determine a borrower's likely future credit performance.
"Credit Bureau Risk Scores" are statistical credit scores obtained by many
mortgage lenders in connection with the loan application to help assess a
borrower's creditworthiness as of the time the score is obtained. The Credit
Bureau Risk Scores are generated by models developed by Fair, Isaac & Company
("FAIR, ISAAC") and the three national credit bureaus -- Equifax, TransUnion and
Experian. The models were derived by analyzing data on consumers to establish
patterns which are believed to be indicative of the borrower's probability of
default. The Credit Bureau Risk Score is based on a borrower's historical credit
data,
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<PAGE> 86
including, among other things, payment history, delinquencies on accounts,
levels of outstanding indebtedness, length of credit history, types of credit,
and bankruptcy experience. Credit Bureau Risk Scores range from approximately
350 to approximately 850, with higher scores indicating an individual with a
more favorable credit history compared to an individual with a lower score.
However, a Credit Bureau Risk Score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, meaning that a
borrower with a higher score is statistically expected to be less likely to
default in payment than a borrower with a lower score. In addition, it should be
noted that Credit Bureau Risk Scores were developed to indicate a level of
default probability over a two-year period, which does not correspond to a life
of a mortgage loan. Furthermore, Credit Bureau Risk Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a Credit Bureau Risk Score does not take into
consideration the effect of mortgage loan characteristics on the probability of
repayment by the borrower. The Depositors do not make any representations or
warranties as to the actual performance of any Mortgage Loan or that a
particular Credit Bureau Risk Score will not change over time or should be
relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms.
A Credit Bureau Risk Score generally must be obtained from the credit
bureau identified in the Company's zip code preference table, which is based on
an empirical comparison of each credit bureau in the relevant three digit zip
code area. Generally, the minimum Credit Bureau Risk Score allowed by the
Company is 500 for mortgage loans to be included in a Trust. Although the Credit
Bureau Risk Score is based solely on the information at the particular credit
bureau, such Credit Bureau Risk Scores have been calibrated to indicate the same
level of credit risk regardless of which credit bureau is used. The Credit
Bureau Risk Score is used as an aid to, not a substitute for, the underwriter's
judgement.
Credit Grade Matrix. The Company grades borrower applicants based on an
accept/reject matrix (the "CREDIT GRADE MATRIX") that classifies borrowers based
on a minimum Credit Bureau Risk Score and maximum Combined Loan-to-Value Ratio.
The Credit Grade Matrix reflects the highest grade permitted under the Company's
underwriting guidelines, although as described below, applicants may not qualify
for such credit grade depending on the property type, occupancy status, loan
type, loan amount and other factors. Loans made to applicants with C3 or D
grades generally will not be included in any Trust. Subject to the
qualifications contained herein, the Company's Credit Grade Matrix follows:
CREDIT GRADE MATRIX
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIO
-----------------------------------------------------------------------------------------
Less Than/Equal To
CREDIT BUREAU RISK SCORE 75% 75.01 - 80% 80.01 - 85% 85.01 - 90% 90.01 - 95% 95.01 - 100%
- ------------------------ ------------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
675+.............................. A+ A+ A+ A+ A+ A+
650-674........................... A+ A+ A+ A A A
625-649........................... A A A A A* A*
600-624........................... A B+ B+ B+* B+* C3*
575-599........................... B+ B B B* B* C3*
550-574........................... B C+ C+ C+* C+* C3*
525-549........................... B C+ C* C* C3* C3*
500-524........................... C C C* C3* C3* C3*
Less Than 500..................... D D D D D D
Unscored.......................... C C D D D D
</TABLE>
- ---------------
* Approval on an exception basis only.
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<PAGE> 87
Notwithstanding the foregoing, for applicants whose current mortgage
history is not reported or is less than 12 months in the credit bureau report
used for determining the Credit Bureau Risk Score, the following credit grades
will be assigned to the applicant based on the mortgage history if such grade is
lower than the grade assigned under the Credit Grade Matrix:
<TABLE>
<CAPTION>
CREDIT
MORTGAGE HISTORY GRADE
- ---------------- ------
<S> <C>
No more than one 30-day delinquency during the most recent A+
24-month period
No more than one 30-day delinquency during the most recent A
12-month period
No more than two 30-day delinquencies during the most recent B+
12-month period
No more than three 30-day delinquencies during the most B
recent 12-month period
No more than four 30-day delinquencies and no more than one C+
60-day delinquency during the most recent 12-month period
No more than two 60-day delinquencies and no more than one C
90-day delinquency during the most recent 12-month period
</TABLE>
The related Prospectus Supplement will set forth the distribution of the
Mortgage Loans in the related Trust among the relevant credit grades.
Maximum Loan Amounts. In general, the maximum loan amount for mortgage
loans originated or purchased by the Company currently is $350,000, reduced to
$200,000 for applicants with Credit Bureau Risk Scores under 575 and for
property types other than single family residences, modular homes over a certain
size and two- to four-family dwellings. The maximum loan amount under the
Company's NIV Program currently is $200,000. The Company may permit loan amounts
with balances higher than the foregoing amounts with appropriate underwriter
approval.
Maximum Combined Loan-to-Value Ratios. The Maximum Combined Loan-to-Value
Ratio for a borrower will vary based on the credit grade (see "-- Credit Grade
Matrix" above), the property type and other factors. A maximum Combined
Loan-to-Value Ratio of 90% generally is permitted for an owner occupied single
family property, reduced by 5% for condominiums and townhomes and properties
with rural characteristics and at least 10% for manufactured homes. For
non-owner occupied properties and second homes, the maximum Combined
Loan-to-Value Ratio generally is 80%, with similar reductions depending on
property type as described above. A maximum Combined Loan-to-Value Ratio of 100%
is permitted for non-purchase money second mortgage loans and a maximum combined
Loan-to-Value Ratio of 95% is permitted for first and second mortgage purchase
money and second mortgage refinance loans. The maximum Loan-to-Value Ratio for
loans under the NIV Program is 80%. Exceptions to the foregoing maximum Combined
Loan-to-Value Ratios may be made by the Company where there are appropriate
compensating factors, subject to approval from the appropriate level of the
underwriting department.
Debt-to-Income Ratio. In underwriting any loan, a determination is made by
the Company whether a prospective borrower has sufficient monthly income
available (i) to meet the borrower's monthly obligations on the proposed
mortgage loan and other expenses related to the mortgaged property and (ii) to
meet other financial obligations and living expenses. Such determination is made
by use of a "DEBT-TO-INCOME RATIO," generally calculated as that ratio, stated
as a percentage, which results from dividing a mortgagor's Fixed Monthly Debt by
his or her gross monthly income. "FIXED MONTHLY DEBT" includes: (i) in the case
of second mortgages, the monthly payment under the first lien (which generally
includes an escrow of real estate taxes and insurance), (ii) the related
mortgage loan monthly payment (which in the case of an Adjustable Rate Mortgage,
is calculated based on a rate per annum equal to 2% plus the initial rate),
(iii) other installment debt service payments, including, in respect of
revolving credit debt, the required monthly payment thereon, or, if no such
payment is specified, the greater of the amount equal to 5% of the balance, or
$10.00. "Fixed Monthly Debt" does not include any of the debt (other than
revolving credit debt) described above that matures within less than three
months from the date of the calculation, or in the case of revolving debt, the
minimum $10.00 monthly payment on accounts showing a zero balance.
The maximum Debt-to-Income Ratio is generally 55% for loans with a credit
grade of A, 50% for loans with a credit grade of B and 45% for loans with a
lower credit grade. The Company may permit a maximum
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<PAGE> 88
Debt-to-Income Ratio of up to 60% when the applicant's disposable income and
past credit history compensate for a higher ratio, subject to approval from the
appropriate level of the underwriting department.
For borrowers with Combined Loan-to-Value Ratios in excess of 80%, the
Company generally requires, in addition to a maximum Debt-to-Income Ratio, a
maximum payment-to-income ratio of 38%. The payment-to-income ratio is
calculated by dividing the total monthly housing expenses (principal, interest,
taxes and insurance for all liens on the mortgaged property) by the borrower's
gross monthly income Exceptions to maximum payment-to-income ratios are not
considered underwriting policy exceptions and do not require senior underwriter
approval.
BALLOON MORTGAGE LOANS
Notwithstanding the criteria described above, generally no Balloon Loan may
be originated or acquired if (i) the amount of the loan is in excess of the
dollar limit established from time to time, subject to exceptions on a
case-by-case basis; (ii) the Combined Loan-to-Value Ratio of the loan is in
excess of 95%; (iii) the amount of the loan is less than the dollar limit
established from time to time.
CERTAIN CALCULATIONS RELATING TO COMBINED LOAN-TO-VALUE RATIOS
Under the Company's underwriting criteria, the balance of the related
Senior Lien, if any, used to determine the Combined Loan-to-Value Ratio for the
mortgage loan is based on the judgment of the Company's underwriters. In
determining the Combined Loan-to-Value Ratio in cases where the related Senior
Lien, if any, secures an adjustable rate mortgage loan, the Company's
underwriters also consider the historical performance of the index from which
the mortgage interest rate is derived under the first mortgage and other credit
factors. In addition, the maximum amount of any revolving credit line prior and
superior to any mortgage loan is included in any calculation to determine the
Combined Loan-to-Value Ratio.
QUALITY CONTROL PROCEDURES
The Company's quality control procedures consist of pre- and post-funding
appraisal reviews and post-funding reviews of legal documentation, credit
documentation and underwriting.
Pre-Funding Appraisal Review
The Company's appraisal review department examines a ten percent sample of
all monthly loan originations prior to final approval. This sample is stratified
(risk-weighted by credit score and loan-to-value ratio) so that higher risk
loans are more likely to be selected for review.
The Company's loan underwriters complete an appraisal review on all
mortgage loans not selected by the appraisal review department. Appraisal
reports that have questionable values or adjustments will be referred to the
appraisal review department for further review. A variance in the appraised
values of a property will be accepted or rejected based on an administrative
desk review by the appraisal manager or a designee.
Post-Funding Reviews
Following the origination or purchase of each mortgage loan, the Company's
post closing and quality control departments conduct a review and verification
of the loan with specific attention to legal and credit documentation.
Loan and Credit File Review. For each mortgage loan, the mortgage note,
mortgage, deed of trust, Truth-in-Lending disclosures, Real Estate Settlement
Procedures Act and Equal Credit Opportunity Act documents, title abstracts,
affidavits, riders, and all other documents required pursuant to statutory law
are reviewed for existence, accuracy, and proper signatures. In addition, credit
verifications (such as verification of mortgage, verification of employment and
verification of deposits), credit applications and credit reports are reviewed
for existence and accuracy.
Detailed Loan Review. A detailed loan review is performed on each loan in
the quality control sample selected by the Company. This detailed review
includes a review for adherence to the Company's underwriting standards and
verification of the appropriateness of the credit grade under which the loan was
originated or acquired. The review also includes an examination for compliance
with the Real Estate Settlement Procedures
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<PAGE> 89
Act, Home Mortgage Disclosure Act and required Truth in Lending documentation.
In addition to the credit and compliance reviews, a review of appraisal
information is conducted on loans selected in the loan sample. The quality
control department's sampling methodology is comprised of two components: i) A
statistically representative sample of mortgage loans and ii) A stratified
sample based on risk, as measured by credit score and loan-to-value ratio. This
two-tiered approach facilitates testing loans in direct proportion to the loan
production portfolio, while also providing increased review and risk mitigation
for the Company's higher risk loans.
Loan reviews begin in the first week of the following month, and are
completed in most cases no later than the end of such month. Reports, with any
major exceptions noted, are forwarded to a senior management representative for
review and distribution to appropriate senior management.
Appraisal Review. The appraisal review department performs an
administrative desk review on all appraisals with questionable values,
adjustments, or other inconsistencies identified by loan review department
personnel. The appraisal review department also conducts an in-depth review of a
statistical sample of loans selected on a risk-weighted basis by credit score
and loan-to-value ratio. If additional review or reappraisal is deemed
necessary, an automated field appraisal or drive-by appraisal is conducted by an
independent firm.
If the review appraisal indicates that the value in the original appraisal
report is not supported and indicates a lower value than is supported, the
following action is taken:
- If the variance is 10% or less, the appraisal will be deemed acceptable.
- If the variance is over 10%, the original appraiser is notified of the
discrepancy. If the original appraiser is unable to justify his/her
position, depending on the seriousness of the issue, the appraiser is
either placed on probation or on the Company's exclusionary list of
appraisers.
Customer files, including both original appraisal information and review
appraisal information, are reviewed on all questionable appraisals. In the
majority of cases, a review of the file and an appraisal review analysis is
sufficient. A third appraisal may be ordered in any case where discrepancies are
still unexplained to the Company's satisfaction. If an appraiser's market value
or other appraisal data is deemed to be consistently inaccurate, or
discrepancies are not resolved to the Company's satisfaction, the appraiser is
placed on the Company's exclusionary list of appraisers.
Information concerning appraisal review findings, including appraisers on
probation and appraisers on the Company's exclusionary list of appraisers is
submitted in a monthly report to a senior management representative for review
and distribution to appropriate senior management.
COLLECTION PROCEDURES
The related Prospectus Supplement will set forth the number and aggregate
principal amount of mortgage loans serviced by the Company as of the end of the
prior year and any completed calendar quarters in the current year, for itself
and for investors (primarily major commercial banks, savings and loan
associations, brokerage houses and FNMA). Such statistics may include loans that
were not originated or acquired and re-underwritten by the Company but are
serviced (principally for FNMA) on a contractual basis.
The following describes collection procedures generally employed by the
Company. Any significant deviations therefrom with respect to a pool of Mortgage
Loans will be described in the related Prospectus Supplement. Collections are
conducted by the Company's Service Center at its corporate headquarters located
in Jacksonville, Florida. The Company utilizes additional collection assistance
from field collectors located in selected areas of the country. Delinquent
accounts are divided into groups of accounts of 0-29, 30-59 and 60 or more days
past due. All collection activity on 0-29 day accounts is handled by Service
Center collectors who collect in teams headed by experienced mortgage collection
supervisors. The Company utilizes a DAVOX power-dialer system in conjunction
with adaptive behavior controls. When an account becomes 5 days past due
(depending on the level of the borrower's Credit Bureau Score), the mortgagor is
generally called by phone with simultaneous notices being sent if contact by
phone is not made. When an account becomes 30-59 days delinquent, it is assigned
to a higher level Home Office collector experienced in default accounts. A
default management supervisor contacts area field collectors on a daily basis to
assign field work.
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<PAGE> 90
Prior to submitting an account for foreclosure, a 30 day breach notice is sent
certified mail to the customer. If the breach is not cured, the account is
worked by the default management area located in Jacksonville, and collection
management attempts personal contact with the borrower to determine that all
avenues of resolution have been considered. Branch offices are not responsible
for the management of accounts in foreclosure, bankruptcy, litigation or
otherwise designated for special consideration, all of which are the
responsibility of either the Company's loan asset control department or its
legal department.
If foreclosure is necessary, the Company's loan asset control department
supervises and monitors all related procedures (including bankruptcy
proceedings) conducted by the foreclosure attorneys. If title to the mortgaged
property is taken in the name of the Trustee, the Company's real estate owned
division attempts to insure that the property is preserved and protected. After
review and analysis, a disposition strategy is developed and the property is
marketed for sale.
DELINQUENCY AND LOSS EXPERIENCE
The related Prospectus Supplement will set forth the Company's delinquency
and charge-off experience at the dates indicated on mortgage loans included in
its servicing portfolio, including loans in foreclosure proceedings, but
excluding loans serviced by the Company that were not originated or acquired and
re-underwritten by the Company (such portfolio, excluding such loans, the
"PRIMARY SERVICING PORTFOLIO").
OUTSTANDING REAL ESTATE OWNED
Each Prospectus Supplement will set forth the number and value of
properties acquired by the Company through foreclosure which were owned by the
Company for its own account or on behalf of owners of mortgage loans included in
the Company's Primary Servicing Portfolio as at the end of the immediately
preceding calendar year and as at the end of the most recent complete calendar
quarter.
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<PAGE> 91
DESCRIPTION OF THE SECURITIES
GENERAL
The following summary describes certain terms of the Certificates, common
to each Pooling and Servicing Agreement. Forms of the Pooling and Servicing
Agreements and the Transfer Agreement providing for the transfer of Mortgage
Loans from the Originators to the Depositors have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the provisions of the Certificates, the Pooling and Servicing
Agreement and the Transfer Agreement for each Trust and the related Prospectus
Supplement. Where particular provisions or terms used in any of such documents
are referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries.
The Certificates will represent beneficial interests in the assets of the
related Trust, including (i) the Mortgage Loans and all proceeds thereof, (ii)
REO Property, (iii) amounts on deposit in the funds and accounts established
with respect to the related Trust, including all investments of amounts on
deposit therein, (iv) certain rights of the Depositors under the Transfer
Agreement and (v) certain other property, as described in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, one or more
Classes of Certificates of a Series may have the benefit of one or more of a
letter of credit, financial guaranty insurance policy, reserve fund, spread
account, cash collateral account, overcollateralization or other form of credit
enhancement. If so specified in the related Prospectus Supplement, a Series of
Certificates may have the benefit of one or more of a mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy of similar credit
enhancement. Any such credit enhancement may be included in the assets of the
related Trust. See "Description of Credit Enhancement" herein.
A Series of Certificates may include one or more Classes entitled to
distributions of principal and disproportionate, nominal or no interest
distributions or distributions of interest and disproportionate, nominal or no
principal distributions. The principal amount of any Certificate may be zero or
may be a notional amount as specified in the related Prospectus Supplement. A
Class of Certificates of a Series entitled to payments of interest may receive
interest at a specified rate (a "PASS-THROUGH RATE") which may be fixed,
variable or adjustable and may differ from other Classes of the same Series, may
receive interest based on the weighted average Mortgage Interest Rate on the
related Mortgage Loans, or may receive interest as otherwise determined, all as
described in the related Prospectus Supplement. One or more Classes of a Series
may be Certificates upon which interest will accrue but not be currently paid
until certain other Classes have received principal payments due to them in full
or until the occurrence of certain events, as set forth in the related
Prospectus Supplement. One or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. A Series may also include one or more Classes of Certificates entitled
to payments derived from a specified group or groups of Mortgage Loans held by
the related Trust. The rights of one or more Classes of Certificates may be
senior or subordinate to the rights of one or more of the other Classes of
Certificates. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment or amount of
distributions of principal or interest or both.
To the extent specified in the related Prospectus Supplement, distributions
on a Class of Certificates may be based on a combination of two or more
different components. To such extent, the descriptions set forth under
"-- Interest" and "-- Principal" below also relate to components of such a Class
of Certificates. In such case, reference in such sections to Pass-Through Rate
refers to the Pass-Through Rate, if any, on any such component, respectively.
Each Class of Certificates of a Series will be issued in the denominations
specified in the related Prospectus Supplement. Each Certificate will represent
a percentage interest (a "PERCENTAGE INTEREST") in the Certificates of the
respective Class, determined by dividing the original dollar amount (or Notional
Principal Amount, in the case of certain Certificates entitled to receive
interest only) represented by such Certificate by the Original Principal Balance
of such Class.
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<PAGE> 92
One or more Classes of Certificates of a Series may be issuable in the form
of fully registered definitive certificates or, if so specified in the related
Prospectus Supplement, one or more Classes of Certificates of a Series (the
"BOOK-ENTRY CERTIFICATES") may initially be represented by one or more
certificates registered in the name of Cede & Co. ("CEDE"), the nominee of The
Depository Trust Company ("DTC"). If so specified in the related Prospectus
Supplement, holders of Certificates may hold beneficial interests in Book-Entry
Certificates through DTC (in the United States) or CEDEL or Euroclear (in
Europe) directly if they are participants of such systems, or indirectly through
organizations which are participants in such systems. Certificates representing
the Book-Entry Certificates will be issued in definitive form only under the
limited circumstances described herein and in the related Prospectus Supplement.
With respect to Book-Entry Certificates, all references herein to "HOLDERS" of
Certificates shall reflect the rights of owners of the Book-Entry Certificates,
as they may indirectly exercise such rights through DTC, CEDEL, Euroclear and
their participating organizations, except as otherwise specified herein. See
"-- Registration and Transfer of Certificates" herein.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date and Special Payment Date, there shall be paid to each person in
whose name a Certificate is registered on the related Record Date or Special
Record Date (defined herein) as applicable (which in case of the Book-Entry
Certificates initially will be only Cede, as nominee of DTC), the portion of the
aggregate payment to be made to holders of such Class to which such holder is
entitled, if any, based on the Percentage Interest, held by such holder of such
Class.
INTEREST
Unless otherwise specified in the related Prospectus Supplement, interest
will accrue on each Class of Certificates of a Series (other than a Class of
Certificates entitled to receive only principal) during each period specified in
the related Prospectus Supplement (each, an "ACCRUAL PERIOD") at the
Pass-Through Rate for such Class specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at the applicable Pass-Through
Rate during each Accrual Period will be paid, to the extent monies are available
therefor, on each Payment Date, commencing on the day specified in the related
Prospectus Supplement and will be distributed in the manner specified in such
Prospectus Supplement, except for any Class of Certificates ("ACCRUAL
CERTIFICATES") on which interest is to accrue and not be paid until the
principal of certain other Classes has been paid in full or the occurrence of
certain events as specified in such Prospectus Supplement. If so described in
the related Prospectus Supplement, interest that has accrued but is not yet
payable on any Accrual Certificates will be added to the principal balance
thereof on each Payment Date and will thereafter bear interest at the applicable
Pass-Through Rate. Payments of interest with respect to any Class of
Certificates entitled to receive interest only or a disproportionate amount of
interest and principal will be paid in the manner set forth in the related
Prospectus Supplement. Payments of interest (or accruals of interest, in the
case of Accrual Certificates) with respect to any Series of Certificates or one
or more Classes of Certificates of such Series, may be reduced to the extent of
interest shortfalls not covered by Advances or by any applicable credit
enhancement.
PRINCIPAL
On each Payment Date, commencing with the Payment Date specified in the
related Prospectus Supplement, principal with respect to the related Mortgage
Loans during the period specified in the related Prospectus Supplement (each
such period, a "DUE PERIOD") will be paid to holders of the Certificates of the
related Series (other than a Class of Certificates of such Series entitled to
receive interest only) in the priority, manner and amount specified in such
Prospectus Supplement, to the extent funds are available therefor. Unless
otherwise specified in the related Prospectus Supplement, such principal
payments will generally include (i) the principal portion of all scheduled
payments ("MONTHLY PAYMENTS") received on the related Mortgage Loans during the
related Due Period, (ii) any principal prepayments of any such Mortgage Loans in
full ("PRINCIPAL PREPAYMENTS") and in part ("CURTAILMENTS") received during the
related Due Period or such other period (each, a "PREPAYMENT PERIOD") specified
in the related Prospectus Supplement, (iii) the principal portion of (A) the
proceeds of any insurance policy relating to a Mortgage Loan, a Mortgaged
Property (defined herein) or a REO Property (defined herein), net of any amounts
applied to the repair of the
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Mortgaged Property or released to the Mortgagor (defined herein) and net of
reimbursable expenses ("INSURANCE PROCEEDS"), (B) proceeds received in
connection with the liquidation of any defaulted Mortgage Loans ("LIQUIDATION
PROCEEDS"), net of fees and advances reimbursable therefrom ("NET LIQUIDATION
PROCEEDS") and (C) proceeds received in connection with a taking of a related
Mortgaged Property by condemnation or the exercise of eminent domain or in
connection with any partial release of any such Mortgaged Property from the
related lien ("RELEASED MORTGAGED PROPERTY PROCEEDS"), (iv) the principal
portion of all amounts paid by the Depositors (which are limited to amounts paid
by the Representative or an Originator pursuant to the related Transfer
Agreement, unless otherwise specified in the related Prospectus Supplement) in
connection with the purchase of or substitution for a Mortgage Loan as to which
there is defective documentation or a breach of a representation or warranty
contained in the Transfer Agreement and assigned to the related Trust under the
related Pooling and Servicing Agreement and (v) the principal balance of each
defaulted Mortgage Loan or REO Property as to which the Servicer has determined
that all amounts expected to be recovered have been recovered (each, a
"LIQUIDATED MORTGAGE LOAN"), to the extent not included in the amounts described
in clauses (i) through (iv) above (the aggregate of the amounts described in
clauses (i) through (v), the "BASIC PRINCIPAL AMOUNT"). Payments of principal
with respect to a Series of Certificates or one or more Classes of such Series
may be reduced to the extent of delinquencies or losses not covered by advances
or any applicable credit enhancement.
CATEGORIES OF CLASSES OF CERTIFICATES
The Certificates of any Series may be comprised of one or more Classes.
Such Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the applicable Prospectus Supplement.
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
Accretion Directed Class... A Class that receives principal payments from the
accreted interest from specified Accrual Classes.
An Accretion Directed Class also may receive
principal payments from principal paid on the
Mortgage Loans for the related Series.
Component Class............ A Class consisting of two or more specified
components (each, a "COMPONENT") as described in
the applicable Prospectus Supplement. The
Components of a Class may have different principal
and/or interest payment characteristics but
together constitute a single class and do not
represent severable interests. Each Component may
be identified as falling into one or more of the
categories in this chart.
Lockout Class.............. A senior Class that is designed not to participate
in or to participate to a limited extent in (i.e.,
to be "locked out" of), for a specified period, the
receipt of (1) principal prepayments on the
Mortgage Loans that are allocated
disproportionately to the senior Classes of such
Series as a group pursuant to a "shifting interest"
structure and/or (2) scheduled principal payments
on the Mortgage Loans that are allocated to the
senior Classes as a group. A Lockout Class will
typically not be entitled to receive, or will be
entitled to receive only a restricted portion of,
distributions or principal prepayments and/or
scheduled principal payments, as applicable, for a
period of several years, during which time all or a
portion of such principal payments that it would
otherwise be entitled to receive in the absence of
a "lockout" structure will be distributed in
reduction of the principal balances of other senior
Classes. Lockout Classes are designed to minimize
weighted average life volatility during the lockout
period.
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Notional Amount Class...... A Class having no principal balance and bearing
interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Amortization Class
(also sometimes referred to
as a "PAC").............. A Class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming two constant
prepayment rates for the underlying Mortgage Loans.
These two rates are the endpoints for the
"structuring range" for the Planned Amortization
Class. The Planned Amortization Classes in any
Series of Certificates may be subdivided into
different categories (e.g., Planned Amortization
Class I ("PAC I"), Planned Amortization Class II
("PAC II") and so forth) derived using different
structuring ranges. A PAC is designed to provide
protection against volatility of weighted average
life if prepayments occur at a constant rate within
the structuring range.
Ratio Strip Class.......... A Class that is entitled to receive a constant
proportion, or "ratio strip," of the principal
payments on the underlying Mortgage Loans.
Scheduled Amortization
Class...................... A Class that is designed to receive principal
payments using a predetermined principal balance
schedule but is not designated as a Planned
Amortization Class or Targeted Amortization Class.
The schedule is derived by assuming either two
constant prepayment rates or a single constant
prepayment rate for the underlying Mortgage Loans.
In the former case, the two rates are the endpoints
for the "structuring range" for the Scheduled
Amortization Class and such range generally is
narrower than that for a Planned Amortization
Class. Typically, the Support Class(es) for the
applicable Series of Certificates generally will
represent a smaller percentage of the Scheduled
Amortization Class than a Support Class generally
would represent in relation to a Planned
Amortization Class or a Targeted Amortization
Class. A Scheduled Amortization Class is generally
less sensitive to weighted average life volatility
as a result of prepayments than a Support Class but
more sensitive than a Planned Amortization Class or
a Targeted Amortization Class.
Senior Certificates........ Classes that are entitled to receive payments of
principal and interest on each Distribution Date
prior to the Classes of Subordinated Certificates.
Sequential Pay Class....... A Class that is entitled to receive principal
payments in a prescribed sequence, that does not
have a predetermined principal balance schedule and
that, in most cases, is entitled to receive
payments of principal continuously from the first
Distribution Date on which it receives principal
until it is retired. A single Class is entitled to
receive principal payments before or after other
Classes in the same Series of Certificates may be
identified as a Sequential Pay Class.
Subordinated
Certificates............... Classes that are entitled to receive payments of
principal and interest on each Distribution Date
only after the Senior Certificates and certain
Classes of Subordinated Certificates with higher
priority of distributions have received their full
principal and interest entitlements.
Support Class (also
sometimes referred to as a
"COMPANION CLASS")....... A Class that is entitled to receive principal
payments on any Distribution Date only if scheduled
payments have been made on specified Planned
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Amortization Classes, Targeted Amortization Classes
and/or Scheduled Amortization Classes.
Targeted Amortization Class
(also sometimes referred
to as a "TAC")........... A Class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming a single constant
prepayment rate for the underlying Mortgage Loans.
A TAC is designed to provide some protection
against shortening of weighted average life if
prepayments occur at a rate exceeding the assumed
constant prepayment rate used to derive the
principal balances schedule of such Class.
INTEREST TYPES
Accrual Class.............. A Class that accretes the amount of accrued
interest otherwise distributable on such Class,
which amount will be added as principal to the
principal balance of such Class on each applicable
Distribution Date. Such accretion may continue
until some specified event has occurred or until
such Accrual Class is retired.
Fixed Rate Class........... A Class with an interest rate that is fixed
throughout the life of the Class.
Floating Rate Class........ A Class with an interest rate that resets
periodically based upon a designated index and that
varies directly with changes in such index.
Interest Only Class........ A Class that is entitled to receive some or all of
the interest payments made on the Mortgage Loans
and little or no principal. Interest Only Classes
have either no principal balance, a nominal
principal balance or a notional amount. A nominal
principal balance represents actual principal that
will be paid on the Class. It is referred to as
nominal since it is extremely small compared to
other Classes. A notional amount is the amount used
as a reference to calculate the amount of interest
due on an Interest Only Class that is not entitled
to any distributions in respect of principal.
Inverse Floating Rate
Class...................... A Class with an interest rate that resets
periodically based upon a designated index and that
varies inversely with changes in such index and
with changes in the interest rate payable on the
related Floating Rate Class.
Principal Only Class....... A Class that does not bear interest and is entitled
to receive only distributions in respect of
principal.
Step Coupon Class.......... A Class with a fixed interest rate that is reduced
to a lower fixed rate after a specific period of
time. The difference between the initial interest
rate and the lower interest rate will be supported
by a reserve fund established on the Closing Date.
Variable Rate Class........ A Class with an interest rate that resets
periodically and is calculated by reference to the
rate or rates of interest applicable to the
Mortgage Loans.
ASSIGNMENT OF THE MORTGAGE LOANS
At the time of issuance of a Series of Certificates, the Originators,
pursuant to a Transfer Agreement (the "TRANSFER AGREEMENT") among the
Originators and the Depositors, will assign the Mortgage Loans to the Depositors
together with all principal and interest received on or with respect to the
Mortgage Loans, other than (i) principal and interest received before the
related Cut-off Date (and interest received on or after the Cut-off Date but
accrued prior to the Cut-off Date) and (ii) unless otherwise specified in the
related
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Prospectus Supplement, the Representative's Yield. On such date, the Depositors
will assign the Mortgage Loans to the Trust pursuant to a Pooling and Servicing
Agreement.
Each Mortgage Loan will be identified in a schedule included as an exhibit
to the related Transfer Agreement and the related Pooling and Servicing
Agreement (the "MORTGAGE LOAN SCHEDULE"). The Mortgage Loan Schedule will set
forth certain information with respect to each Mortgage Loan, including, among
other things, the principal balance as of the Cut-off Date, the Mortgage
Interest Rate, the scheduled monthly payment of principal and interest, the
maturity of the Mortgage Note and the Combined Loan-to-Value Ratio at
origination.
In addition, the Originators will, with respect to each Mortgage Loan,
deliver to the applicable Depositor the Mortgage Note endorsed to the order of
the Depositor, the Trustee or a Custodian or in blank, the mortgage with
evidence of recording thereon, an assignment of the mortgage to the Depositor,
the Trustee or a Custodian or in blank, evidence of title insurance, intervening
assignments of the mortgage, assumption and modification agreements and, in the
case of Mortgage Loans secured by Mortgaged Property improved by a manufactured
housing unit, the certificate of title, if any (collectively, the "MORTGAGE
FILE"). The Depositor shall simultaneously deliver such Mortgage Note, Mortgage
and assignment of Mortgage to the Trust, endorsed as set forth in the related
Pooling and Servicing Agreement. It is expected that each such transfer will be
effected by endorsement to the Trustee and delivery to a Custodian, which
Custodian shall hold such instruments and documents for the Depositor and the
Trust, as their interests may appear. Unless otherwise specified in the
Prospectus Supplement, the assignment of Mortgage shall be recorded in the name
of the Trustee. With respect to a loan on a unit in a cooperative, the related
Mortgage Note, the original security agreement, the proprietary lease or
occupancy agreement, the related stock certificate evidencing the ownership
interest in the cooperative association and blank stock powers and a copy of the
original filed financing statement and assignments thereof in form sufficient
for filing shall be so delivered and, where required, filed.
Notwithstanding the preceding paragraph, with respect to any Mortgage which
has been recorded in the name of Mortgage Electronic Registration Systems, Inc.
("MERS") or its designee, the Originators will not be required to deliver an
assignment of Mortgage in favor of the Trustee to the Depositor. Instead, the
Trustee and the Servicer will be required to take all actions as are necessary
to cause the applicable Trust to be shown as the owner of the related Mortgage
Loan on the records of MERS for purposes of the system of recording transfers of
beneficial ownership of mortgages maintained by MERS.
In addition, the Originators will not be required to deliver an assignment
of the Mortgage to the Depositors with respect to any Mortgage Loan secured by a
Mortgaged Property located in the State of Illinois held in a trust formed under
a trust agreement between a trustee and one or more beneficiaries named therein
pursuant to which such trustee holds legal and equitable title to the Mortgaged
Property and such beneficiaries are the owners of the beneficial interest in
such trust (an "ILLINOIS LAND TRUST"), but will be required to deliver or cause
to be delivered to the Depositors or the Trustee the original assignment of
beneficial interest executed by the beneficiaries of the Illinois Land Trust
assigning to the Originator or the Trustee all of such beneficiaries' rights in
the Illinois Land Trust (or a copy thereof certified by the related trustee,
under certain circumstances), an original reassignment of the assignment of
beneficial interest to the Depositors or the Trustee , all originals of
intervening reassignments of beneficial interest, together with a certified copy
of the instrument creating the Illinois Land Trust, a copy of the financing
statement evidencing the assignment of the Mortgagor's beneficial interest in
the Illinois Land Trust (with evidence of filing thereon) and the original
personal guaranty of the Mortgage Note executed by each beneficiary of the
Illinois Land Trust, all of which shall also constitute part of the Mortgage
File with respect to Mortgage Loans secured by Mortgaged Property held in an
Illinois Land Trust.
If, with respect to any Mortgage Loan, the Originators are unable to
deliver to the Depositors on the Closing Date the Mortgage or any assignment
with evidence of recording thereon because they have not yet been returned from
the public recording office, the Originators are required to deliver or cause to
be delivered on the Closing Date a certified true copy of such Mortgage or
assignment, which certification may be that of an officer of the respective
Originator. If, with respect to any Mortgage Loan, the Depositors are unable to
deliver an original policy of title insurance because such policy has not yet
been delivered by the insurer, the
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Depositors are required to deliver or cause to be delivered the commitment or
binder to issue the title insurance. The Depositors are required to deliver or
cause to be delivered the Mortgage or assignment with evidence of recording
thereon and an original title insurance policy within five Business Days after
receipt thereof and in any event within one year after the Closing Date,
provided, however, that if a mortgage or assignment has not been returned from
the appropriate public recording office, the respective Originator is required
to deliver a certified copy of the Mortgage and a receipted copy of the
assignment from the appropriate public recording office prior to the expiration
of such one year period. The Servicer is required to cause the assignments of
mortgage to be recorded in the appropriate public recording offices. With
respect to loans on units in cooperatives, the Trustee or the Servicer, as
specified in the related Prospectus Supplement, will also be required to use its
best efforts to file continuation statements.
Pursuant to the Pooling and Servicing Agreement, the Trustee will agree,
for the benefit of the holders of the related Certificates to review (or cause
to be reviewed) each Mortgage File within 45 days (or such other time period as
may be specified in the related Prospectus Supplement) after the Closing Date to
ascertain that all required documents have been executed and received.
If the Trustee (or if specified in the related Prospectus Supplement, any
Credit Provider (defined herein)) during such 45-day period finds any document
constituting a part of a Mortgage File which is not executed, has not been
received or is unrelated to the Mortgage Loans, or that any Mortgage Loan does
not conform to the delivery requirements described above or to the description
thereof as set forth in the Mortgage Loan Schedule (other than certain
descriptive items set forth in the Mortgage Loan Schedule), the Trustee (or the
Credit Provider) is required to promptly so notify the Depositors, the Servicer,
the Representative, the Originators, the Credit Provider, if any, and the
Trustee. The Servicer is required to use reasonable efforts to cause to be
remedied a material defect in a document constituting part of a Mortgage File of
which it is so notified. If the Servicer has not caused the defect to be
remedied within 60 days (or such other time period as may be specified in the
related Prospectus Supplement) after notice thereof and the defect materially
and adversely affects the interests of the holders of the Certificates in the
related Mortgage Loan or the interests of the Credit Provider, the Servicer is
required, on the immediately following Determination Date (defined herein), to
either (i) cause the respective Originator to substitute in lieu of such
Mortgage Loan a mortgage loan that meets certain criteria set forth in the
Pooling and Servicing Agreement (a "QUALIFIED SUBSTITUTE MORTGAGE LOAN") and, if
the then outstanding principal balance of such Qualified Substitute Mortgage
Loan plus accrued and unpaid interest thereon is less than the outstanding
principal balance of the substituted Mortgage Loan as of the date of such
substitution plus accrued and unpaid interest thereon and the amount of any
unreimbursed Servicing Advances, cause the respective Originator to deliver to
the Servicer, to become part of the amount remitted by the Servicer on the
related Payment Date, the amount of any such shortfall (a "SUBSTITUTION
ADJUSTMENT") or (ii) cause the respective Originator to purchase such Mortgage
Loan at a price equal to the outstanding principal balance of such Mortgage Loan
as of the date of purchase plus all accrued and unpaid interest thereon computed
at the Mortgage Interest Rate, net of the Servicing Fee if the Representative is
the Servicer, plus the amount of any unreimbursed Servicing Advances made by the
Servicer, which purchase price is required to be deposited in the Principal and
Interest Account on the next succeeding Determination Date (after deducting
therefrom any amounts received in respect of such repurchased Mortgage Loan or
Loans and being held in the Principal and Interest Account for future
distribution).
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS AND THE DEPOSITORS
Unless otherwise specified in the related Prospectus Supplement, each
Originator will represent, among other things, that as to each Mortgage Loan
conveyed by any Originator to the Depositors as of the related Closing Date:
1. The information with respect to each Mortgage Loan set forth in the
Mortgage Loan Schedule is true and correct;
2. All of the original or certified documentation constituting the
Mortgage Files (including all material documents related thereto) has been
or will be delivered to the Depositors or to the custodian appointed to
hold the Mortgage Files (the "CUSTODIAN"), if any, on the Closing Date or
as otherwise provided in the Agreement;
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3. Each Mortgage Loan is principally secured by the related Mortgaged
Property. Each Mortgaged Property is improved by a one- to four-family
residential dwelling, including, if and to the extent specified in the
related Prospectus Supplement, cooperatives or mobile homes;
4. All of the Balloon Loans, if any, provide for monthly payments
based on an amortization schedule specified in the related Mortgage Note
and have a final balloon payment no earlier than the number of months
following the date of origination set forth in the related Prospectus
Supplement and no later than at the end of the year following the date of
origination set forth in the related Prospectus Supplement. Each other
fixed-rate Mortgage Note will provide for a schedule of substantially equal
monthly payments which are, if timely paid, sufficient to fully amortize
the principal balance of such Mortgage Note on or before its maturity date;
5. Each Mortgage is a valid and subsisting first, second or, if so
specified in the related Prospectus Supplement, more junior lien of record
on the Mortgaged Property subject, in the case of any second or more junior
Mortgage Loan, only to the Senior Lien or Liens on such Mortgaged Property
and subject in all cases to the exceptions to title set forth in the title
insurance policy, or the other evidence of title delivered pursuant to the
Transfer Agreement, with respect to the related Mortgage Loan, which
exceptions are generally acceptable to second mortgage lending companies,
and such other exceptions to which similar properties are commonly subject
and which do not individually, or in the aggregate, materially and
adversely affect the benefits of the security intended to be provided by
such Mortgage. If the Mortgaged Property is held in an Illinois Land Trust,
(i) a natural person is the beneficiary of such Illinois Land Trust, and
either is a party to the Mortgage Note or is a guarantor thereof, in either
case, in an individual capacity and not in the capacity of trustee or
otherwise, and, if a party to the Mortgage Note, is jointly and severally
liable under the Mortgage Note and (ii) the Mortgagor is the trustee of
such Illinois Land Trust, is a party to the Mortgage Note and is the
Mortgagor under the Mortgage in its capacity as such trustee and not
otherwise;
6. Except with respect to liens released immediately prior to the
transfer contemplated in the Transfer Agreement, immediately prior to the
transfer and assignment contemplated in the Transfer Agreement, the
Originator held good and indefeasible title to, and was the sole owner of,
each Mortgage Loan conveyed by the Originator subject to no liens, charges,
mortgages, encumbrances or rights of others; and immediately upon the
transfer and assignment herein contemplated, the Depositors will hold good
and indefeasible title to, and be the sole owner of, each Mortgage Loan
(other than the Representative's Yield and amounts received on or after the
Cut-off Date in respect of interest accrued prior to the Cut-off Date)
subject to no liens, charges, mortgages, encumbrances or rights of others;
and
7. With respect to each Mortgage Loan secured by a second or more
junior Mortgage, the related Senior Lien requires equal monthly payments,
or if it bears an adjustable interest rate, the monthly payments for the
related Senior Lien may adjust, but not more frequently than every six
months.
Such Originator will also make representations as to the percentage of
Mortgage Loans which are secured by an Owner-Occupied Mortgaged Property, the
percentage of Mortgage Loans which are Balloon Loans, the percentage of Mortgage
Loans secured by Mortgaged Properties located within any single zip code area
and the percentage of the Mortgage Loans which were 30 or more days
contractually delinquent and 60 or more days contractually delinquent. For
purposes of this representation, "30 or more days contractually delinquent"
means that a monthly payment due on a due date was unpaid as of the end of the
month in which occurred the next succeeding due date and "60 or more days
contractually delinquent" means that a monthly payment due on a due date was
unpaid as of the end of the month in which occurred the second due date
following the due date on which such monthly payment was due.
In addition, each Originator will, with respect to each Bankruptcy Mortgage
Loan, make certain representations regarding (i) the number of payments made
under the related Bankruptcy Plan and (ii) the ratio of (a) the outstanding
principal balance of the Bankruptcy Mortgage Loan (plus the outstanding
principal balance of any Senior Lien) divided by (b) the current appraised value
of the related Mortgaged Property, as determined within 60 days of the Closing
Date. If there is a breach of these representations as to any Bankruptcy
Mortgage Loan which is not waived by the Trustee or any Credit Provider, the
Originators
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may, as described below, be required to repurchase such Bankruptcy Mortgage
Loan. Such repurchases would have the effect of increasing the rate of
prepayment of the Mortgage Loans.
Pursuant to the related Pooling and Servicing Agreement, the Depositors
will make substantially identical representations and warranties with respect to
the Mortgage Loans conveyed by the Depositors thereunder. Upon the discovery by
any of the Depositors, the Representative, any Originator, the Servicer, any
Subservicer, the Custodian, the Credit Provider, if any, the Trustee or any
other party specified in such Pooling and Servicing Agreement that any of the
representations and warranties described above have been breached in any
material respect as of the Closing Date, with the result that the interests of
the holders of the related Certificates in the related Mortgage Loan or the
interests of the Credit Provider or any party specified in such Pooling and
Servicing Agreement are materially and adversely affected, the party discovering
such breach is required to give prompt written notice to the other parties.
Within 60 days (or such other period as may be specified in the related
Prospectus Supplement) of the earlier to occur of its discovery or its receipt
of notice of any such breach, the Servicer is required to (i) cure or cause the
respective Originator to cure such breach in all material respects, (ii) remove
each Mortgage Loan which has given rise to the requirement for action, or cause
the respective Originator to substitute one or more Qualified Substitute
Mortgage Loans and, if the outstanding principal balance of such Qualified
Substitute Mortgage Loans plus accrued and unpaid interest thereon as of the
date of such substitution is less than the outstanding principal balance, plus
accrued and unpaid interest thereon and any unreimbursed Servicing Advances, of
the replaced Mortgage Loans as of the date of substitution, deliver or cause the
respective Originator to deliver a Substitution Adjustment to the Servicer, to
become part of the amount remitted by the Servicer to the Trustee on the related
Payment Date, or (iii) purchase or cause the respective Originator to purchase
such Mortgage Loan at a price equal to the outstanding principal balance of such
Mortgage Loan as of the date of purchase plus all accrued and unpaid interest on
such outstanding principal balance computed at the Mortgage Interest Rate, net
of the Servicing Fee if the Representative is the Servicer, plus the amount of
any unreimbursed Servicing Advances made by the Servicer, and deposit such
purchase price into the Principal and Interest Account on the next succeeding
Determination Date or other date specified in the related Pooling and Servicing
Agreement; provided, however, that if a REMIC election has been made with
respect to the related Series of Certificates, a substitution may only be made
if it occurs within the maximum period permitted therefor by the Code or
applicable regulations of the Department of Treasury. The obligation of the
Depositors and the Originators to cure, substitute or purchase any Mortgage Loan
as described above will constitute the sole remedy respecting a material breach
of any such representation or warranty to the holders of the related
Certificates or the Trustee. The obligation of the Depositors to so cure,
substitute or purchase shall be limited to the obligation of the Servicer to
cause the Originators to do so. The Depositors will have no substantial assets
other than certain Certificates retained by them issued by trusts formed by the
Depositors.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Servicer to cause to be
established and maintained a segregated account (the "PRINCIPAL AND INTEREST
ACCOUNT") at an institution meeting certain ratings and other criteria set forth
in the Pooling and Servicing Agreement (an "ELIGIBLE ACCOUNT"), into which it is
required to deposit certain payments received in respect of the Mortgage Loans,
as more fully described below. Unless otherwise specified in the related
Prospectus Supplement, all funds in the Principal and Interest Account are
required to be held (i) uninvested, either in trust or insured by the Federal
Deposit Insurance Corporation up to the limits provided by law, (ii) invested in
certain permitted investments, which are generally limited to United States
government securities and other high-quality investments and repurchase
agreements or similar arrangements with respect to such investments, (iii)
invested in certain asset management accounts maintained by the Trustee or (iv)
invested in such other investments which the Insurer and the Rating Agencies may
approve ("PERMITTED INSTRUMENTS"). Unless otherwise specified in the related
Prospectus Supplement, any investment earnings on funds held in the Principal
and Interest Account will be for the account of the Servicer.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required to use its reasonable efforts to deposit into the Principal
and Interest Account within one business day and in any event to deposit within
two business days of receipt all Monthly Payments received on or after the
related Cut-off
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Date (other than amounts received on or after the Cut-off Date in respect of
interest accrued on the Mortgage Loans prior to the Cut-off Date) and all
Principal Prepayments and Curtailments collected on or after the Cut-off Date
(net of the Representative's Yield and the Servicing Fee with respect to each
Mortgage Loan and other servicing compensation payable to the Servicer as
permitted by the Pooling and Servicing Agreement), all Net Liquidation Proceeds,
Insurance Proceeds, Released Mortgaged Property Proceeds, any amounts paid in
connection with the repurchase of any Mortgage Loan, the amount of any
Substitution Adjustments, the amount of any losses incurred in connection with
investments in Permitted Instruments and certain amounts relating to
insufficient insurance policies and REO Property. Notwithstanding the foregoing,
for so long as EquiCredit is acting as the Servicer and BankAmerica Corporation,
the ultimate parent of EquiCredit, (i) has a rating acceptable to each rating
agency rating the Certificates of the applicable Series and (ii) guaranties the
deposits required to be made by EquiCredit from the Principal and Interest
Account to the Collection Account, the Principal and Interest Account is not
required to be an Eligible Account or invested in Permitted Investments, but may
be a commingled account containing other Servicer funds.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may make withdrawals from the Principal and Interest Account only for
the following purposes:
(i) for deposit to the Collection Account no later than the third
business day preceding each Monthly Deposit Date (defined below), if any,
and each Payment Date, the Excess Spread (defined below), if any, and the
Available Payment Amount for the related Monthly Period (defined below).
"EXCESS SPREAD" means generally the aggregate excess, if any, of interest
accrued on the related Mortgage Loans during the Due Period over interest
accrued on the related Certificates at the applicable Pass-Through Rates on
the related Payment Date. The "MONTHLY DEPOSIT DATE" is the day of each
month other than a month in which a Payment Date occurs specified in the
related Prospectus Supplement with respect to a Series of Certificates
providing for Payments to be made less frequently than monthly. A "MONTHLY
PERIOD" is the calendar month preceding the month in which the related
Monthly Deposit Date or Payment Date occurs and, if Payment Dates for a
Series of Certificates occur monthly, may be identical to the Due Period;
(ii) to reimburse itself for any accrued unpaid Servicing Fees and
unreimbursed Servicing Advances. Unless otherwise specified in the related
Prospectus Supplement, the Servicer's right to reimburse itself for unpaid
Servicing Fees and unreimbursed Servicing Advances will be limited to late
collections on the related Mortgage Loan, including Liquidation Proceeds,
Released Mortgaged Property Proceeds, Insurance Proceeds and such other
amounts as may be collected by the Servicer from the related Mortgagor or
otherwise relating to the Mortgage Loan in respect of which such
unreimbursed amounts are owed;
The Servicer's rights to such reimbursement will be prior to the
rights of holders of the related Certificates unless the Representative is
the Servicer and the Representative or any Originator is required to
purchase or substitute a Mortgage Loan pursuant to the Pooling and
Servicing Agreement and the Transfer Agreement, in which case the
Servicer's right to such reimbursement shall be junior to the payment to
such holders of the purchase price or Substitution Adjustment;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be 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;
(iv) to make investments in Permitted Instruments and, after effecting
the remittance described in clause (i) above, to pay itself interest earned
in respect of Permitted Instruments or on funds deposited in the Principal
and Interest Account;
(v) to withdraw any funds deposited in the Principal and Interest
Account that were not required to be deposited therein (such as servicing
compensation) or were deposited therein in error;
(vi) to pay itself the Servicing Fee and any other permitted servicing
compensation to the extent not previously retained or paid;
(vii) to withdraw funds necessary for the conservation and disposition
of REO Property;
(viii) to make Servicing Advances, as more fully described below;
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(ix) with respect to a Bankruptcy Loan, to remit to the applicable
Depositor certain payments, as provided in the Pooling and Servicing
Agreement; and
(x) to clear and terminate the Principal and Interest Account upon the
termination of the Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required to wire transfer to the Collection Account the amount
described in clause (i) above no later than the third business day preceding
each Monthly Deposit Date, if any, and each Payment Date.
ADVANCES FROM THE PRINCIPAL AND INTEREST ACCOUNT; SERVICING ADVANCES
Unless otherwise specified in the related Prospectus Supplement, not later
than the close of business on the third business day prior to each Monthly
Deposit Date, if any, and each Payment Date, the Servicer is required to
withdraw from amounts on deposit in the Principal and Interest Account and held
for future distribution and remit for deposit in the Collection Account an
amount (each, an "ADVANCE"), to be distributed on the related Payment Date,
equal to the sum of the interest portions of the aggregate amount of Monthly
Payments (net of the Servicing Fee and if so specified in the related Pooling
and Servicing Agreement, the Excess Spread) accrued during the related Monthly
Period, but uncollected as of the close of business on the last day of the
related Monthly Period. Unless otherwise specified in the related Prospectus
Supplement, the Servicer will not be required to make such Advance from its own
funds or be liable for the recovery thereof from collections on the related
Mortgage Loans or otherwise.
In the course of performing its servicing obligations, the Servicer will
pay all reasonable and customary "out-of-pocket" costs and expenses incurred in
the performance of its servicing obligations ("SERVICING ADVANCES"), including,
but not limited to, the cost of (i) maintaining REO Properties; (ii) any
enforcement or judicial proceedings, including foreclosures; and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage. Unless otherwise provided in the related Pooling and Servicing
Agreement, the Servicer may pay all or a portion of any Servicing Advance out of
excess amounts on deposit in the Principal and Interest Account and held for
future distribution on the date on which such Servicing Advance is made. Any
such excess amounts so used will be required to be replaced by the Servicer by
deposit to the Principal and Interest Account no later than the date specified
in the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may recover Servicing Advances to the extent permitted by the Mortgage
Loans or, if not theretofore recovered from the Mortgagor on whose behalf such
Servicing Advance was made, from late collections on the related Mortgage Loan,
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 Loan. To the extent the
Servicer, in its good faith business judgment, determines that certain Servicing
Advances, as described in the Pooling and Servicing Agreement, will not be
ultimately recoverable from late collections, Insurance Proceeds, Liquidation
Proceeds on the related Mortgage Loans or otherwise ("NONRECOVERABLE ADVANCES"),
the Servicer may reimburse itself from the amounts available after distributions
to the holders of Certificates and payment of certain other fees and expenses.
The Servicer is not required to make any Servicing Advance which it
determines would be a Nonrecoverable Advance.
REPRESENTATIVE'S YIELD
Unless otherwise specified in the related Prospectus Supplement, the
Representative will be entitled to receive an amount (the "REPRESENTATIVE'S
YIELD") equal to the sum of all prepayment penalties and premiums collected by
the Servicer with respect to any Mortgage Loan. The Representative's Yield will
be retained and will be freely transferable by the Representative and will not
constitute a portion of the assets of the related Trust.
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DISTRIBUTIONS
The Trustee is required to establish a trust account (referred to herein as
the "COLLECTION ACCOUNT", but which may have such other designation as is set
forth in the related Prospectus Supplement) into which there shall be deposited
amounts transferred by the Servicer from the Principal and Interest Account. The
Collection Account is required to be maintained as an Eligible Account. Amounts
on deposit in the Collection Account may be invested in Permitted Instruments
and other investments specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, on each
Monthly Deposit Date, if any, and each Payment Date the Trustee is required to
withdraw from the Collection Account and distribute the amounts set forth in the
related Prospectus Supplement, to the extent available, in the priority set
forth therein, which generally will include (in no particular order of
priority):
(i) deposits into any account established for the purpose of paying
credit enhancement fees and premiums;
(ii) if a Spread Account, Reserve Fund or similar account is
established with respect to a Series of Certificates, deposits into such
fund or account of the Excess Spread or other amounts required to be
deposited therein;
(iii) payments to the holders of the Certificates on account of
interest and principal, in the order and manner set forth in the related
Prospectus Supplement;
(iv) reimbursement of the Servicer and/or the Representative for
amounts expended by the Servicer or the Representative and reimbursable
thereto under the related Pooling and Servicing Agreement but not
previously reimbursed;
(v) payments to the Servicer of an amount equal to Nonrecoverable
Advances previously made by the Servicer and not previously reimbursed; and
(vi) after the payments and deposits described above and in the
related Prospectus Supplement, the balance, if any, to the persons
specified in the related Prospectus Supplement.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Due Period
and (ii) the amount available under any credit enhancement, including amounts
withdrawn from any Spread Account or Reserve Fund, less (b) the amount of the
premiums or fees payable to the Credit Provider, if any, during the related Due
Period.
Generally, to the extent a Credit Provider makes payments to holder of
Certificates, such Credit Provider will be subrogated to the rights of such
holders with respect to such payments and shall be deemed, to the extent of the
payments so made, to be a registered holder of such Certificates.
The "AVAILABLE PAYMENT AMOUNT" with respect to a Payment Date generally
means the result of (a) collections on or with respect to the Mortgage Loans
received by the Servicer during each month in the related Due Period, net of the
Servicing Fee paid to the Servicer during each month in the related Due Period
and reimbursements for accrued unpaid Servicing Fees and for certain expenses
paid by the Servicer, plus (b) the amount of any Advances, less, if so specified
in the related Prospectus Supplement, (c) the Excess Spread or other amounts
specified in such Prospectus Supplement.
SPECIAL PAYMENTS
If so specified in the related Prospectus Supplement, a Series of
Certificates providing for Payment Dates occurring other than monthly may
provide for special payments ("SPECIAL PAYMENTS") to be made to holders of
Certificates of one or more Classes as of the record date established therefor
(each a "SPECIAL RECORD DATE") in the amount (the "SPECIAL PAYMENT AMOUNT") and
on the dates ("SPECIAL PAYMENT DATES") specified in such Prospectus Supplement.
The related Prospectus Supplement will describe the circumstances under which
such Special Payments will be made, which may be as a result of receipt of
Principal Prepayments in excess of a specified amount or otherwise. Unless
otherwise specified in the related Prospectus Supplement, such Special Payments
will result in amounts which would otherwise have been distributed on the next
succeeding Payment Date being paid instead on one or more Special Payment Dates.
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OPTIONAL DISPOSITION OF MORTGAGE LOANS
If so specified in the related Prospectus Supplement, the Servicer, the
Depositors or the holders of the Class of Certificates or such other person
specified in such Prospectus Supplement may cause the Trust to sell all of the
Mortgage Loans and all REO Properties when the Pool Principal Balance declines
to the percentage of the Original Pool Principal Balance specified in the
related Prospectus Supplement, when the outstanding principal balance of a Class
of Certificates specified in the related Prospectus Supplement declines to the
percentage of the original principal balance of such Class specified in the
related Prospectus Supplement or at such other time as is specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the related Pooling and Servicing Agreement will
establish a minimum price at which such Mortgage Loans and REO Properties may be
sold generally equal to the principal amount thereof plus accrued interest
thereon. Such minimum price may include certain expenses and other amounts or
such party as is specified in the related Prospectus Supplement may be required
to pay all or a portion of such expenses or other amounts at the time of sale.
Unless otherwise specified in the related Prospectus Supplement, the proceeds of
any such sale will be distributed to holders of the Certificates on the Payment
Date next following the date of disposition.
MANDATORY DISPOSITION OF MORTGAGE LOANS
If so specified in the related Prospectus Supplement, the Servicer, the
Depositors or such other entities as may be specified in such Prospectus
Supplement may be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the purchase of the assets of
the related Trust or otherwise, under the circumstances set forth in such
Prospectus Supplement. The procedures for the solicitation of such bids will be
described in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Representative, the Servicer, the
Originators and any Underwriter (defined herein) will be permitted to submit
bids. If so specified in the related Prospectus Supplement, a minimum bid or
reserve price may be established. If so specified in the related Prospectus
Supplement, the Underwriter or such other entity specified in such Prospectus
Supplement will be required to confirm that the accepted bid will result in the
sale of the assets of the Trust at their fair market value.
FORWARD COMMITMENTS; PREFUNDING
If so specified in the related Prospectus Supplement, a Pooling and
Servicing Agreement or other agreement may provide for the transfer by the
Depositors of additional Mortgage Loans to the related Trust after the Closing
Date for the related Certificates. In such case, it is expected that the related
Transfer Agreement will provide for a concurrent transfer of such additional
Mortgage Loans from one or more Originators to the Depositors. Such additional
Mortgage Loans will be required to conform to the requirements set forth in the
related Pooling and Servicing Agreement or other agreement providing for such
transfer. As specified in the related Prospectus Supplement, such transfer may
be funded by the application for a specified period of all or a portion of
payments on the Mortgage Loans originally included in the related Mortgage Pool
or by the establishment of a Prefunding Account (a "PREFUNDING ACCOUNT"). If a
Prefunding Account is established, all or a portion of the proceeds from the
sale of one or more Classes of Certificates of the related Series will be
deposited in such account. The Depositors will be obligated (subject only to the
availability thereof) to sell at a predetermined price, and the Trust for the
related Series of Certificates will be obligated to purchase (subject to the
availability thereof), additional Mortgage Loans (the "SUBSEQUENT MORTGAGE
LOANS") from time to time (as frequently as daily) within the period (generally
not to exceed three months) specified in the related Prospectus Supplement (the
"PREFUNDING PERIOD") after the issuance of such Series of Certificates having an
aggregate principal balance approximately equal to the amount on deposit in the
Prefunding Account (the "PREFUNDING AMOUNT") for such Series on the date of such
issuance. The Prefunding Amount with respect to a Series is not expected to
exceed 25% of the aggregate initial principal balance of the related
Certificates. Any Subsequent Mortgage Loans will be required to satisfy certain
eligibility criteria more fully set forth in the related Prospectus Supplement,
which eligibility criteria will be consistent with the eligibility criteria of
the Mortgage Loans initially included in the Trust, subject to such exceptions
as are expressly stated in the Prospectus Supplement. For example, the
Subsequent Mortgage Loans will be subject to the same underwriting standards and
representations and warranties as the Mortgage
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Loans initially included in the Trust. Unless otherwise specified in the related
Prospectus Supplement, a Prefunding Account will be required to be maintained as
an Eligible Account.
Unless otherwise specified in the related Prospectus Supplement, amounts
set aside to fund such transfers (whether in a Prefunding Account or otherwise)
and not so applied within the required period of time will be deemed to be
principal prepayments and applied in the manner set forth in such Prospectus
Supplement. In addition, if specified in the related Prospectus Supplement, the
Depositors may be required to deposit cash into an account maintained by the
Trustee (the "CAPITALIZED INTEREST ACCOUNT") for the purpose of assuring the
availability of funds to pay interest with respect to the Certificates during
the Prefunding Period. Any amount remaining in the Capitalized Interest Account
at the end of the Prefunding Period will be remitted as specified in the related
Prospectus Supplement.
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust may include
guaranteed investment contracts pursuant to which moneys held in the funds and
accounts established for the related Series will be invested at a specified
rate. The Trust Fund may also include certain other agreements, such as interest
rate exchange agreements, interest rate cap or floor agreements or similar
agreements provided to reduce the effects of interest rate fluctuations on the
related Mortgage Loans or on one or more Classes of Certificates. The principal
terms of any such guaranteed investment contract or other agreement (any such
agreement, a "CASH FLOW AGREEMENT"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related Series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
REPORTS TO HOLDERS
On each Payment Date, there will be forwarded to each holder a statement
setting forth, among other things, the information as to such Payment Date
required by the related Pooling and Servicing Agreement, which generally will
include, except as otherwise provided therein, if applicable:
(i) the Available Payment Amount (and any portion of the Available
Payment Amount that has been deposited in the Collection Account but may
not be withdrawn therefrom pursuant to an order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to
Section 362 of the United States Bankruptcy Code);
(ii) the principal balance of each class of Certificates as reported
in the report for the immediately preceding Payment Date, or, with respect
to the first Payment Date for a Series of Certificates, the Original
Principal Balance of such Class;
(iii) the number and Principal Balances of all Mortgage Loans which
were the subject of Principal Prepayments during the related Due Period and
the amount of any Special Payments made during the related Accrual Period;
(iv) the amount of all Curtailments which were received during the
related Due Period;
(v) the principal portion of all Monthly Payments received during the
related Due Period;
(vi) the amount of interest received on the Mortgage Loans during the
related Due Period;
(vii) the aggregate amount of the Advances to be made with respect to
the Payment Date;
(viii) certain delinquency and foreclosure information as described
more fully in the related Pooling and Servicing Agreement, and the amount
of Mortgage Loan Losses during the related Due Period;
(ix) the amount of interest and principal due to the holders of each
Class of Certificates of such Series on such Payment Date;
(x) the amount then available in any Spread Account or Reserve
Account;
(xi) the amount of the payments, if any, to be made from any credit
enhancement on the Payment Date;
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(xii) the amount to be distributed to the holders of any subordinated
or residual Certificates on the Payment Date;
(xiii) the principal balance of each Class of Certificates of such
Series after giving effect to the payments to be made on the Payment Date;
(xiv) with respect to the Mortgage Pool, the weighted average maturity
and the weighted average Mortgage Interest Rate of the Mortgage Loans as of
the last day of the related Due Period;
(xv) the amount of all payments or reimbursements to the Servicer for
accrued unpaid Servicing Fees, unreimbursed Servicing Advances and interest
in respect of Permitted Instruments or funds on deposit in the Principal
and Interest Account and certain other amounts during the related Due
Period;
(xvi) the Pool Principal Balance as of the immediately preceding
Payment Date, the Pool Principal Balance after giving effect to payments
received and Mortgage Loan Losses incurred during the related Due Period
and the ratio of the Pool Principal Balance to the Original Pool Principal
Balance. As of any Payment Date, the "POOL PRINCIPAL BALANCE" equals the
aggregate outstanding principal balance of all Mortgage Loans, as reduced
by the aggregate Mortgage Loan Losses, at the end of the related Due
Period;
(xvii) certain information with respect to the funding, availability
and release of monies from any Spread Account or Reserve Fund;
(xviii) the number of Mortgage Loans outstanding at the beginning and
at the end of the related Due Period;
(xix) the amounts that are reimbursable to the Servicer, the
Representative or the Depositors, as appropriate;
(xx) during the Prefunding Period, the remaining Prefunded Amount and
the portion of the amount used to acquire Subsequent Mortgage Loans since
the preceding Distribution Date;
(xxi) during the Prefunding Period, the amount remaining in the
Capitalized Interest Account; and
(xxii) such other information as the holders reasonably require.
The Servicer will also be required to furnish to any holder upon request
annual unaudited financial statements of the Servicer for one or more of the
most recently completed three fiscal years for which such statements are
available.
DESCRIPTION OF CREDIT ENHANCEMENT
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Certificates may be provided
by one or more of a letter of credit, financial guaranty insurance policy,
reserve fund, spread account, cash collateral account, mortgage pool insurance
policy, special hazard insurance policy or other type of credit enhancement.
Credit enhancement may also be provided by overcollateralization or by
subordination of one or more Classes of Certificates of a Series to one or more
other Classes of Certificates of such Series. Any credit enhancement will be
limited in amount and scope of coverage. Unless otherwise specified in the
related Prospectus Supplement, credit enhancement for a Series of Certificates
will not be available for losses incurred with respect to any other Series of
Certificates. To the extent credit enhancement for any Series of Certificates is
exhausted, or losses are incurred which are not covered by such credit
enhancement, the holders of the Certificates will bear all further risk of loss.
The amounts and types of credit enhancement, as well as the provider
thereof (the "CREDIT PROVIDER"), if applicable, with respect to each Series of
Certificates will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the related Pooling
and Servicing Agreement, any credit enhancement may be periodically modified,
reduced or substituted for as the aggregate principal balance of the related
Mortgage Pool decreases, upon the occurrence of certain events or otherwise.
Unless otherwise specified in the related Prospectus Supplement, to the extent
permitted by the applicable Rating Agencies and provided that the then current
rating of the affected Certificates is not reduced or
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withdrawn as a result thereof, any credit enhancement may be cancelled or
reduced in amount or scope of coverage or both.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be available upon
request.
Financial Guaranty Insurance Policy. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"SECURITIES INSURANCE POLICY") may be obtained and maintained for a Class or
Series of Certificates. The issuer of the Securities Insurance Policy (the
"INSURER") will be described in the related Prospectus Supplement and a copy of
the form of Securities Insurance Policy will be filed with the related Current
Report on Form 8-K.
Unless otherwise specified in the related Prospectus Supplement, a
Securities Insurance Policy will be unconditional and irrevocable and will
guarantee to holders of the applicable Certificates that an amount equal to the
full amount of distributions due to such holders will be received by the Trustee
or its agent on behalf of such holders for distribution on each Payment Date.
The specific terms of any Securities Insurance Policy will be set forth in
the related Prospectus Supplement. A Securities Insurance Policy may have
limitations and generally will not insure the obligation of the Depositors or
any Originator to purchase or substitute for a defective Mortgage Loan and will
not guarantee any specific rate of principal prepayments.
Unless otherwise specified in the related Prospectus Supplement, the
Insurer will be subrogated to the rights of each holder to the extent the
Insurer makes payments under the Securities Insurance Policy.
Letter of Credit. If so specified in the related Prospectus Supplement,
all or a component of credit enhancement for a Class or a Series of Certificates
may be provided by a letter of credit (a "LETTER OF CREDIT") issued by a bank or
other financial institution (a "LETTER OF CREDIT ISSUER") identified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Letter of Credit will be irrevocable. A Letter of
Credit may provide coverage with respect to one or more Classes of Certificates
or the underlying Mortgage Loans or, if specified in the related Prospectus
Supplement, may support a specified obligation or be provided in lieu of the
funding with cash of a Reserve Fund or Spread Account (each as defined below).
The amount available, conditions to drawing, if any, and right to reimbursement
with respect to a Letter of Credit will be specified in the related Prospectus
Supplement. A Letter of Credit will expire on the date specified in the related
Prospectus Supplement, unless earlier terminated or extended in accordance with
its terms.
Mortgage Pool Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided by a mortgage pool insurance policy (a "POOL INSURANCE POLICY") issued
by the insurer (a "POOL INSURER") specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Pool Insurance Policy will, subject to limitations described in such
Prospectus Supplement, insure against losses due to defaults in the payment of
principal or interest on the underlying Mortgage Loans up to the amount
specified in such Prospectus Supplement (or in a Current Report on Form 8-K).
The Pooling and Servicing Agreement with respect to any Series of Certificates
for which a Pool Insurance Policy is provided will require the Servicer or other
party specified therein to use reasonable efforts to maintain the Pool Insurance
Policy and to present claims to the Pool Insurer in the manner required thereby.
No Pool Insurance Policy will be a blanket policy against loss and will be
subject to the limitations and conditions precedent described in the related
Prospectus Supplement.
Special Hazard Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided in part by an insurance policy (a "SPECIAL HAZARD POLICY") covering
losses due to physical damage to a Mortgaged Property other than a loss of the
type covered by a standard hazard insurance policy or flood insurance policy or
losses resulting from the application of co-insurance clauses contained in
standard hazard insurance policies. The Prospectus Supplement relating to a
Series of Certificates for which a Special Hazard Policy is provided will
identify the issuer of such policy and any limitations on coverage. No Special
Hazard Policy will cover extraordinary losses
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such as those due to war, civil insurrection, governmental action, errors in
design or workmanship, chemical contamination or similar causes. Each Special
Hazard Policy will contain an aggregate limit on claims specified in the related
Prospectus Supplement. No claim will be paid under any Special Hazard Policy
unless hazard insurance on the Mortgaged Property is in force and protection and
preservation expenses have been paid.
Spread Account and Reserve Fund. If so specified in the related Prospectus
Supplement, all or any component of credit enhancement for a Series of
Certificates may be provided by a reserve fund (a "RESERVE FUND") or a spread
account (a "SPREAD ACCOUNT"). A Reserve Fund or Spread Account may be funded by
a combination of cash, one or more letters of credit or one or more Permitted
Instruments provided by the Depositors or other party identified in the related
Prospectus Supplement, amounts otherwise distributable to one or more Classes of
Certificates subordinated to one or more other Classes of Certificates or all or
any portion of Excess Spread. If so specified in the related Prospectus
Supplement, a Reserve Fund for a Series of Securities may be funded in whole or
in part on the applicable Closing Date. If so specified in the related
Prospectus Supplement, cash deposited in a Reserve Fund or a Spread Account may
be withdrawn and replaced with one or more letters of credit or Permitted
Instruments. A Reserve Fund or Spread Account may be pledged or otherwise made
available to a Credit Provider. If so specified in the related Prospectus
Supplement, a Reserve Fund or Spread Account may not be deemed part of the
assets of the related Trust or may be deemed to be pledged or provided by one or
more of the Depositors, the holders of the Class of Certificates otherwise
entitled to the amounts deposited in such account or such other party as is
identified in such Prospectus Supplement.
Cash Collateral Account. If so specified in the related Prospectus
Supplement, all or any portion of credit enhancement for a Series of
Certificates may be provided by the establishment of a cash collateral account
(a "CASH COLLATERAL ACCOUNT"). A Cash Collateral Account will be similar to a
Reserve Fund or Spread Account except that generally a Cash Collateral Account
is funded initially by a loan from a cash collateral lender (the "CASH
COLLATERAL LENDER"), the proceeds of which are invested with the Cash Collateral
Lender or other eligible institution. Unless otherwise specified in the related
Prospectus Supplement, the Cash Collateral Account will be required to be
maintained as an Eligible Account. The loan from the Cash Collateral Lender will
be repaid from Excess Spread, if any, or such other amounts as are specified in
the related Prospectus Supplement. Amounts on deposit in the Cash Collateral
Account will be available in generally the same manner described above with
respect to a Spread Account or Reserve Fund. As specified in the related
Prospectus Supplement, a Cash Collateral Account may be deemed to be part of the
assets of the related Trust, may be deemed to be part of the assets of a
separate cash collateral trust or may be deemed to be property of the party
specified in the related Prospectus Supplement and pledged for the benefit of
the holders of one or more Classes of Certificates of a Series.
Subordination. If so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Certificates of a Series ("SUBORDINATED CERTIFICATES") may instead be payable to
holders of one or more other Classes of Certificates of such Series ("SENIOR
CERTIFICATES") under the circumstances and to the extent specified in such
Prospectus Supplement. A Class of Certificates may be subordinated to one or
more Classes of Certificates and senior to one or more other Classes of
Certificates of a Series. If so specified in the related Prospectus Supplement,
delays in receipt of scheduled payments on the Mortgage Loans and losses on
defaulted Mortgage Loans will be borne first by the various Classes of
Subordinated Securities and thereafter by the various Classes of Senior
Certificates, in each case under the circumstances and subject to the
limitations specified in such Prospectus Supplement. The aggregate losses in
respect of defaulted Mortgage Loans which must be borne by the Subordinated
Certificates by virtue of subordination and the amount of the distributions
otherwise distributable to the Subordinated Certificates that will be
distributable to Senior Certificates on any Payment Date may be limited as
specified in the related Prospectus Supplement or the availability of
subordination may otherwise be limited as specified in the related Prospectus
Supplement. If losses or delinquencies were to exceed the amounts payable and
available to holders of Subordinated Certificates of a Series or if such amounts
were to exceed any limitation on the amount of subordination available, holders
of Senior Certificates of such Series could experience losses.
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In addition, if so specified in the related Prospectus Supplement, amounts
otherwise payable to holders of Subordinated Certificates on any Payment Date
may be deposited in a Reserve Fund or Spread Account, as described above. Such
deposits may be made on each Payment Date, on each Payment Date for a specified
period or to the extent necessary to cause the balance in such account to reach
or maintain a specified amount, as specified in the related Prospectus
Supplement, and thereafter, amounts may be released from such Reserve Fund or
Spread Account in the amounts and under the circumstances specified in such
Prospectus Supplement.
Distributions may be allocated as among Classes of Senior Certificates and
as among Classes of Subordinated Certificates in order of their final scheduled
payment dates, in accordance with a schedule or formula or otherwise, as
specified in the related Prospectus Supplement. As between Classes of
Subordinated Certificates, payments to holders of Senior Certificates on account
of delinquencies or losses and deposits to any Reserve Fund or Spread Account
will be allocated as specified in the related Prospectus Supplement. Principal
Prepayments and Curtailments may be paid disproportionately to Classes of Senior
Certificates pursuant to a "shifting interest" structure or otherwise, as
specified in the related Prospectus Supplement.
Cross-Support Provisions. If the Mortgage Loans for a Series are divided
into separate groups, each supporting a separate Class or Classes of
Certificates of a Series, credit enhancement may be provided by cross-support
provisions requiring that distributions be made on Senior Certificates
evidencing interests in one group of Mortgage Loans prior to distributions on
Subordinated Certificates evidencing interests in a different group of Mortgage
Loans within the Trust. The Prospectus Supplement for a Series that includes a
cross-support provision will describe the manner and conditions for applying
such provisions.
Other Credit Enhancement. Credit enhancement may also be provided for a
Series of Certificates in the form of overcollateralization, surety bond,
insurance policy or other type of credit enhancement approved by the applicable
Rating Agencies to cover one or more risks with respect to the Mortgage Loans or
the Certificates, as specified in the related Prospectus Supplement.
PAYMENT OF CERTAIN EXPENSES
If so specified in the related Prospectus Supplement, in order to provide
for the payment of the fees of the Credit Provider, if any, the Trustee may be
required to establish a Credit Enhancement Account and to deposit therein on the
dates specified in the related Prospectus Supplement, from amounts on deposit in
the Collection Account, in the priority indicated, an amount that is sufficient
to pay the premiums or fees due to the Credit Provider.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Servicer to pay to the
Trustee(s) from time to time their respective fees and the reasonable expenses,
disbursements and advances incurred or made by them. The Trustee will be
permitted under the Pooling and Servicing Agreement on each Payment Date to pay,
from amounts on deposit in the Collection Account and after making any required
distributions to holders, any amounts then due and owing representing fees of
the Trustee(s) that have not been paid by the Servicer after written demand
therefor.
SERVICING COMPENSATION
As compensation for servicing and administering the Mortgage Loans, the
Servicer is entitled to a fee (the "SERVICING FEE"), payable monthly from the
interest portion of monthly payments on the related Mortgage Loans, Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and certain
other late collections on the related Mortgage Loans. In addition to the
Servicing Fee, the Servicer will generally be entitled under the related Pooling
and Servicing Agreement to retain as additional servicing compensation any
assumption and other administrative fees (including bad check charges, late
payment fees and similar fees), the excess of any Net Liquidation Proceeds over
the outstanding principal balance of a Liquidated Mortgage Loan, to the extent
not otherwise required to be remitted to the Trustee for deposit into the
Collection Account and not constituting any part of the Representative's Yield,
and interest paid on funds on deposit in the Principal and Interest Account.
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SERVICING STANDARDS
General Servicing Standards. The Servicer will agree to service the
Mortgage Loans in accordance with the Pooling and Servicing Agreement and, in
servicing and administering the Mortgage Loans, to employ or cause to be
employed procedures, including collection, foreclosure and REO Property
management procedures, and exercise the same care it customarily employs and
exercises in servicing and administering mortgage loans for its own account, in
accordance with accepted first and second mortgage servicing practices of
prudent lending institutions and giving due consideration to the holders', and
any Credit Provider's reliance on the Servicer. The interests of the holders of
each Class of Certificates of any Series and the Credit Provider, if any, may
differ with respect to servicing decisions which may affect the rate at which
prepayments are received. For example, holders of certain Classes of
Certificates may prefer that "due-on-sale" clauses be waived in the event of a
sale of the underlying Mortgaged Property, that delinquent Mortgagors be granted
extensions or other accommodations and that liquidations of Mortgage Loans be
deferred, if an increase in the rate of principal prepayments would have an
adverse effect on the yield to investors in such Certificates. Depending on the
timing of such prepayments, holders of other Classes of Certificates may prefer
that "due-on-sale" clauses be enforced or that other actions be taken which
would increase prepayments. No holder of a Certificate will have the right to
make any decisions with respect to the underlying Mortgage Loans. The Servicer
will have the right and obligation to make such decisions in accordance with its
normal servicing procedures and the standards set forth in the related Pooling
and Servicing Agreement. In certain cases, the consent or approval of the Credit
Provider, if any, may be permitted or required. The interests of the Credit
Provider, if any, with respect to, among other things, matters which affect the
timing of payments and prepayments may not be the same as those of the holders
of each Class of Certificates of such Series.
Hazard Insurance. The Servicer will cause to be maintained fire and hazard
insurance with extended coverage (sometimes referred to as "STANDARD HAZARD
INSURANCE") customary in the area where the Mortgaged Property is located, in an
amount which is at least equal to the least of (i) the outstanding Principal
Balance owing on the Mortgage Loan, (ii) the full insurable value of the
premises securing the Mortgage Loan and (iii) the minimum amount required to
compensate for damage or loss on a replacement cost basis. Generally, if (i) the
Mortgaged Property is in an area identified in the Federal Register by the Flood
Emergency Management Agency as Flood Zone "A", (ii) flood insurance has been
made available and (iii) the Servicer determines that such insurance is
necessary in accordance with accepted first and second mortgage servicing
practices of prudent lending institutions, the Servicer will be required to
cause to be purchased a flood insurance policy with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(a) the outstanding principal balance of the Mortgage Loan, (b) the full
insurable value of the Mortgaged Property, or (c) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, 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 1968, as amended, and the Servicer
determines that such insurance is necessary in accordance with accepted first
and second 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 first and second mortgage servicing
procedures) will be deposited in the Principal and Interest Account, subject to
retention by the Servicer to the extent such amounts constitute servicing
compensation or to withdrawal pursuant to the related Pooling and Servicing
Agreement.
If the Servicer obtains and maintains 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 outstanding principal balance on the Mortgage
Loans without co-insurance, the Servicer will be deemed conclusively to have
satisfied its obligations with respect to fire and hazard insurance coverage.
Enforcement of Due on Sale Clauses. When a Mortgaged Property has been or
is about to be conveyed by the Mortgagor, the Servicer, on behalf of the
Trustee, is required, 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
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accelerate the maturity of the related Mortgage Loan under any "due-on-sale"
clause contained in the related Mortgage or Mortgage Note; provided, however,
that the Servicer will not be permitted to exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law. In such 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 Note or Mortgage, the Mortgagor remains liable thereon. The
Servicer will also be authorized (with the prior approval of any Credit
Provider, if required) 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.
Realization Upon Defaulted Mortgage Loans. The Servicer is required to
foreclose upon or otherwise comparably effect the ownership in the name of the
Trustee on behalf of the holders of the related Securities of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments; provided,
however, that the Servicer will not be required to foreclose if it determines
that foreclosure would not be in the best interests of the holders or any Credit
Provider. In connection with such foreclosure or other conversion, the Servicer
is required to exercise collection and foreclosure procedures with the same
degree of care and skill in its exercise or use as it would exercise or use
under the circumstances in the conduct of its own affairs.
The Servicer will not be permitted to foreclose on any Mortgaged Property
which it knows to be located within a one mile radius of any site contaminated
with or affected by hazardous wastes or hazardous substances without the prior
written consent of the Trustee and, if applicable, the Insurer. See "Certain
Legal Aspects of the Mortgage Loans -- Environmental Considerations." In
addition, the Servicer will not be obligated to foreclose on any Mortgaged
Property which it believes may be contaminated with or affected by hazardous
wastes or hazardous substances. If a Servicer does not foreclose on a Mortgaged
Property, the holders of Certificates of the related Series may experience a
loss on the related Mortgage Loan. The Servicer will not be liable to holders of
Certificates if it fails to foreclose on a Mortgaged Property which it believes
may be so contaminated or affected, even if such Mortgaged Property is, in fact,
not so contaminated or affected. Conversely, the Servicer will not be liable to
holders of Certificates if, based on its belief that no such contamination or
effect exists, the Servicer forecloses on a Mortgaged Property and takes title
to such Mortgaged Property, and thereafter such Mortgaged Property is determined
to be so contaminated or affected.
Collection of Mortgage Loan Payments. Each Pooling and Servicing Agreement
will require the Servicer to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans. Consistent with
the foregoing, the Servicer may at its own discretion waive any late payment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Mortgage Loan 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 Loan or consent to the postponement of strict compliance
with any such term or in any matter grant indulgence to any Mortgagor, subject
to the limitations set forth in the related Pooling and Servicing Agreement.
USE OF SUBSERVICERS
The Servicer will be permitted under each Pooling and Servicing Agreement
to enter into Subservicing Agreements for any servicing and administration of
Mortgage Loans with any institution which is in compliance with the laws of each
state necessary to enable it to perform its obligations under such Subservicing
Agreement and is either (i) designated by FNMA or FHLMC as an approved
Seller-Servicer for first and second mortgage loans or (ii) is an affiliate or a
wholly owned subsidiary of the Servicer.
Notwithstanding any Subservicing Agreement, unless otherwise specified in
the related Prospectus Supplement, the Servicer will not be relieved of its
obligations under a Pooling and Servicing Agreement, and the Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans. The Servicer will be
entitled to enter into any agreement with a subservicer for indemnification of
the Servicer by such subservicer and nothing contained in any Pooling and
Servicing Agreement shall be deemed to limit or modify such indemnification.
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SERVICING CERTIFICATES AND AUDITS
The Servicer is required to deliver, not later than the last day of the
fourth month following the end of the Servicer's fiscal year, commencing in the
year specified in the related Pooling and Servicing Agreement, an officers'
certificate stating that (i) the Servicer has fully complied with the provisions
of the Pooling and Servicing Agreement which relate to the servicing and
administration of the Mortgage Loans, (ii) a review of the activities of the
Servicer during such preceding year and of performance under the Pooling and
Servicing Agreement has been made under such officers' supervision, and (iii) to
the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under the Pooling and Servicing 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 officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such default.
The Servicer is required to cause to be delivered, not later than the last
day of the fourth month following the end of the Servicer's fiscal year,
commencing in the year set forth in the related Pooling and Servicing Agreement,
a letter or letters of a firm of independent certified public accountants
reasonably acceptable to the Trustee stating that such firm has, with respect to
the Servicer's overall servicing operations, examined such operations in
accordance with the requirements of the Uniform Single Attestation Program for
Mortgage Bankers, and stating such firm's conclusions relating thereto.
LIMITATIONS ON LIABILITY OF THE SERVICER AND ITS AGENTS
Each Pooling and Servicing Agreement will provide that the Servicer and any
director, officer, employee or agent of the Servicer may rely on any document of
any kind that is reasonably and in good faith believed to be genuine and adopted
or signed by the proper authorities respecting any matters arising under the
Pooling and Servicing Agreement. In addition, the Servicer will not be required
to appear with respect to, prosecute or defend any legal action that is not
incidental to the Servicer's duty to service the Mortgage Loans in accordance
with the related Pooling and Servicing Agreement, other than certain claims made
by third parties with respect to such Pooling and Servicing Agreement.
REMOVAL AND RESIGNATION OF SERVICER
Unless otherwise specified in the related Prospectus Supplement, any Credit
Provider or the holders of Certificates of a Series representing a majority in
principal amount of Certificates of such Series (or do majority of such other
voting interests as are provided for in the applicable Pooling and Servicing
Agreement), voting as a single class (a "MAJORITY IN AGGREGATE VOTING
INTEREST"), with the consent of any Credit Provider, may, pursuant to the
related Pooling and Servicing Agreement, remove the Servicer upon the occurrence
and continuation beyond the applicable cure period of any of the following
events (each a "SERVICER TERMINATION EVENT"):
(i) (A) the failure by the Servicer to make any required Servicing
Advance, to the extent such failure materially and adversely affects the
interests of any Credit Provider or the holders of the Certificates of such
Series; or (B) any other failure by the Servicer to remit to holders of the
Certificates of such Series or to the Trustee for the benefit of the
holders of the Certificates of such Series, any payment required to be made
under the terms of the related Pooling and Servicing Agreement 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; or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in the related Pooling and Servicing Agreement, which
failure continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer; or
(iii) 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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(iv) 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; or
(v) 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; or
(vi) the Servicer shall fail for 60 days to pay, or bond against, an
unappealable, undischarged, unvacated and unstayed final judgment by a
court of competent jurisdiction in an aggregate amount set forth in the
related Pooling and Servicing Agreement; or
(vii) under certain circumstances, and to the extent required by any
Credit Provider, the aggregate Mortgage Loan Losses (as defined below) and
delinquencies on the related Mortgage Pool shall exceed certain thresholds
described in the related Pooling and Servicing Agreement.
"MORTGAGE LOAN LOSSES" means, for Mortgage Loans that become Liquidated
Mortgage Loans during the related Due Period, the amount, if any, by which (i)
the sum of the outstanding principal balance of each such Mortgage Loan
(determined immediately before such Mortgage Loan became a Liquidated Mortgage
Loan) and accrued and unpaid interest thereon at the Mortgage Interest Rate to
the date on which such Mortgage Loan became a Liquidated Mortgage Loan exceeds
(ii) the Net Liquidation Proceeds received during such Due Period in connection
with the liquidation of such Mortgage Loan which have not theretofore been used
to reduce the principal balance of such Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, the
Depositors may, with the consent of any Credit Provider and holders representing
a majority in aggregate Percentage Interest of each Class of Certificates of a
Series, remove the Servicer upon 90 days' prior written notice. No such removal
shall be effective until the appointment and acceptance of a successor Servicer
other than the Trustee (unless the Trustee agrees to serve) meeting the
requirements described below and otherwise acceptable to any Credit Provider and
majority in Percentage Interest of each Class of Certificates of such Series.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may not assign the related Pooling and Servicing Agreement nor resign
from the obligations and duties thereby imposed on it except by mutual consent
of the Servicer, the Representative (if the Representative is not the Servicer),
any Credit Provider, the Trustee and the Majority in Aggregate Voting Interest
or upon the determination that the Servicer's duties thereunder are no longer
permissible under applicable law and such incapacity cannot be cured by the
Servicer. No such resignation shall become effective until a successor has
assumed the Servicer's responsibilities and obligations in accordance with the
Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, upon
removal or resignation of the Servicer other than as described in the second
preceding paragraph, the Trustee will be the successor servicer (the "SUCCESSOR
SERVICER"). The Trustee, as Successor Servicer, is obligated to make Servicing
Advances and certain other advances unless it determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the Majority in
Aggregate Voting Interest or any Credit Provider so requests in writing, the
Trustee may appoint, or petition a court of competent jurisdiction to appoint,
any established mortgage loan servicing institution acceptable to such Credit
Provider having a net worth of not less than the amount set forth in the related
Pooling and Servicing Agreement and which is approved as a servicer by FNMA and
FHLMC as the Successor Servicer in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer.
The Trustee and any other Successor Servicer in such capacity is entitled
to the same reimbursement for advances and other Servicing Compensation as the
Servicer. See "Servicing Compensation" above.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series will be issued in definitive certificated form and
will be transferable and exchangeable at the office of the registrar identified
in the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus
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Supplement, no service charge will be made for any such registration or transfer
of such Certificates, but the owner may be required to pay a sum sufficient to
cover any tax or other governmental charge.
If so specified in the related Prospectus Supplement, Book-Entry
Certificates may be initially represented by one or more Certificates registered
in the name of DTC and be available only in the form of book-entries. If
specified in the related Prospectus Supplement, holders of Certificates may hold
beneficial interests in Book-Entry Certificates through DTC (in the United
States) or CEDEL or Euroclear (in Europe) directly if they are participants of
such systems, or indirectly through organizations which are participants in such
systems.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective 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.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their applicable 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 or
Euroclear, 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, each such cross-market transaction 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. 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 through 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 Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC 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 CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of Certificates by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant 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.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, 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 Section 17A of the Exchange Act. DTC was created
to hold securities for its participating members ("DTC PARTICIPANTS") and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities brokers
and dealers, banks, trust companies and clearing corporations which may include
underwriters, agents or dealers with respect to the Certificates of any Class or
Series. Indirect access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
("INDIRECT DTC PARTICIPANTS"). The rules applicable to DTC and DTC Participants
are on file with the Commission.
Beneficial owners ("OWNERS") that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. DTC Participants who are Owners of
Book-Entry Certificates will receive a credit for such Certificates on DTC's
records. The ownership interest of such holder will in turn be recorded on
respective records of the DTC Participants and Indirect DTC Participants. Such
holders will not receive written confirmation from DTC of their purchase, but
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
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DTC Participant or Indirect DTC Participant through which the Certificateholder
entered into the transaction. Unless and until Definitive Certificates (as
defined below) are issued, it is anticipated that the only "holder" of
Book-Entry Certificates of any Series will be Cede, as nominee of DTC. Owners
will only permitted to exercise the rights of holders indirectly through DTC
Participants and DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. DTC Participants and Indirect DTC
Participants with which Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificateholders.
DTC has advised the Servicer and the Depositors that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a holder only at the direction of one or more DTC Participants to whose
DTC accounts the Certificates are credited. DTC has advised the Servicer and the
Depositors that DTC will take such action with respect to any Percentage
Interests of the Book-Entry Certificates of a Series only at the direction of
and on behalf of such DTC Participants with respect to such Percentage Interests
of the Book-Entry Certificates. DTC may take actions, at the direction of the
related DTC Participants, with respect to some Book-Entry Certificates which
conflict with actions taken with respect to other Book-Entry Certificates.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL PARTICIPANTS") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to 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 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 and may include any underwriters, agents or dealers with
respect to any Class or Series of Certificates offered hereby. 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 the
Euroclear System ("EUROCLEAR PARTICIPANTS") 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 27 currencies, including United
States dollars. The Euroclear System 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. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the "EUROCLEAR
OPERATOR" or "EUROCLEAR"), under contract with Euroclear Clearance System S.C.,
a Belgian cooperative corporation (the "EUROCLEAR COOPERATIVE"). All operations
are conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Euroclear Cooperative establishes policy for the
Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include any underwriters,
agents or dealers with respect to any Class or Series of Certificates offered
hereby. Indirect access to the Euroclear System 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
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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
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities 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.
Payments and distributions with respect to Book-Entry Certificates 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, N.A. or The Chase
Manhattan Bank, the relevant depositary of CEDEL and Euroclear (the
"DEPOSITARIES"), respectively. Such payments and distributions will be subject
to tax withholding in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Considerations". CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder on behalf of a CEDEL 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, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Book-Entry Certificates of a Series will be issued in registered form to
Owners, or their nominees, rather than to DTC (such Book-Entry Certificates
being referred to herein as "DEFINITIVE CERTIFICATES") only under the
circumstances provided in the related Pooling and Servicing Agreement, which
generally will include, except if otherwise provided therein, if (i) DTC or the
Servicer advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Book-Entry Certificates of such Series and the Servicer is unable to
locate a qualified successor, (ii) the Servicer, at its sole option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
Servicer Termination Event, a majority of the aggregate Percentage Interest of
any Class of Certificates of such Series advises DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) to the
exclusion of any physical certificates being issued to Owners is no longer in
the best interests of Owners of such Class of Certificates. Upon issuance of
Definitive Certificates of a Series to Owners, such Book-Entry Certificates will
be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee with respect to
transfers, notices and distributions.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state laws (which laws may differ substantially
from one another), 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 Mortgage Properties may be situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
GENERAL
All of the Mortgage Loans are loans evidenced by a note or other
contractual payment obligation and secured by instruments granting a security
interest in real property which may be mortgages, deeds of trust, security deeds
or deeds to secure debt, depending upon the prevailing practice and law in the
state in which the Mortgaged Property is located. Any of the foregoing
instruments will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security
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instrument, as well as separate, recorded, contractual arrangements with others
holding interests in the Mortgaged Property, the knowledge of the parties to
such instrument as well as the order of recordation of the instrument in the
appropriate public recording office. However, recording does not generally
establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). Although a deed of
trust is similar to a mortgage, a deed of trust has three parties, the borrower-
homeowner called the trustor (similar to a mortgagor), a lender called the
beneficiary (similar to a mortgagee), and a third-party grantee called the
trustee. Under a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale, to the trustee
to secure payment of the obligation. The trustee's authority under a deed of
trust and the mortgagee's authority under a mortgage are governed by law, the
express provisions of the deed of trust or mortgage, and, in some cases, the
directions of the beneficiary. Some states use a security deed or deed to secure
debt which is similar to a deed of trust except that it has only two parties: a
grantor (similar to a mortgagor) and a grantee (similar to a mortgagee).
Mortgages, deeds of trust and deeds to secure debt are not prior to liens for
real estate taxes and assessments and other charges imposed under governmental
police powers. Priority between mortgages, deeds of trust and deeds to secure
debt and other encumbrances depends on their terms in some cases and generally
on the order of recordation of the mortgage, deed of trust or the deed to secure
debt in the appropriate recording office. The mortgagee's authority under a
mortgage, the trustee's authority under a deed of trust and the grantee's
authority under a deed to secure debt are governed by the express provisions of
the mortgage, the law of the state in which the real property is located,
certain federal laws (including, without limitation, the Relief Act) and, in
some cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Originators will make certain representations and
warranties to the Depositors, and substantially similar representations and
warranties will be made by the Depositors pursuant to the related Pooling and
Servicing Agreement with respect to any Mortgage Loans that are secured by an
interest in a leasehold estate. Such representations and warranties, if
applicable, will be set forth in the Prospectus Supplement.
COOPERATIVE LOANS
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include loans on units in cooperatives ("COOPERATIVE LOANS"). Cooperative Loans
are evidenced by notes secured by security interests in shares issued by
cooperatives (a "COOPERATIVE"), which are corporations entitled to be treated as
housing cooperatives under federal tax law, and in the related proprietary
leases or occupancy agreements granting rights to occupy specific dwelling units
within the cooperative buildings. The security agreement will create a lien upon
or grant a title interest in the property which it covers, the priority of which
lien will depend on the terms of the agreement and the order of recordation in
the appropriate recording office. Ownership of a unit in a cooperative is held
through the ownership of stock in the corporation, together with the related
proprietary lease or occupancy agreement. Such ownership interest is generally
financed through a cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the proprietary lease or
occupancy agreement and a security interest in the related cooperative shares.
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Each Cooperative owns in fee or has a leasehold interest in the real
property and improvements, including all separate dwelling units therein. The
Cooperative is directly responsible for property management and generally for
the payment of real estate taxes, insurance and similar charges. If there is a
blanket mortgage or mortgages on the cooperative apartment building or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the Cooperative, as property mortgagor, or
lessee, as the case may be, is also responsible for meeting these mortgage or
rental obligations. A blanket mortgage is ordinarily incurred by the Cooperative
in connection with either the construction or purchase of the Cooperative's
apartment building or obtaining of capital by the Cooperative. The interest of
the occupant under proprietary leases or occupancy agreements as to which that
Cooperative is the landlord are generally subordinate to the interest of the
holder of a blanket mortgage and to the interest of the holder of a land lease.
If the Cooperative is unable to meet the payment obligations (i) arising under a
blanket mortgage, the mortgagee holding a blanket mortgage could foreclose on
that mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (ii) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. Also, a blanket mortgage on a cooperative may
provide financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the Cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
Cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of a blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender that financed the purchase by an individual tenant
stockholder of cooperative shares or, in the case of the Mortgage Loans, the
collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed through
a Cooperative Loan evidenced by a promissory note and secured by an assignment
of and a security interest in the occupancy agreement or proprietary lease and a
security interest in the related Cooperative shares. The lender generally takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement and a financing statement covering the proprietary lease
or occupancy agreement and the Cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See "Foreclosure -- Cooperative
Loans" below.
LAND SALE CONTRACTS
Under an installment land sale contract for the sale of real estate (a
"LAND SALE CONTRACT") the contract seller (hereinafter referred to as the
"CONTRACT LENDER") retains legal title to the property and enters into an
agreement with the contract purchaser (hereinafter referred to as the "CONTRACT
BORROWER") for the payment of the purchase price, plus interest, over the term
of the land sale contract. Only after full performance by the borrower of the
contract is the contract lender obligated to convey title to the real estate to
the purchaser. As with mortgage or deed of trust financing, during the effective
period of the land sale contract, the contract borrower is 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 contract 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
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enforce the contract strictly according to its terms. The terms of land sale
contracts generally provide that upon default by the contract 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 contract lender in such a situation does not have to foreclose in order to
obtain title to the property, although in some cases a quiet title action is in
order if the contract borrower has filed the land sale contract in local land
records and an ejectment action may be necessary to recover possession. In a few
states, particularly in cases of contract borrower default during the early
years of a land sale 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 land sale contracts from the harsh consequences of forfeiture.
Under such statues, a judicial contract may be reinstated upon full payment of
the default amount and the borrower may have a post-foreclosure statutory
redemption right. In other states, courts in equity may permit a contract
borrower with significant investment in the property under a land sale contract
for the sale of real estate to share the proceeds of sale of the property after
the indebtedness is repaid or may otherwise refuse to enforce the forfeiture
clause. Nevertheless, generally speaking, the contract lender's procedures for
obtaining possession and clear title under a land sale contract for the sale of
real estate in a given state are simpler and less time consuming and costly than
are the procedures for foreclosing and obtaining clear title to a mortgaged
property.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, 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 defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed generally equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage
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on the mortgaged property. The exercise by the court of its equity powers will
depend on the individual circumstances of each case presented to it. Finally,
some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that a mortgagor receive notice in addition to statutorily-prescribed
minimum notice. For the most part, these cases have upheld the reasonableness of
the notice provisions or have found that a public sale under a mortgage
providing for a power of sale does not involve sufficient state action to afford
constitutional protections to the mortgagor.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will become
obligated to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the 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. Moreover, a lender commonly
incurs substantial legal fees and court costs in acquiring a mortgaged property
through contested foreclosure and/or bankruptcy proceedings. Generally, state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obligated to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly,
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with respect to those Mortgage Loans, if any, that are junior mortgage loans, if
the lender purchases the property, the lender's title will be subject to all
senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than three years. With respect
to a Series of Certificates for which an election is made to qualify the Trust
or a part thereof as a REMIC, the Pooling and Servicing Agreement will permit
foreclosed property to be held for more than three years if the Internal Revenue
Service grants an extension of time within which to sell such property or
independent counsel renders an opinion to the effect that holding such property
for such additional period is permissible under the REMIC Regulations.
Cooperative Loans
The Cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's certificate of incorporation and by-laws, as well as
the proprietary lease or occupancy agreement, and may be canceled by the
Cooperative for failure by the tenant-stockholder or pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default under
the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the
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right of the Cooperative to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in a building so converted.
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, the Bankruptcy Code and Other Limitations on
Lenders" herein.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by second or more junior
mortgages or deeds of trust, which are subordinate to first or more senior
mortgages or deeds of trust held by other lenders. The rights of the holders, as
the holders of a junior deed of trust or a junior mortgage, are subordinate in
lien and in payment 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, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
mortgagee satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "Foreclosure" above.
Furthermore, the terms of the second or more junior mortgage or deed of
trust are subordinate to the terms of the first or senior mortgage or deed of
trust. In the event of 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 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 such sums, such sums
will generally have priority over all sums due under the junior mortgage. See
"Risk Factors -- Risks Associated with the Mortgage Loans -- Risk of Loss May Be
Greater on Second Lien Mortgage Loans" for a further discussion of certain risks
associated with junior mortgage loans.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the
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redemption right is to force the lender to maintain the property and pay the
expenses of ownership until the redemption period has expired. In some states, a
post-sale statutory right of redemption may exist following a judicial
foreclosure, but not following a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION, THE BANKRUPTCY CODE AND OTHER LIMITATIONS ON
LENDERS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the 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 anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the United States Bankruptcy
Code, 11 U.S.C Sections 101 et seq. (the "BANKRUPTCY CODE"), and state laws
affording relief to debtors may interfere with or affect the ability of a
secured mortgage lender to obtain payment of a mortgage loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and, usually, no interest or principal payments are made
during the course of the bankruptcy case. Foreclosure of an interest in real
property of a debtor in a case under the Bankruptcy Code can typically occur
only if the bankruptcy court vacates the stay; an action the court may be
reluctant to take, particularly if the debtor has the prospect of restructuring
his or her debts and the mortgage collateral is not deteriorating in value. The
delay and the consequences thereof caused by such automatic stay can be
significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor (a subordinate lender secured by a
mortgage on the property) may stay a senior lender from taking action to
foreclose.
A homeowner may file for relief under the Bankruptcy code under any of
three different chapters of the Bankruptcy code. Under Chapter 7, the assets of
the debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid
up to the amount of the debt) at the sale of the asset. See "-- Foreclosure." A
homeowner may also file for relief under Chapter 11 of the bankruptcy code and
reorganize his or her debts through his or her reorganization plan.
Alternatively, a homeowner may file for relief under Chapter 13 of the
Bankruptcy Code and address his or her debts in a rehabilitation plan. (Chapter
13 is often referred to as the "wage earner chapter" or "consumer chapter"
because most individuals seeking to restructure their debts file for relief
under Chapter 13 rather than under Chapter 11.)
The Bankruptcy Code permits a mortgage loan that is secured by property
that does not consist solely of the debtor's principal residence to be modified
without the consent of the lender provided certain substantive and procedural
safeguards are met. Under the Bankruptcy Code, the lender's security interest
may be reduced to the then-current value of the property as determined by the
court if the value is less than the amount due on the loan, thereby leaving the
lender as a general unsecured creditor for the difference between the value of
the collateral and the outstanding balance of the mortgage loan. A borrower's
unsecured indebtedness will typically be discharged in full upon payment of a
substantially reduced amount. Other modifications to a mortgage loan may include
a reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest, an alteration of the repayment
schedule, an extension of the final maturity date, and/or a reduction in the
outstanding balance of the secured portion of the loan. In certain
circumstances, subject to the court's approval, a debtor in a case under Chapter
11 of the Bankruptcy Code may have the power to grant liens senior to the lien
of a mortgage.
A reorganization plan under Chapter 11 and a rehabilitation plan under
Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default with
respect to a mortgage loan on such debtor's residence by
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paying arrearages over a period of time and to deaccelerate and reinstate the
original mortgage loan payment schedule, even though the lender accelerated the
loan and a 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 petition under the Bankruptcy Code. Under a Chapter 13 plan, curing of
defaults must be accomplished within the five year maximum term permitted for
repayment plans, such term commencing when the repayment plan becomes effective,
while defaults may be cured over a longer period of time under a Chapter 11 plan
of reorganization.
Generally, a repayment plan in a case under Chapter 13 and a plan of
reorganization under Chapter 11 may not modify the claim of a mortgage lender if
the borrower elects to retain the property, the property is the borrower's
principal residence and the property is the lender's only collateral. Certain
courts have allowed modifications when the mortgage loan is secured both by the
debtor's principal residence and by collateral that is not "inextricably bound"
to the real property, such as appliances, machinery, or furniture.
The general protection for mortgages secured only by the debtor's principal
residence is not applicable in a case under Chapter 13 if the last payment on
the original payment schedule is due before the final date for payment under the
debtor's Chapter 13 plan (which date could be up to five years after the debtor
emerges from bankruptcy). Under several recently decided cases, the terms of
such a loan can be modified in the manner described above. While these decisions
are contrary to the holding in a prior case by a senior appellate court, it is
possible that the later decisions will become the accepted interpretation in
view of the language of the applicable statutory provision. If this
interpretation is adopted by a court considering the treatment in a Chapter 13
repayment plan of a Mortgage Loan, it is possible that the Mortgage Loan could
be modified.
State statutes and general principles of equity may also provide a
mortgagor with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor under the related mortgage loan prior to the
bankruptcy or similar proceeding. Payments on long-term debt may be protected
from recovery as preferences if they are payments in the ordinary course of
business made on debts incurred in the ordinary course of business or if the
value of the collateral exceeds the debt at the time of payment. Whether any
particular payment would be protected depends upon the facts specific to a
particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. Moreover, the laws of certain states also give priority
to certain tax and mechanics liens over the lien of a mortgage. Under the
Bankruptcy Code, if the court finds that actions of the mortgagee have been
unreasonable and inequitable, the lien of the related mortgage may be
subordinated to the claims of unsecured creditors.
The National Bankruptcy Review Commission (the "BANKRUPTCY COMMISSION"), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations relating to the Bankruptcy Code, delivered
its report to the President and Congress in October, 1997. The Bankruptcy
Commission recommended in its report that the Bankruptcy Code be amended to
treat any claim secured only by a junior lien on a borrower's principal
residence as unsecured to the extent that the amount of such claim exceeds the
appraised value of the mortgaged property at the date of origination of the loan
minus the value of all senior liens. If such a change in the Bankruptcy Code
were to be enacted, and if such change were to apply to loans originated prior
to enactment, a substantial number of the Mortgage Loans in a Trust could be
treated, in whole or in part, as unsecured debt in a case under Chapter 13 of
the Bankruptcy Code. As a consequence, borrowers who become Chapter 13 debtors
could have substantially less incentive to make arrangements for repayment of
the Mortgage Loans, and there is, accordingly, a significant risk that the
recovery on such Mortgage Loans would be materially less than the outstanding
balance of such Mortgage Loans, or that there could be no recovery.
The Bankruptcy Commission recommendation described was not incorporated in
bankruptcy reform legislation that was passed by the House of Representatives in
June 1998. There can be no assurance, however, that such proposal would not be
enacted in other legislation.
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Bankruptcy reform legislation being considered by the Senate would amend
the Bankruptcy Code (such amendment, the "TILA AMENDMENT") to authorize
bankruptcy court judges to disallow claims based on secured debt if the creditor
failed to comply with certain provisions of the federal Truth in Lending Act. As
most recently proposed, such provision would apply retroactively to secured debt
incurred by a debtor prior to the date of effectiveness of such legislation,
including the Mortgage Loans. The House bill does not include a comparable
provision as of the date hereof. If the TILA Amendment were to become law, a
violation of the Truth in Lending act with respect to a Mortgage Loan could
result in a total loss with respect to such loan in a bankruptcy proceeding. Any
such violation would be a breach of representation and warranty of the
depositor, and the depositor would be obligated to repurchase such Mortgage Loan
as described herein.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans in a trust have been considered by
Congress, and more such proposed legislation may be considered in the future. No
assurance can be given that any particular proposal will or will not be enacted
into law, or that any provision so enacted will not differ materially from the
proposals described above.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the applicable laws. In some cases, this liability may affect assignees of
the Mortgage Loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Unless otherwise specified in the related Prospectus Supplement, late
charges and prepayment fees (to the extent permitted by law and not waived by
the Servicer) will be included in the Representative's Yield.
"DUE-ON-SALE" CLAUSES
The Mortgage Loans will generally contain "DUE-ON-SALE" clauses, which
permit the lender to accelerate the maturity of the Mortgage Loan if the
borrower sells, transfers, or conveys the related Mortgaged Property. The
enforceability of these clauses has been the subject of legislation or
litigation in many states. However, effective October 15, 1982, Congress enacted
the Garn-St Germain Depository Institutions Act of 1982 (the "GARN ACT"), which
purports to preempt state laws that prohibit the enforcement of "due-on-sale"
clauses by providing, among other matters, that "due-on-sale" clauses in certain
loans (which loans may include the Mortgage Loans) made after the effective date
of the Garn Act are enforceable, within certain limitations, as set forth in the
Garn Act and the regulations promulgated thereunder. "Due-on-sale" clauses
contained in mortgage loans originated by federal savings and loan associations
or federal savings banks are fully enforceable pursuant to regulations of the
Office of Thrift Supervision ("OTS"), as successor to the Federal Home Loan Bank
Board ("FHLBB"), which preempt state law restrictions on the enforcement of such
clauses. Similarly, "due-on-sale" clauses in mortgage loans made by national
banks and federal credit unions are now fully enforceable pursuant to preemptive
regulations of the Comptroller of the Currency and the National Credit Union
Administration, respectively. Regulations promulgated under the Garn Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
By virtue of the Garn Act, the Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale" clause
upon transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to
certain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
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purchase, (ii) a transfer to a relative resulting from the death of a borrower,
or transfer where the spouse or children become an owner of the property in each
case where the transferee(s) will occupy the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the property, (iv) the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not relate to a
transfer of rights of occupancy in the property (provided that such lien or
encumbrance is not created pursuant to a contract for deed), (v) a transfer by
devise, descent or operation of law on the death of a joint tenant or tenant by
the entirety, (vi) a transfer into an inter vivos trust in which the borrower is
the beneficiary and which does not relate to a transfer of rights of occupancy;
and (vii) other transfers as set forth in the Garn Act and the regulations
thereunder. The extent of the Garn Act on the average lives and delinquency
rates of the Mortgage Loans cannot be predicted. See "Certain Yield and
Prepayment Considerations."
Each Pooling and Servicing Agreement will provide that the Servicer, on
behalf of the Trustee, will enforce any right of the Trustee as the mortgagee of
record to accelerate a Mortgage Loan in the event of a sale or other transfer of
the related Mortgaged Property unless, in the Servicer's reasonable judgment,
doing so would materially increase the risk of default or delinquency on, or
materially impair the security for, such Mortgage Loan.
SUBORDINATE FINANCING
Where a mortgagor encumbers a 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 any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior 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
proceedings by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March, 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In addition, even where Title
V is not so rejected, any state is authorized by the law to adopt a provision
limiting discount points or other charges on mortgage loans covered by Title V.
Certain states have taken action to reimpose interest rate limits and/or to
limit discount points or other charges. The Depositors will represent and
warrant in each Pooling and Servicing Agreement that each related Mortgage Loan
was originated in compliance with applicable state law in all material respects.
ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal state, and local laws and
regulations relating to environmental protection. Such laws may regulate, among
other things: emissions of air pollutants; discharges of wastewater or storm
water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; or removal and disposal of asbestos-containing materials; or management
of electrical or other equipment containing polychlorinated biphenyls ("PCBS").
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines. Under the laws of certain states,
environmental
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contamination on a property may give rise to a lien on the property to ensure
the availability and/or reimbursement of cleanup costs. Generally all subsequent
liens on such property are subordinated to such a lien and, in some states, even
prior recorded liens are subordinated to such liens ("SUPERLIENS"). In the
latter states, the security interest of the Trustee in a property that is
subject to such a Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state laws in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the mortgaged
property may become liable in certain circumstances for the costs of remedial
action ("CLEANUP COSTS") if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be substantial
and could exceed the value of the property and the aggregate assets of the owner
or operator. CERCLA imposes strict as well as joint and several liability for
environmental remediation and/or damage costs on several classes of "potentially
responsible parties," including current "owners and/or operators" of property,
irrespective of whether those owners or operators caused or contributed to
contamination on the property. In addition, owners and operators of properties
that generate hazardous substances that are disposed of at other "off-site"
locations may be held strictly, jointly and severally liable for environmental
remediation and/or damages at those off-site locations. Many states also have
laws that are similar to CERCLA. Liability under CERCLA or under similar state
law could exceed the value of the property itself as well as the aggregate
assets of the property owner.
The law is unclear as to whether and under what precise circumstances
Cleanup Costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust. Under the laws of some states and under
CERCLA, a lender may be liable as an "owner or operator" for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have "participated in the management"
of the operations of the borrower, even through the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of "owner or operator" is a person "who
without participating in the management of . . . [the] facility, holds indicia
of ownership primarily to protect his security interest" (the "secured-creditor
exemption"). This exemption for holders of a security interest such as a secured
lender applies only to the extent that a lender seeks to protect its security
interest in the contaminated facility or property. Thus, if a lender's
activities begin to encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
facility or property, the lender may incur potential CERCLA liability in various
circumstances including, among others, when it holds the facility or property as
an investment (including leasing the facility or property to a third party),
fails to market the property in a timely fashion or fails to properly address
environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in a petroleum underground storage tank ("UST") or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose its
secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the management
of the UST. In addition, if the lender takes title to or possession of the UST
or the real estate containing the UST, under certain circumstances the
secured-creditor exemption may be deemed to be unavailable.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under CERCLA;
rather, liability could attach to a lender if its involvement with the
management of the facility were broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the
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facility's financial management. A subsequent decision by the United States
Court of Appeals for the Ninth Circuit in In re Bergsoe Metal Corp., apparently
disagreeing with, but not expressly contradicting, the Fleet Factors court, held
that a secured lender had no liability absent "some actual management of the
facility" on the part of the lender.
Court decisions have taken varying views of the scope of the
secured-creditor exemption, leading to administrative and legislative efforts to
provide guidance to lenders on the scope of activities that would trigger CERCLA
and/or RCRA liability. Until recently, these efforts have failed to provide
substantial guidance.
On September 30, 1996, however, the President signed into law the Asset
Conservation Lender Liability and Deposit Insurance Protection Act of 1996 (the
"ASSET CONSERVATION ACT"). The Asset Conservation Act was intended to clarify
the scope of the secured-creditor exemption under both CERCLA and RCRA. The
Asset Conservation Act more explicitly defined the kinds of "participation in
management" that would trigger liability under CERCLA and specified certain
activities that would not constitute "participation in management" or otherwise
result in a forfeiture of the secured-creditor exemption prior to foreclosure or
during a workout period. The Asset Conservation Act also clarified the extent of
protection against liability under CERCLA in the event of foreclosure and
authorized certain regulatory clarifications of the scope of the
secured-creditor exemption for purposes of RCRA, similar to the statutory
protections under CERCLA. However, since the courts have not yet had the
opportunity to interpret the new statutory provisions, the scope of the
additional protections offered by the Asset Conservation Act is not fully
defined. It also is important to note that the Asset Conservation Act does not
offer complete protection to lenders and that the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an
action for contribution against the owner or operator who created the
environmental contamination or against some other liable party, but that person
or entity may be bankrupt or otherwise judgment-proof. It is therefore possible
that cleanup or other environmental liability costs could become a liability of
the Trust and occasion a loss to the Trust and to holders of Certificates in
certain circumstances. The new secured creditor amendments to CERCLA, also,
would not necessarily affect the potential for potential for liability in
actions by either a state or a private party under other federal or state laws
which may impose liability on "owners or operators" but do not incorporate the
secured-creditor exemption.
See "Description of the Certificates -- Servicing Standards -- Realization
Upon Defaulted Mortgage Loans" above.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940 (the
"RELIEF ACT"), a mortgagor who enters military service after the origination of
such mortgagor's Mortgage Loan (including a mortgagor 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 such mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. The Relief Act applies to mortgagors
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 mortgagors who enter miliary
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 certain of the Mortgage Loans in
a Trust. 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 Certificates, and would not be covered by
advances. Such shortfalls will be covered by the credit enhancement provided in
connection with such Certificates only to the extent provided in the related
Prospectus Supplement. In addition, the Relief Act imposes limitations that
would impair the ability of the Servicer to foreclose on an affected mortgage
loan during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan which is subject to the Relief Act goes into
default, there may be delays and losses occasioned thereby.
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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 ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "CRIME
CONTROL ACT") 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: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the
purchase, ownership and disposition of the Certificates offered hereunder. This
discussion is directed solely to Certificateholders that hold the Certificates
as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and does not purport to discuss all
federal income tax consequences that may be applicable to particular categories
of investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. Further, 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. In
addition to the federal income tax consequences described herein, potential
investors should consider the state and local tax consequences, if any, of the
purchase, ownership and disposition of the Certificates. See "Certain State Tax
Consequences" below. Holders of Certificates are advised to consult their own
tax advisors concerning the federal, state, local or other tax consequences to
them of the purchase, ownership and disposition of the Offered Certificates.
The tax consequences of the purchase, ownership and disposition of the
Certificates will depend in large part on whether or not an election is made to
treat the issuing Trust or any segregated pool of assets therein as one or more
real estate mortgage investment conduits ("REMICS") within the meaning of
section 860D of the Code. A Trust or any segregated pool of assets therein as to
which one or more REMIC elections will be made will be referred to as a "REMIC
POOL" and its related Certificates will be referred to as "REMIC CERTIFICATES."
The discussion below assumes that no election will be made to treat the Trust,
or any portion thereof, as a "financial asset securitization investment trust"
(a "FASIT") under sections 860H through 860L of the Code. If a FASIT election is
made for a particular series, the Prospectus Supplement for that Series will
address the material federal income tax consequences of such election.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
REMIC ELECTIONS
Upon issuance of each series of REMIC Certificates, Cadwalader, Wickersham
& Taft ("TAX COUNSEL"), will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Agreement, each related REMIC
Pool will qualify as a REMIC, and the related REMIC Certificates will be treated
either as regular interests in the REMIC ("REGULAR CERTIFICATES") or as residual
interests in the REMIC ("RESIDUAL CERTIFICATES"). Regular Certificates generally
will be treated as debt instruments issued by the REMIC. The holder of a
Residual Certificate will be subject to the special rules described below under
which the holder generally will take into account for federal income tax
purposes its pro rata share of the net income or loss of the REMIC.
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If a REMIC Pool fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, the Code
provides that the REMIC Pool will not be treated as a REMIC for such year and
thereafter. In that event, such REMIC Pool may be taxable as a separate
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
REMIC Pool's income for the period in which the requirements for such status are
not satisfied. The Agreement will include provisions designed to maintain the
REMIC Pool's status as a REMIC. It is not anticipated that the status of any
REMIC Pool as a REMIC will be terminated.
STATUS OF REMIC CERTIFICATES
In general, the REMIC Certificates will be treated as "real estate assets"
within the meaning of section 856(c)(4)(A) of the Code and as assets described
in section 7701(a)(19)(C) of the Code in the same proportion that the assets of
the REMIC Pool underlying such REMIC Certificates would be so treated. Moreover,
if 95% or more of the assets of the REMIC Pool qualify for either of the
foregoing treatments at all times during a calendar year, the REMIC Certificates
will be treated as such assets in their entirety for that calendar year.
Interest (including original issue discount) on the Regular Certificates and
income allocated to the class of Residual Certificates will be interest
described in section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" within the meaning of section
856(c)(4)(A) of the Code. The Treasury regulations pertaining to the REMIC
provisions of the Code (the "REMIC REGULATIONS") provide that payments on
Mortgage Loans held pending distribution are considered part of the Mortgage
Loans for purposes of section 856(c)(4)(A) of the Code. Furthermore, foreclosure
property generally will qualify as "real estate assets" under section
856(c)(4)(A) of the Code. In addition, the Regular Certificates generally will
be "qualified mortgages" within the meaning of section 860G(a)(3) of the Code
for another REMIC and "permitted assets" within the meaning of section
860L(c)(1)(G) of the Code for a FASIT. The determination as to the percentage of
the REMIC Pool's assets that constitute assets described in the foregoing
sections of the Code will be made with respect to each calendar quarter based on
the average adjusted basis of each category of the assets held by the REMIC Pool
during such calendar quarter. The REMIC will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations. The Small Business Job Protection Act of 1996 (the "SBJPA
OF 1996") repealed the reserve method of accounting for bad debts of domestic
building and loan associations and mutual savings banks, and thus has eliminated
the asset category of "qualifying real property loans" in former section 593(d)
of the Code for taxable years beginning after December 31, 1995. The
requirements in the SBJPA of 1996 that such institutions must "recapture" a
portion of their existing bad debt reserves is suspended if a certain portion of
their assets are maintained in "residential loans" under section
7701(a)(19)(C)(v) of the Code, but only if such loans were made to acquire,
construct or improve the related real property and not for the purpose of
refinancing. However, no effort will be made to identify the portion of the
Mortgage Loans of any Series meeting this requirement, and no representation is
made in this regard.
TIERED REMIC STRUCTURES
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related Trust as REMICs ("TIERED
REMICS") for federal income tax purposes. Upon the issuance of any such series
of REMIC Certificates, Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, respectively, will be considered
to evidence ownership of Regular Certificates or Residual Certificates in the
related REMIC with the meaning of the REMIC provisions of the Code.
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
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section 7701(a)(19)(C) of the Code, and whether the income on such REMIC
Certificates is interest described in section 856(c)(3)(B) of the Code, the
Tiered REMICs will be treated as one REMIC.
REGULAR CERTIFICATES
General. In general, stated interest, original issue discount and market
discount received or accrued on a Regular Certificate will be ordinary income,
and principal payments on a Regular Certificate will be a return of capital to
the extent of the Certificateholder's basis in the Regular Certificate allocable
to those payments. A holder of a Regular Certificate must use the accrual method
of accounting with respect to that Certificate regardless of the method of
accounting otherwise used.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of section 1273(a) of the
Code.
A holder of a Regular Certificate having original issue discount generally
must include original issue discount in ordinary income as it accrues in advance
of receipt of the cash attributable to the discount regardless of the method of
accounting otherwise used. Section 1272(a)(6) of the Code requires that a
prepayment assumption be used with respect to Mortgage Loans held by a REMIC in
computing the accrual of original issue discount on Regular Certificates issued
by that REMIC, and that adjustments be made in the amount and rate of accrual of
such 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; those regulations have not been issued. The
legislative history of the REMIC Provisions indicates that the regulations will
provide that the prepayment assumption used with respect to a Regular
Certificate must be the same as that used in pricing the initial offering of
such Regular Certificate. The prepayment assumption used by the Company in
reporting original issue discount for each series of Regular Certificates (the
"PREPAYMENT ASSUMPTION") will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. The Company makes no
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The amount of original issue discount, if any, on a Regular Certificate is
the excess of its "stated redemption price at maturity" over its "issue price."
The issue price of a Regular Certificate in a particular class is the first
price at which a substantial amount of the Regular Certificates of that class is
first sold to the public (excluding bond houses, brokers and underwriters).
Unless specified otherwise in the Prospectus Supplement, the Company will
determine original issue discount by including the amount paid by an initial
Regular Certificateholder for accrued interest that relates to a period prior to
the issue date of the Regular Certificate in the issue price of a Regular
Certificate and will include in the stated redemption price at maturity any
interest paid on the first Payment Date to the extent such interest is
attributable to a period in excess of the number of days between the issue date
and such first Payment Date. The stated redemption price of a Regular
Certificate is equal to the total of all payments due on the Regular Certificate
other than payments of qualified stated interest. "Qualified stated interest"
includes interest that is unconditionally payable at least annually at a single
fixed rate, or in the case of a variable rate debt instrument, at 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 generally does not operate
in a manner that accelerates or defers interest payments on such Regular
Certificate.
In the case of 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 such Regular
Certificates. Generally, original issue discount will accrue on the Certificates
at the same rate it would accrue if the Certificates were to bear interest at a
fixed rate based on the rate that would be in effect if the index remained
constant after the Closing Date (or, possibly, the pricing date).
Notwithstanding the general definition, under a statutory de minimis rule,
original issue discount on a Regular Certificate will be treated as zero if such
discount is less than 0.25 percent of the stated redemption price at maturity of
such Regular Certificate multiplied by its weighted average life. The weighted
average life of a Regular Certificate is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity of the Regular Certificate, of the amounts determined by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until the date on
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which each such distribution is scheduled to be made (taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of such distribution and the denominator of which is the Regular Certificate's
stated redemption price at maturity.
The Treasury regulations pertaining to original issue discount (the "OID
REGULATIONS") provide a special application of the de minimis rule for certain
debt instruments where the interest payable for the first period is at a rate
less than that which applies in all other periods. In such cases, the OID
Regulations provide that the Regular Certificate would be treated as having de
minimis original issue discount if the greater of (i) the excess of its stated
principal amount over its issue price or (ii) the amount of the "foregone
interest" does not exceed the amount that would otherwise be treated as de
minimis original issue discount under the rules described above, but treating as
the stated redemption price at maturity for that purpose, the sum of the issue
price and the greater of the amounts in clauses (i) or (ii). Foregone interest
for this purpose is the amount of additional stated interest that would be
required to be payable on the Regular Certificate during the period of the
teaser rate, interest holiday or other shortfall so that all stated interest
would be qualified stated interest. If original issue discount is treated as
zero under these rules, all stated interest payments are treated as qualified
stated interest and the actual amount of original issue discount must be
allocated to the principal distributions on the Regular Certificate and, when
each such distribution is received, income equal to the discount allocated to
such distribution will be recognized.
One or more classes of Regular Certificates may entitle the holder to
payments of a portion of the interest but not a corresponding portion of the
principal of Mortgage Loans held in the REMIC Pool ("STRIPPED REMIC
CERTIFICATES") or otherwise provide for interest that is disproportionately high
relative to the principal amount. Although the matter is not free from doubt,
the Company intends to treat all of the payments on such Certificates as part of
their stated redemption price at maturity. If such Certificates are not treated
as having original issue discount, it is likely that such Certificates will be
treated as having been issued at a premium. See "Regular
Certificates -- Premium" below. In addition, the holder of such a Certificate
may be entitled to recognize a loss (which may be treated as a capital loss) at
such time and in such amount as it is determined that the Certificateholder's
adjusted basis exceeds all future payments to be received on such REMIC
Certificates, assuming no future prepayments occur with respect to the Mortgage
Loans.
A Certificateholder generally must include in gross income for any taxable
year the sum of the "daily portions" of the original issue discount that accrue
on the Regular Certificate for each day during the Certificateholder's taxable
year on which the Regular Certificate is held. A calculation will be made of the
portion of the original issue discount that accrues on each Regular Certificate
during each "accrual period," which in general is the period corresponding to
the period between Payment Dates or other interest compounding periods. Under
the OID Regulations, the accrual periods may be of any length and may vary in
length over the term of the debt instrument, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
occurs on the final day of an accrual period or on the first day of an accrual
period. The original issue discount accruing during any accrual period is
divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the period.
For a Regular Certificate, original issue discount accruing in an accrual
period is the excess, if any, of (i) the sum of (a) the present value of the
remaining payments to be made on the Regular Certificate as of the end of that
accrual period and (b) the payments made on the Regular Certificate during the
accrual period that are included in the stated redemption price at maturity of
the Regular Certificate, over (ii) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. For this purpose, the
present value of the remaining payments to be made on a Regular Certificate is
calculated based on (i) the Prepayment Assumption, (ii) the yield to maturity of
the Regular Certificate as of the Closing Date (taking into account the
Prepayment Assumption) and (iii) events (including actual prepayments) that have
occurred prior to the end of the accrual period. The adjusted issue price of a
Regular Certificate at the beginning of any accrual period equals the issue
price of the Regular Certificate increased by the aggregate amount of original
issue discount that accrued on that Regular Certificate in all such prior
periods and reduced by the amount of payments included in the stated redemption
price at maturity of the Regular Certificate in prior accrual periods. In
general, the daily portions of original issue discount required to be included
in income by the holder of a Regular Certificate (other than a Stripped REMIC
Certificate) will increase if prepayments on the
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Mortgage Loans exceed the Prepayment Assumption, and generally will decrease
(but not below zero for any period) if those prepayments are slower than the
Prepayment Assumption.
A subsequent purchaser of a Regular Certificate at a price greater than the
Regular Certificate's "adjusted issue price" but less than its remaining stated
redemption price also will be required to include in gross income the daily
portions of the original issue discount on the Regular Certificate. With respect
to such a purchaser, the daily portion for any day is reduced by an amount equal
to the product of (i) such daily portion and (ii) a fraction, the numerator of
which is the amount, if any, by which the price paid by such purchaser for the
Regular Certificate exceeds the adjusted issue price and the denominator of
which is the excess of the sum of all amounts payable on the Regular Certificate
after the purchase date, other than payments of qualified stated interest, over
the Regular Certificate's adjusted issue price. The adjusted issue price of a
Regular Certificate on any given day is equal to its issue price, increased by
all original issue discount previously includible with respect to such Regular
Certificate and reduced by the amount of all previous distributions with respect
to such Regular Certificate included in such Regular Certificate's stated
redemption price at maturity.
Market Discount. The holder of a Regular Certificate purchased at a market
discount will be subject to the market discount provisions of the Code. In
general, "MARKET DISCOUNT" is the amount by which the stated redemption price at
maturity (or, in the case of a Regular Certificate issued with original issue
discount, the adjusted issue price) of the Regular Certificate exceeds the
purchaser's basis in a Regular Certificate. The holder of a Regular Certificate
that has market discount generally will be required to include accrued market
discount in ordinary income to the extent payments includible in the stated
redemption price at maturity of such Regular Certificate are received. The
purchaser of a Regular Certificate that has market discount also will be
required to treat a portion of any gain on a sale or exchange of the Regular
Certificate as ordinary income to the extent of the market discount that accrued
to the date of disposition and was not previously included in ordinary income.
Unless otherwise provided in Treasury regulations that have not yet been issued,
it is anticipated that market discount on a Regular Certificate will accrue at
the holder's option (i) on the basis of a constant interest rate, (ii) ratably
based on the ratio of stated interest payable in the current period to all
interest remaining to be paid in the case of a Regular Certificate issued
without original issue discount, or (iii) ratably based on the ratio of the
amount of original issue discount accrued in the current period to all remaining
original issue discount in the case of a Regular Certificate issued with
original issue discount, in each case computed taking into account the
Prepayment Assumption.
A purchaser of a Regular Certificate that has market discount may be
required to defer recognition of a portion of interest expense attributable to
any indebtedness incurred or continued to purchase or carry the Regular
Certificate. The amount of this deferred interest expense in any taxable year
generally would not exceed the accrued market discount for the year, and the
deferred expense generally is allowed as a deduction not later than the year in
which the related market discount income is recognized. Alternatively, a
Certificateholder may elect to include market discount in income currently as it
accrues on all market discount obligations that the Certificateholder acquires
in that taxable year or thereafter, in which case the rules described above
relating to the treatment of market discount, as well as the interest deferral
rule will not apply. Notwithstanding the above rules, market discount on a
Regular Certificate will be considered to be zero under a de minimis rule that
is similar to the de minimis rule applied for purposes of determining whether a
Regular Certificate has original issue discount.
Premium. A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity is considered to be purchased at a
premium. The holder of such a Regular Certificate may elect under section 171 of
the Code to amortize the premium under the constant interest method. That
election will apply to all premium obligations that the holder owns or
subsequently acquires. In addition, it appears that the same rules that apply to
the accrual of market discount on installment obligations are intended to apply
in amortizing premium on installment obligations such as the Regular
Certificates, although it is unclear whether the alternatives to the constant
interest method described above under "Market Discount" are available. The
portion of the premium deductible pursuant to an election under section 171 of
the Code and allocable to a particular period will be treated as a reduction in
interest payments on the Regular Certificate during that period. A
Certificateholder who neither has in place nor makes an election to amortize
bond premium could
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be required to allocate that premium among the principal payments to be received
on that instrument and recognize the premium as a loss (which would be a capital
loss if the Certificate is held as a capital asset) as those principal payments
are received.
Interest Election. Under the OID Regulations, Regular Certificateholders
generally may elect to include all accrued interest on a Regular Certificate in
gross income using the constant yield to maturity method. For purposes of this
election, interest includes stated interest, original issue discount, de minimis
original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any premium. If a Certificateholder makes such
an election and (i) the Regular Certificate has amortizable bond premium, the
Certificateholder is deemed to have made an election to amortize bond premium or
(ii) the Regular Certificate has market discount, the Certificateholder is
deemed to have made an election to include market discount in income currently.
See "Premium" and "Market Discount" above. A Regular Certificateholder should
consult its tax adviser before making this election.
Sale or Exchange of Regular Certificates. If a holder sells or exchanges a
Regular Certificate, the Certificateholder will recognize gain or loss equal to
the difference, if any, between the amount realized and its adjusted basis in
the Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
Regular Certificate and reduced by the payments previously received on the
Regular Certificate, other than payments of qualified stated interest, by any
amortized premium and by previously recognized losses.
In general, except as described above with respect to market discount, and
except for certain financial institutions subject to section 582(c) of the Code,
any gain or loss on the sale or exchange of a Regular Certificate recognized by
an investor who holds the Regular Certificate as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Regular Certificate has been
held for more than one year. Gain from the disposition of a Regular Certificate
that otherwise might be capital gain will be treated as ordinary income to the
extent that the gain does not exceed the excess, if any, of (i) the amount that
would have been includible in the gross income of the holder if the yield on the
Regular Certificate were 110% of the applicable federal rate under section
1274(d) of the Code as of the date of purchase, over (ii) the amount of income
actually includible in the gross income of such holder with respect to the
Regular Certificate. Furthermore, such gain will be treated as ordinary income
(i) if a Regular Certificate is held as part of a "conversion transaction" as
defined in section 1258(c) of the Code, up to the amount of interest that would
have accrued on the Regular Certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable federal rate in effect at the
time the taxpayer entered into the transaction minus any amount previously
treated as ordinary income with respect to any prior distribution of property
that was held as part of such transaction, or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
section 163(d)(4) of the Code to have net capital gains taxed as investment
income at ordinary rates. Long-term capital gains of certain noncorporate
taxpayers generally are subject to a lower maximum tax rate (20%) than ordinary
income of such taxpayers (39.6%) for property held for more than one year.
Currently, the maximum tax rate for corporations is the same with respect to
both ordinary income and capital gains.
Treatment of Subordinated Certificates. As described above under
"Description of the Certificates -- Credit Enhancement -- Subordination,"
certain series of REMIC Certificates may contain one or more classes of Regular
REMIC Certificates that are subordinate to one or more other classes of Regular
REMIC Certificates (the "SUBORDINATED CERTIFICATES" and "SENIOR CERTIFICATES,"
respectively), Holders of Subordinated Certificates will be required to report
income with respect to such Certificates on the accrual method of accounting
without giving effect to delays or reductions in distributions attributable to
defaults and delinquencies on the Mortgage Loans, except to the extent it can be
established that such amounts are uncollectible. In addition, holders of
Subordinated Certificates will be required to treat amounts transferred to any
Reserve Fund as having been distributed to them. As a result, the amount of
income reported by a holder of a Subordinated Certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder generally will be allowed a loss (or will be allowed to
report less income) where either principal or previously accrued interest are
determined to be uncollectible with respect to the
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Subordinated Certificate, although the timing and character of such losses (or
reductions in income) are uncertain.
TAXATION OF RESIDUAL CERTIFICATES
General. Generally, holders of Residual Certificates ("RESIDUAL
CERTIFICATEHOLDERS") will take into account as ordinary income or loss for
federal income tax purposes, the "daily portions" of REMIC taxable income or net
loss. The daily portions of REMIC taxable income or net loss for a Residual
Certificateholder are determined by allocating to each day in any calendar
quarter its ratable portion of the REMIC's taxable income or net loss for such
calendar quarter, and by allocating such daily portion among the Residual
Certificateholders in proportion to their respective holdings of Residual
Certificates of a series on that day. A Residual Certificateholder also must
include in income any distributions from the REMIC in excess of the Residual
Certificateholder's adjusted basis in the Residual Certificate. Certain
adjustments to the income of a subsequent holder of a Residual Certificate may
be required when the Residual Certificate was purchased at a price that is
greater or less than the adjusted basis (determined in the manner discussed
below) that the Residual Certificate would have if held by an initial holder.
Nevertheless, in the absence of Treasury regulations or clarifying legislation,
it is uncertain whether any adjustments would be required.
Method of Computing REMIC Taxable Income. In general, REMIC taxable income
is determined in the same manner as the taxable income of an individual having
the calendar year as the taxable year and using the accrual method of
accounting, with certain exceptions. For these purposes, REMIC taxable income
generally means the excess of (i) the REMIC's gross income (including interest,
original issue discount and market discount, if any) on the Mortgage Loans owned
by the REMIC, plus income on reinvestment of cash flows and investment of assets
in the Reserve Fund and amortization of any premium with respect to the Regular
Certificates, over (ii) deductions, including interest and original issue
discount on the Regular Certificates, servicing fees on the Mortgage Loans,
other administrative expenses, and deduction or amortization of premium, if any,
with respect to the Mortgage Loans. Under the REMIC Regulations, section 163(d)
of the Code does not apply to limit a REMIC's deductions for any interest
expense, and for purposes of determining a REMIC's bad debt deduction, debt owed
to the REMIC is not treated as nonbusiness debt under section 166(d) of the
Code. In addition, under the REMIC Regulations, any gain or loss from the
disposition of any asset, including a qualified mortgage (as defined in section
860G(a)(3) of the Code) or a permitted investment (as defined in section
860G(a)(5) of the Code) is treated as ordinary gain or loss. For purposes of
determining REMIC taxable income or net loss, the REMIC's aggregate basis in the
collateral is the fair market value thereof immediately after transfer to the
REMIC. Under the REMIC Regulations, that fair market value is equal to the
aggregate of the issue prices of all regular and residual interests in the
REMIC.
Generally, the REMIC's deductions for original issue discount will be
determined in the same manner as original issue discount income on Regular
Certificates as described above under "Regular Certificates -- Original Issue
Discount," without regard to the de minimis rule described therein. The REMIC
will have discount income in respect of a Mortgage Loan if, in general, the
basis of the REMIC allocable thereto is exceeded by the unpaid principal balance
thereof. In respect of Mortgage Loans that have discount, REMIC taxable income
will take into account discount that accrues during the taxable year as it
accrues under a constant yield method. Generally, if the REMIC's basis allocable
to a Mortgage Loan exceeds the unpaid principal balance thereof, the REMIC will
be considered to have acquired the Mortgage Loan at a premium equal to the
amount of the excess, which premium may be amortized under a constant interest
method as described above under "Regular Certificates -- Premium."
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount and market
discount income (or amortization of premium) with respect to Mortgage Loans, and
the timing of deductions for interest (including original issue discount) on the
Regular Certificates. Where the Mortgage Loans bear interest at a fixed rate,
mismatching of that timing may result from the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of the
Regular Certificates, will increase over time as the earlier classes of Regular
Certificates are paid, whereas interest income with respect to any given
Mortgage Loan generally will remain constant over time as a percentage of the
outstanding
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principal amount of that loan. When there is more than one class of Regular
Certificates that pay principal sequentially, this mismatching of income and
deductions is likely to occur in the early years following issuance of the REMIC
Certificates when principal payments are being made in respect of the earlier
classes of Regular Certificates particularly if the Mortgage Loans were acquired
at a discount. In those circumstances, Residual Certificateholders may require
sufficient other sources of cash to pay any federal, state or local income or
franchise taxes due as a result of the mismatching. The mismatching of income
and deductions described in this paragraph, if present with respect to a series
of REMIC Certificates, may have a significant adverse effect upon a Residual
Certificateholder's after-tax rate of return.
Losses. The amount of any net loss of the REMIC that may be taken into
account by a Residual Certificateholder is limited to the Residual
Certificateholder's adjusted basis of the Residual Certificate as of the close
of the quarter (or time of disposition of the Residual Certificate, if earlier)
determined without taking into account the net loss for the quarter. Any loss so
disallowed may be carried over indefinitely, and may be used only to offset any
income generated by the Residual Certificate. The adjusted basis of a Residual
Certificate is equal to the amount paid therefor, increased by the amount of any
income allocated to the Residual Certificateholder and decreased (but not below
zero) by the amount of cash distributed, the fair market value of property
distributed and any loss allocated to the Residual Certificateholder. The
ability of a Residual Certificateholder that is an individual or a closely held
corporation to take into account losses from the REMIC also may be subject to
other limitations under the Code.
Limitations on Offset or Exemption of REMIC Income. A portion of the REMIC
taxable income includible in determining the federal income tax liability of a
Residual Certificateholder will be subject to special treatment. That portion,
referred to as the "excess inclusion," is equal to the excess, if any, of the
Residual Certificateholder's allocable share of REMIC taxable income for a
calendar quarter, over the sum of the "daily accruals" with respect to the
Residual Certificate for days during the calendar quarter that the Residual
Certificateholder held the Residual Certificate. The daily accruals for each day
during a calendar quarter generally are determined by allocating to each day in
the calendar quarter its ratable portion of the product of (i) 120% of the
long-term applicable federal rate that would have applied to the Residual
Certificate (if it were a debt instrument issued on the day the REMIC was
formed) under section 1274(d) of the Code, and (ii) the adjusted issue price of
the Residual Certificate at the beginning of the quarterly period. The adjusted
issue price of the Residual Certificate at the beginning of a quarter is the
issue price of the Residual Certificate (generally determined as if the Residual
Certificate were a debt instrument), increased by the amount of the daily
accruals of such excess inclusion income for all prior quarters and decreased
(but not below zero) by any distributions made with respect to the REMIC
Residual Certificate prior to the beginning of the quarterly period.
To the extent provided in Treasury regulations that have not yet been
issued, if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then a Residual Certificateholder's entire share
of REMIC taxable income will be treated as excess inclusions. Unless otherwise
stated in the Prospectus Supplement with respect to any Residual Certificates
offered by such Prospectus Supplement, it is expected that the value of the
Residual Certificates will not be significant.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the "excess inclusion" may not be offset by other deductions,
including net operating losses or net operating loss carryforwards, on the
Residual Certificateholder's federal income tax return. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by section 511 of the Code, the Residual Certificateholder's
excess inclusion will be treated as unrelated business taxable income of the
Residual Certificateholder. Pursuant to the REMIC Regulations, if a Residual
Certificateholder is a member of an affiliated group filing a consolidated
income tax return, the taxable income of the affiliated group cannot be less
than the sum of the excess inclusions attributable to all residual interests
held by the members of the affiliated group. In addition, under Treasury
regulations that have not yet been issued, if a real estate investment trust
owns a Residual Certificate, a portion of dividends paid by the real estate
investment trust would be treated as excess inclusions in the hands of its
shareholders with the same consequences as excess inclusions attributed directly
to a Residual Certificateholder. Similar rules will apply to Residual
Certificates that are held by regulated investment companies, common trust funds
or certain cooperative corporations.
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Finally, Residual Certificateholders who are not U.S. persons ("NON-U.S.
PERSONS") will not be entitled to any exemption from the 30% withholding tax or
a reduced treaty rate with respect to their excess inclusion income from the
REMIC.
Prohibited Transactions and Other Taxes on the REMIC. Income from certain
transactions by the REMIC, called prohibited transactions, will not be part of
the calculation of income or loss includible in the federal income tax returns
of Residual Certificateholders, but rather will be taxed directly to the REMIC
at a 100% rate. In addition, no loss or deduction allocable to a prohibited
transaction is taken into account in determining the taxable income or net loss
of the REMIC. Prohibited transactions generally include (i) subject to certain
limited exceptions (which exceptions include the liquidation of the REMIC, a
"clean-up call" of one class of interests and the repurchase of a defective
mortgage loan), the disposition of any mortgage loan; (ii) the receipt of income
attributable to any asset that is not the type of mortgage loan or other
investment that the REMIC is permitted to hold; (iii) the receipt of
compensation for services; or (iv) the receipt of gain from disposition of
temporary investments between Payment Dates other than pursuant to a qualified
liquidation. In addition, a 100% tax is imposed on the amount of any
contribution of property made to the REMIC after its initial formation
(excluding certain specified contributions such as cash payments in the nature
of guarantees). An additional tax at the highest corporate rate (currently 35%)
will be imposed on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period ending with the third calendar year after
the year in which the Trust Fund acquires the property, with a possible
extension. Net income from foreclosure property generally means gain from the
sale of a foreclosure property that is inventory property and income from
foreclosure property other than qualifying rents and other qualifying income for
a real estate investment trust.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
Residual Certificate, the Residual Certificateholder will recognize gain or loss
equal to the excess, if any, of the amount realized over the adjusted basis (as
described above under "-- Losses") the REMIC Residual Certificate at the time of
the sale or exchange. In addition, a cash distribution to a Residual
Certificateholder from the REMIC is treated as gain from the sale or exchange of
the Residual Certificate to the extent that the amount of the distribution
exceeds such adjusted basis. For corporate taxpayers, there is no preferential
rate afforded to long-term capital gains. For individual taxpayers, long-term
capital gains generally are subject to a maximum rate of tax of 20% in the case
of capital assets held for more than one year. In addition, in certain
circumstances, if a Residual Certificate is transferred to a "Disqualified
Organization" (as defined below), a tax will be imposed on the transferor. See
"Residual Certificates Transferred to or Held by Disqualified Organizations."
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person is disregarded for all federal tax purposes unless no
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate is treated as constituting a noneconomic residual
interest for this purpose unless, at the time of the transfer, (i) the present
value of the expected future distributions on the Residual Certificate is no
less than the product of the present value of the "anticipated excess
inclusions" with respect to the Residual Certificate and the highest rate
applicable to domestic corporations for the year in which the transfer occurs
and (ii) the transferor reasonably expects that the transferee will receive
distributions from the REMIC in an amount sufficient to satisfy the income tax
liability on any "excess inclusions" at or after the time the liability accrues.
The anticipated excess inclusions are the excess inclusions that are anticipated
to accrue to each calendar quarter, or portion thereof, following the transfer
of the Residual Certificate, determined as of the date the Residual Certificate
is transferred and based on events that have occurred up to the time of the
transfer and on the Prepayment Assumption and any required or permitted clean up
calls or required liquidation. See "Taxation of REMIC Certificates -- Original
Issue Discount" and "Limitations on Offset or Exemption of REMIC Income."
A significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
(had "improper knowledge") that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. Under the REMIC
Regulations, a transferor is presumed not to have improper knowledge if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and, as a result of the
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investigation, the transferor found that the transferee had historically paid
its debts as they came due and found no significant evidence to indicate that
the transferee will not continue to pay its debts as they come due in the
future; and (ii) the transferee represents to the transferor that it understands
that, as the holder of the noneconomic residual interest, the transferee may
incur tax liabilities in excess of any cash flows generated by the interest and
that the transferee intends to pay taxes associated with holding the residual
interest as they become due.
Under the REMIC Regulations, a transfer of a Residual Certificate that has
"tax avoidance potential" to a person who is not a U.S. Person is disregarded
for all federal tax purposes. For this purpose a Residual Certificate has tax
avoidance potential unless at the time of the transfer the transferor reasonably
expects that, for each excess inclusion, the REMIC will distribute to the
transferee Residual Certificateholder an amount that will equal at least thirty
percent of the excess inclusion, and that each such amount will be distributed
at or after the time at which the excess inclusion accrues and not later than
the close of the calendar year following the calendar year of accrual. The REMIC
Regulations provide that a transferor has a reasonable expectation if the thirty
percent test would be satisfied were the REMIC's qualified mortgages to prepay
at each rate within a range of rates from fifty percent to two hundred percent
of the rate assumed under section 1272(a)(6) of the Code with respect to the
qualified mortgages (or the rate that would have been assumed had the mortgages
been issued with original issue discount). A transfer of a Residual Certificate
to a person who is not a U.S. Person, however, is not disregarded if income from
the Residual Certificate is subject to tax under section 871(b) or section 882
of the Code in the hands of the transferee. Moreover, if a person who is not a
U.S. Person transfers a Residual Certificate to a U.S. Person, and if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions, then the transfer is disregarded and the transferor continues
to be treated as the owner of the Residual Certificate for purposes of sections
871(a), 881, 1441 and 1442 of the Code. As used herein, a "U.S. PERSON" is a
citizen or resident of the United States, a corporation or partnership (except
to the extent provided in applicable Treasury regulations) organized in or under
the laws of the United States or any political subdivision thereof, or an estate
the income of which is includible in gross income for U.S. tax purposes
regardless of its source, or a trust if a court within the United States is able
to exercise primary supervision over the administration of such trust and one or
more such U.S. Persons have the authority to control all substantial decisions
of such trust (or, to the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996 which are eligible to elect to be
treated as U.S. Persons). See "Limitations on Offset or Exemption of REMIC
Income" and "Other Matters Relating to REMIC Certificates -- Taxation of Certain
Foreign Investors -- Residual Certificates."
Except as provided in Treasury regulations that have not yet been issued,
the wash sale rules of section 1091 of the Code will apply to the disposition of
a Residual Certificate where, during the period beginning six months before the
sale or disposition of the REMIC Residual Certificate and ending six months
after the sale or disposition, the seller of the Residual Certificate acquires
(or enters into any other transaction that results in the application of section
1091) any residual interest in any REMIC or any interest in a "taxable mortgage
pool" (such as a non-REMIC owner trust) that is comparable to a Residual
Certificate. Application of these wash sale rules would result in the deferral
of recognition of any loss on the sale of the Residual Certificate.
RESIDUAL CERTIFICATES TRANSFERRED TO OR HELD BY DISQUALIFIED ORGANIZATIONS
Regardless of whether any gain or loss is recognized on the transfer of a
Residual Certificate, a tax is imposed on the transferor of a Residual
Certificate where the transfer is to certain specified entities generally
including governmental entities or any other entities that are exempt from U.S.
tax including the tax on unrelated business income (collectively, "DISQUALIFIED
ORGANIZATIONS"). If a transfer of a Residual Certificate to a Disqualified
Organization is made through an agent for the Disqualified Organization
(including a nominee, broker or middleman), then the tax is imposed on the
agent. The tax is imposed at the highest rate applicable to domestic
corporations (currently 35%) based on the present value of expected excess
inclusions (see "Limitations on Offset or Exemption of REMIC Income" above). The
REMIC Regulations provide that the anticipated excess inclusions must be
determined as of the date the Residual Certificate is transferred and must be
based on (i) events that have occurred up to the time of the transfer, (ii) the
Prepayment Assumption, and (iii) any required or permitted clean up calls, or
required qualified liquidation. In addition,
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the REMIC Regulations provide that the present value of the anticipated excess
inclusions is determined by discounting the anticipated excess inclusions from
the end of each remaining calendar quarter in which those excess inclusions are
expected to accrue to the date the Disqualified Organization acquires the
Residual Certificate. The discount rate to be used for this present value
computation is the applicable Federal rate as specified in section 1274(d)(1) of
the Code that would apply to a debt instrument that was issued on the date the
Disqualified Organization acquired the residual interest and whose term ended on
the close of the last quarter in which excess inclusions were expected to accrue
with respect to the Residual Certificate. The transferor is relieved of the tax
liability if it receives in good faith from the transferee (i) an affidavit
stating that the transferee is not a Disqualified Organization or (ii) the
transferee's social security number and an affidavit stating that the social
security number is that of the transferee. Because a requirement for
qualification as a REMIC is that reasonable efforts must be made to ensure that
Residual Certificates are not held by Disqualified Organizations, the ability of
a Residual Certificate to be transferred may be conditioned upon the Trustee's
receipt of an affidavit representing that the proposed transferee is not a
Disqualified Organization.
If a Residual Certificate is held by a "PASS-THROUGH ENTITY" (such as a
partnership, trust, real estate investment trust, regulated investment company,
or common trust fund), a tax is imposed at the highest rate applicable to
domestic corporations on the pass-through entity if a record holder of interest
in the entity is a Disqualified Organization. The tax would be imposed on the
portion of the excess inclusion income relating to the Residual Certificate
allocable to the Disqualified Organization interest holder. If a nominee holds
an interest in a pass-through entity for a Disqualified Organization, then the
tax is imposed on the nominee. Any tax imposed on a pass-through entity is
deductible against the gross amount of ordinary income of the pass-through
entity. No tax, however, will be imposed during any period if (i) the record
holder of an interest in the pass-through entity furnishes to the pass-through
entity an affidavit that the record holder is not a Disqualified Organization,
(ii) the record holder provides its social security number and an affidavit
stating that the social security number is that of the record holder, and (iii)
during such period, the pass-through entity does not have actual knowledge that
the affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a pass-through entity by section 860E(c) of the Code.
The exception to this tax, otherwise available to a pass-through entity that is
furnished certain affidavits as described above, is not available to an electing
large partnership.
MARK TO MARKET REGULATIONS
On December 24, 1996, the Internal Revenue Service (the "IRS") issued final
regulations (the "MARK TO MARKET REGULATIONS") under section 475 of the Code
relating to the requirement that a securities dealer mark to market securities
held for sale to customers. This mark-to-market requirement applies to all
securities of a dealer, except to the extent that the dealer has specifically
identified a security as held for investment. The Mark to Market Regulations
provide that, for purposes of this mark-to-market requirement, a Residual
Certificate is not treated as a security and thus may not be marked to market.
The Mark to Market Regulations apply to all Residual Certificates acquired on or
after January 4, 1995.
OTHER MATTERS RELATING TO REMIC CERTIFICATES
Liquidation of the REMIC. If a REMIC adopts a plan of complete
liquidation, and sells all of its assets (other than cash) within the 90-day
period beginning on the date of the adoption of the plan of liquidation, then
the REMIC will not be subject to an entity-level tax on the sale of its assets,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than amounts retained to meet claims) to holders
of all REMIC Certificates within the 90-day period. It is unclear whether the
termination of the REMIC will be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, a Residual
Certificateholder would be entitled to recognize a gain (or loss) at that time
equal to the amount of the excess (or shortfall) of the cash or fair market
value of other property distributed in liquidation over the adjusted basis in
the Residual Certificate remaining upon termination of the REMIC. The amount of
such gain (or loss) may be treated as a capital gain (or loss) for certain
taxpayers, although not for financial institutions subject to the provisions of
section 582(c) of the Code.
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Reporting and Other Administrative Matters. For federal income tax
purposes, the REMIC must adopt a calendar year as its taxable year and must file
annual federal information and tax returns and other reports with the IRS and
furnish reports to Certificateholders as specified in temporary Treasury
regulations (the "TEMPORARY REGULATIONS") and Treasury regulations. Pursuant to
Treasury regulations, reports will be made annually to the IRS and to holders of
record that are not excepted from the reporting requirements regarding
information with respect to the interest paid or accrued on the Regular
Certificates, original issue discount, if any, accrued on the Regular
Certificates, the portion of the Regular Certificates (and income therefrom)
that is eligible for each special tax status described above, and certain
information necessary to compute the accrual of any market discount or the
amortization of any premium on the Regular Certificates. Quarterly reports will
be made to the holders of Residual Certificates with regard to REMIC taxable
income, excess inclusions and allocable investment expenses of the REMIC
required to be taken into account by the holder of the Residual Certificate.
These quarterly reports will be filed with the IRS on an annual basis. The
Temporary Regulations also provide that quarterly reports must be made of the
REMIC's investment expenses to holders of Regular Certificates where such
allocations are required. The REMIC also is subject to the procedural and
administrative rules of the Code applicable to partnerships including the
determination of any adjustments to, among other things, items of REMIC income
gain, loss, deduction or credit by the IRS in a unified administrative
proceeding. In this connection, a holder of a Residual Certificate may be
required to act as the "tax matters person" of the REMIC.
Certain Noncorporate Investors. Under section 67 of the Code, an
individual, estate or trust may deduct certain itemized deductions only to the
extent that the aggregate of these itemized deductions exceeds two percent of
the taxpayer's adjusted gross income. These itemized deductions include expenses
paid or incurred for the production or collection of income, or the management,
conservation or maintenance of property held for the production of income. In
the case of a REMIC, these deductions may include deductions for servicing
expenses with respect to the Mortgage Loans, compensation paid to the Servicer
of a series of Certificates, or other administrative expenses, if any, of the
REMIC. In the case of a REMIC that is similar to a traditional single-class
mortgage pass-through arrangement (including a pass-through arrangement with
senior and subordinated interests), a pro rata portion of the expenses that are
deductible under section 212 of the Code would be allocated among all of the
holders of interests in the REMIC and would be taken into account by holders who
are individuals, estates or trusts (where interests are held either directly or
indirectly through certain pass-through entities) as a "gross-up" to income,
against which deductions for those expenses would be available subject to the
limitations of section 67 of the Code. Nevertheless, for other REMICs, these
deductions would be allocated only to holders of the Residual Certificates.
Taxation of Certain Foreign Investors -- Regular Certificates. For
purposes of this discussion, a "FOREIGN HOLDER" is a Certificateholder who holds
a REMIC Certificate and who is not (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate or trust the
income of which is includible in gross income for U.S. tax purposes regardless
of its source or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States Persons have the authority to control all substantial
decisions of such trust (or, to the extent provided in applicable Treasury
regulations, certain trusts in existence on August 20, 1996 which are eligible
to elect to be treated as U.S. Persons). A Foreign Holder that is not subject to
federal income tax as a result of any direct or indirect connection with the
United States in addition to its ownership of a Regular Certificate will not be
subject to federal income tax on interest (or original issue discount, if any)
on a Regular Certificate (subject to possible backup withholding of tax,
discussed below), provided the Foreign Holder does not own actually or
constructively a 10% or greater interest in the Residual Certificates. To
qualify for this tax exemption, the Foreign Holder will be required to provide a
statement signed under penalties of perjury certifying that the Foreign Holder
meets the requirements for treatment as a Foreign Holder and providing the
Foreign Holder's name and address. The statement, which may be made on an IRS
Form W-8 or substantially similar substitute form, generally must be provided in
the year a payment occurs or in either of the two preceding years.
Any gain recognized by a Foreign Holder upon a sale, retirement, or other
taxable disposition of a Regular Certificate generally will not be subject to
U.S. Federal income tax unless either (i) the Foreign
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Holder is a nonresident alien individual who holds the Regular Certificate as a
capital asset and who is present in the United States for 183 days or more in
the taxable year of the disposition or (ii) the gain is effectively connected
with the conduct by the Foreign Holder of a trade or business within the United
States.
It appears a Regular Certificate will not be includible in the estate of a
Foreign Holder and would not be subject to U.S. estate taxes.
The IRS recently issued final regulations (the "NEW REGULATIONS"), which
provide alternative methods of satisfying the beneficial ownership certification
requirement described above. The New Regulations are effective January 1, 2000,
although valid withholding certificates that are held on December 31, 1999,
remain valid until the earlier of December 31, 2000 or the due date of
expiration of the certificate under the rules as currently in effect. The New
Regulations will require, in the case of Regular Certificates held by a foreign
partnership, that (x) the certification described above be provided by the
partners rather than the foreign partnership and (y) the partnership provide
certain information including a United States taxpayer identification number. A
look-through rule will apply in the case of tiered partnerships. Foreign Holders
should consult their own tax advisors concerning the application of the
certification requirements in the New Regulations.
Taxation of Certain Foreign Investors -- Residual Certificates. Amounts
paid to Residual Certificateholders who are Foreign Holders are treated as
interest for purposes of the 30% U.S. withholding tax. The U.S. Department of
the Treasury has promulgated regulations that provide that interest payments to
the holder of a Residual Certificate is treated as having been paid with respect
to the obligations held by the REMIC for purposes of determining whether the
payments are eligible for the portfolio interest exemption. Such regulations do
not allow any payments representing the "excess inclusion" portion of the
REMIC's income to be eligible for the portfolio interest exemption. In addition,
a Residual Certificateholder will not be entitled to any exemption from the 30%
withholding tax or a reduced treaty rate to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion." See "Taxation of REMIC
Certificates -- Taxation of Residual Certificates -- Limitations on Offset or
Exemption of REMIC Income." If the amounts allocable to Residual
Certificateholders who are Foreign Holders are effectively connected with the
conduct of a trade or business within the United States by such Foreign Holders,
30% (or lower treaty rate) withholding will not apply. Instead, the amounts
allocable to such Foreign Holders will be subject to U.S. federal income tax at
regular graduated rates. If 30% (or lower treaty rate) withholding is
applicable, such amounts will be taken into account for purposes of withholding
only when paid or otherwise distributed (or when the REMIC Residual Certificate
is disposed of) under rules similar to those that govern withholding upon
disposition of debt instruments that have original issue discount. However, the
Code grants the U.S. Department of the Treasury authority to issue regulations
requiring that the amounts includible be taken into account earlier than
otherwise provided where necessary to prevent avoidance of tax. This latter rule
may apply where the Residual Certificates do not have significant value.
Backup Withholding. Under certain circumstances interest (and original
issue discount, if any), principal or proceeds of the sale of a Regular
Certificate may be subject to "backup withholding" of U.S. Federal income tax at
a 31% rate. Backup withholding does not apply to corporations and certain other
exempt recipients, which may be required to establish their exempt status.
Backup withholding generally applies if, among other circumstances, a non-exempt
Regular Certificateholder who is a U.S. Person fails to furnish its taxpayer
identification number or, when applicable, a Form 4224. Backup withholding
generally does not apply to a Foreign Holder if the Foreign Holder provides the
statement necessary to establish the exemption from federal income tax on
interest on the Regular Certificate. Special backup withholding rules may apply
when a payment is made through one or more financial institutions or by a
custodian, nominee, broker or other agent of the beneficial owner of a Regular
Certificate.
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
GENERAL
In the event that no election is made to treat a Trust (or a segregated
pool of assets therein) with respect to a Series of Certificates as a REMIC, in
the opinion of Cadwalader, Wickersham & Taft, the Trust will be classified as a
grantor trust under subpart E. Part 1 of subchapter J of the Code and not as an
association taxable as a corporation or a "taxable mortgage pool" within the
meaning of Code Section 7701(i). Where such Certificates are not designated as
"Stripped Certificates," the holder of each such Certificate in such Series will
be treated as the owner of a pro rata undivided interest in the ordinary income
and corpus portions of the Trust represented by its Certificate and will be
considered the beneficial owner of a pro rata undivided interest in each of the
Mortgage Loans, subject to the discussion below under "-- Recharacterization of
Servicing Fees." Accordingly, the holder of a Certificate of a particular Series
will be required to report on its federal income tax return its pro rata share
of the entire income from the Mortgage Loans represented by its Certificate,
including interest at the coupon rate on such Mortgage Loans, original issue
discount (if any), market discount (if any), prepayment fees, assumption fees,
and late payment charges received by the Servicer, in accordance with such
Certificateholder's method of accounting. A Certificateholder generally will be
able to deduct its share of the Servicing Fee and all administrative and other
expenses of the Trust in accordance with its method of accounting, provided that
such amounts are reasonable compensation for services rendered to that Trust.
However, investors who are individuals, estates or trusts who own Certificates,
either directly or indirectly through certain pass-through entities, will be
subject to limitations with respect to certain itemized deductions described in
Code Section 67, including deductions under Code Section 212 for the Servicing
Fee and all such administrative and other expenses of the Trust, to the extent
that such deductions, in the aggregate, do not exceed two percent of an
investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $ for 199 ($ in the case of a
married individual filing a separate return) (in each case, as adjusted for
inflation for each year thereafter), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. As a result, such investors
holding Certificates, directly or indirectly through a pass-through entity, may
have aggregate taxable income in excess of the aggregate amount of cash received
on such Certificates with respect to interest at the pass-through rate or as
discount income on such Certificates. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Moreover, where the servicing fees are in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "-- Stripped Certificates" and "-- Recharacterization of Servicing Fees,"
respectively.
TAX STATUS
In the opinion of Cadwalader, Wickersham & Taft, except as described below
with respect to Stripped Certificates:
1. A Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701(a)(19) will be considered to
represent "loans...secured by an interest in real property which
is...residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Certificate is of the type described in such
section of the Code.
2. A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust
consist of qualified assets, and interest income on such assets will be
considered "interest on obligations secured by mortgages on real property"
to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in
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real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
4. A Certificate owned by a "financial asset securitization investment
trust" within the meaning of Code Section 860L(c) will be considered to
represent "permitted assets" within the meaning of Code Section 860L(c) to
the extent that the assets of the Trust consist of "debt instruments" or
other permitted assets within the meaning of Code Section 860L(c).
An issue arises as to whether Buy-Down Mortgage Loans may be characterized
in their entirety under the Code provisions cited in clauses 1 and 2 of the
immediately preceding paragraph. There is indirect authority supporting
treatment of an investment in a Buy-Down Mortgage Loan as entirely secured by
real property if the fair market value of the real property securing the loan
exceeds the principal amount of the loan at the time of issuance or acquisition,
as the case may be. There is no assurance that the treatment described above is
proper. Accordingly, Certificateholders are urged to consult their own tax
advisors concerning the effects of such arrangements on the characterization of
such Certificateholder's investment for federal income tax purposes.
PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will
be determined generally as described above under "-- Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Method of Computing REMIC Taxable Income."
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgages in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions or, under certain circumstances,
by the presence of "teaser" rates on the Mortgage Loans. See "-- Stripped
Certificates" below regarding original issue discount on Stripped Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if the Mortgage Loans acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount
Certificateholders also will be subject to the market discount rules to the
extent that the conditions for application of those sections are met. Market
discount on the Mortgage Loans will be determined and will be reported as
ordinary income generally in the manner described above under "Federal Income
Tax Consequences for REMIC Certificates -- Regular Certificates -- Market
Discount," except that the ratable accrual methods described therein will not
apply. Rather, the holder will accrue market discount pro rata over
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the life of the Mortgage Loans, unless the constant yield method is elected.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual.
RECHARACTERIZATION OF SERVICING FEES
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither income
nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans, would be increased. Internal
Revenue Service guidance indicates that a servicing fee in excess of reasonable
compensation ("excess servicing") will cause the Mortgage Loans to be treated
under the "stripped bond" rules. Such guidance provides safe habors for
servicing fees deemed to be reasonable and requires taxpayers to demonstrate
that the value of servicing fees in excess of such amounts is not greater than
the value of the services provided.
If the Internal Revenue Service's approach is upheld, a Servicer who
receives a servicing fee in excess of such amounts would be viewed as retaining
an ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from the
right to receive some or all of the principal payments on the obligation would
result in treatment of such Mortgage Loans as "stripped coupons" and "stripped
bonds." Subject to the de minimis rule discussed below under "-- Stripped
Certificates," each stripped bond or stripped coupon could be considered for
this purpose as a non-interest bearing obligation issued on the date of issue of
the Certificates, and the original issue discount rules of the Code would apply
to the holder thereof. While Certificateholders would still be treated as owners
of beneficial interests in a grantor trust for federal income tax purposes, the
corpus of such trust could be viewed as excluding the portion of the Mortgage
Loans the ownership of which is attributed to the Servicer, or as including such
portion as a second class of equitable interest. Applicable Treasury regulations
treat such an arrangement as a fixed investment trust, since the multiple
classes of trust interests should be treated as merely facilitating direct
investments in the trust assets and the existence of multiple classes of
ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Certificateholder, except that the income
reported by a cash method holder may be slightly accelerated. See "Stripped
Certificates" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its aggregate adjusted basis in the Mortgage Loans and other assets represented
by the Certificate. In general, the aggregate adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased by the
amount of any losses previously reported with respect to the Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss generally would be capital gain or loss if the Certificate was
held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. Capital gains of certain noncorporate taxpayers generally
are subject to a
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lower maximum tax rate (20%) than ordinary income of such taxpayers (39.6%) for
property held for more than one year. The maximum tax rate for corporations is
the same with respect to both ordinary income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "STRIPPED
CERTIFICATES." The Certificates will be subject to those rules if (i) the
Depositors or any of their affiliates retain (for its own account or for
purposes of resale) an ownership interest in a portion of the payments on the
Mortgage Loans, (ii) the Depositors or any of their affiliates are treated as
having an ownership interest in the Mortgage Loans to the extent it is paid (or
retains) servicing compensation in an amount greater than reasonable
consideration for servicing the Mortgage Loans (see "-- Recharacterization of
Servicing Fees" above), and (iii) Certificates are issued in two or more Classes
representing the right to non-pro rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"-- Recharacterization of Servicing Fees." Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will be
allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class of Stripped Certificates for the
related period or periods. The holder of a Stripped Certificate generally will
be entitled to a deduction each year in respect of the servicing fees, as
described above under "-- General," subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped Certificates
for federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable rate Mortgage Loans, in the opinion of
Cadwalader, Wickersham & Taft, (i) the Trust will be treated as a grantor trust
under subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of Code
Section 7701(i), and (ii) each Stripped Certificate should be treated as a
single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. Although it is possible that computations with respect to
Stripped Certificates could be made in one of the ways described below under
"-- Taxation of Stripped Certificates -- Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more debt
instruments issued by a single issuers to a single investor in a single
transaction should be treated as a single debt instrument. Accordingly, for
original issue discount purposes, all payments on any Stripped Certificates
should be aggregated and treated as though they were made on a single debt
instrument. The Pooling and Servicing Agreement will require that the Trustee
make and report all computations described below using this aggregate approach,
unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or presumably, at a premium. This treatment
indicates that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations, assuming it is
not an interest-only or super-premium Stripped
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Certificate. Further, these final regulations provide that the purchaser of such
a Stripped Certificate will be required to account for any discount as market
discount rather than original issue discount if either (i) the initial discount
with respect to the Stripped Certificate was treated as zero under the de
minimis rule, or (ii) no more than 100 basis points in excess of reasonable
servicing is stripped off the related Mortgage Loans. Any such market discount
would be reportable as described above under "Federal Income Tax Consequences
for REMIC Certificates -- Taxation of Regular Certificates -- Market Discount,"
without regard to the de minimis rule therein, assuming that a prepayment
assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, in the opinion
of Cadwalader, Wickersham & Taft, Stripped Certificates owned by applicable
holders should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(4)(A), "obligation[s]...principally secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v)
and "permitted assets" within the meaning of Code Section 860L(c), and interest
(including original issue discount) income attributable to Stripped Certificates
should be considered to represent "interest on obligations secured by mortgages
on real property" within the meaning of Code Section 856(c)(3)(B), provided that
in each case the Mortgage Loans and interest on such Mortgage Loans qualify for
such treatment. The application of such Code provisions to Buy-Down Mortgage
Loans is uncertain. See "-- Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "-- General,"
each Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the income
of a holder of a Stripped Certificate (referred to in this discussion as a
"STRIPPED CERTIFICATEHOLDER") in any taxable year likely will be computed
generally as described above under "-- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Original Issue Discount."
However, with the apparent exception of a Stripped Certificate qualifying as a
market discount obligation as described above under "-- General," the issue
price of a Stripped Certificate will be the purchase price paid by each holder
thereof, and the stated redemption price at maturity will include the aggregate
amount of the payments to be made on the Stripped Certificate to such Stripped
Certificateholder, presumably under the Prepayment Assumption, other than
qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Certificate to recognize a loss (which may be a capital loss) equal to
such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as the
Stripped Certificates. However, if final regulations dealing with contingent
interest with respect to the Stripped Certificates apply the same principles as
the OID Regulations, such regulations may lead to different timing of income
inclusion than would be the case under the OID
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Regulations for non-contingent debt instruments. Furthermore, application of
such principles could lead to the characterization of gain on the sale of
contingent interest Stripped Certificates as ordinary income. Investors should
consult their tax advisors regarding the appropriate tax treatment of Stripped
Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "-- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Sale or Exchange of Regular
Certificates." To the extent that a subsequent purchaser's purchase price is
exceeded by the remaining payments on the Stripped Certificates, such subsequent
purchaser will be required for federal income tax purposes to accrue and report
such excess as if it were original issue discount in the manner described above.
It is not clear for this purpose whether the assumed prepayment rate that is to
be used in the case of a Stripped Certificateholder other than an original
Stripped Certificateholder should be the Prepayment Assumption or a new rate
based on the circumstances at the date of the subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing the
Stripped Certificate's pro rata share of payments of principal and/or interest
to be made with respect thereto. Alternatively, the holder of one or more
Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for aggregating
stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Servicer will furnish, within a reasonable time after the end of each
calendar year, to each Certificateholder or Stripped Certificateholder at any
time during such year such information (prepared on the basis described above)
as is necessary to enable such Certificateholders to prepare their federal
income tax returns. Such information will include the amount of original issue
discount accrued on Certificates held by persons other than Certificateholders
exempted from the reporting requirements. The amount required to be reported by
the Servicer may not be equal to the proper amount of original issue discount
required to be reported as taxable income by a Certificateholder, other than an
original Certificateholder that purchased at the issue price. In particular, in
the case of Stripped Certificates, unless provided otherwise in the applicable
Prospectus Supplement, such reporting will be based upon a representative
initial offering price of each Class of Stripped Certificates. The Servicer will
also file such original issue discount information with the Internal Revenue
Service. If a Certificateholder fails to supply an accurate taxpayer
indentification number or if the Secretary of the Treasury determines that a
Certificateholder has not reported all interest and dividend income
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required to be shown on his federal income tax return, 31% backup withholding
may be required in respect of any reportable payments, as described above under
"-- Federal Income Tax Consequences for REMIC Certificates -- Other Matters
Relating to REMIC Certificates -- Backup Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
Non-U.S. Persons generally will be subject to 30% United States withholding tax
or such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Certificateholder on the sale
or exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under
"-- Federal Income Tax Consequences for REMIC Certificates -- Other Matters
Relating to REMIC Certificates -- Taxation of Certain Foreign Investors --
Regular Certificates."
CERTAIN STATE TAX CONSEQUENCES
Each holder of a Certificate may be liable for state and local income taxes
payable in the state or locality in which it is a resident or conducts or is
deemed to conduct business and where an election is not made to treat the Trust
as a REMIC, a holder of a Certificate representing an ownership interest in the
related Trust may also be liable for such taxes in any state or locality in
which the Trust conducts or is deemed to conduct business. The income tax laws
of each state and locality may differ from the above discussion of federal
income tax laws so each prospective purchaser of a Certificate should consult
its own tax counsel with respect to potential state and local income taxes
payable as a result of its purchase of a Certificate.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested, that are
subject to Title I of ERISA and Section 4975 of the Code ("PLANS") and on
persons who are fiduciaries with respect to such Plans in connection with the
investment of Plan assets. Certain employee benefit plans such as governmental
plans (as defined in ERISA Section 3(32)), 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 Certificates without regard to the ERISA considerations
described below, subject to the provisions of other applicable federal, state
and local law. Any such 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.
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. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("PARTIES IN INTEREST") who
have certain specified relationships to the Plan unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth in
Sections 406 and 407 of ERISA and Section 4975 of the Code.
A Plan's investment in Certificates may cause the Mortgage Loans and other
assets included in a related Trust to be deemed Plan assets. Section 2510.3-101
of the regulations of the United States Department of Labor ("DOL") provides
that when a Plan acquires an equity interest in an entity, the Plan's assets
include
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both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable here apply, or
unless the equity participation in the entity by "benefit plan investors" (i.e.,
Plans and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a Trust will be significant on
any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Loans and other assets included in a Trust constitute Plan
assets, then any party exercising management or discretionary control regarding
those assets, such as the Servicer, may be deemed to be a Plan "fiduciary" and
thus subject to the fiduciary responsibility provisions and prohibited
transaction provisions of ERISA and the Code with respect to the investing Plan.
In addition, if the Mortgage Loans and other assets included in a Trust
constitute Plan assets, the purchase of Certificates by a Plan, as well as the
operation of the Trust, may constitute or involve a prohibited transaction under
ERISA and the Code.
The DOL has granted to NationsBank Corporation ("NATIONSBANK"), the
predecessor to BankAmerica Corporation, the corporate parent of NationsBanc
Montgomery Securities LLC, an administrative exemption, Prohibited Transaction
Exemption 93-31; Exemption Application No. D-9105 (the "EXEMPTION"), on May 14,
1993 which generally exempts from the application of the prohibited transaction
provisions of Sections 406(a) and 407 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 purchase, sale and holding of Certificates underwritten
by an Underwriter (as hereinafter defined), that (a) represent a beneficial
ownership interest in the assets of a Trust and entitle the holder the
pass-through payments of principal, interest and/or other payments made with
respect to the assets of the Trust or (b) are denominated as a debt instrument
and represent an interest in a REMIC, provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations," the term "UNDERWRITER" shall include (a) NationsBank, (b) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with NationsBank, including NationsBank,
Inc., 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 Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of 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
Exemption only applies to Certificates evidencing rights and interests not
subordinated to the rights and interests evidenced by the other Certificates of
the same series. Third, the Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by [Rating
Agency] [Rating Agency], [Rating Agency] or [Rating Agency]. Fourth, the Trustee
cannot be an affiliate of any member of the "RESTRICTED GROUP" which consists of
the Underwriter, the Depositors, the Trustee, the Servicer, any insurer and any
obligor with respect to Mortgage Loans constituting more than 5% of the
aggregate unamortized principal balance of the Mortgage Loans in the related
Trust 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 Depositors pursuant to the assignment of
the Mortgage Loans to the related Trust 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 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. In addition, the Trust must meet the
following requirements: (i) the assets of the Trust must consist solely of
assets of the type that have been included in other investment pools; (ii)
securities evidencing interests in such other investment pools must have been
rated in one of the three
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highest generic rating categories by Moody's, S&P, DCR or Fitch for at least one
year prior to the Plan's acquisition of the securities; and (iii) securities
evidencing interests in such other investment pools must have been purchased by
investors other than Plans for at least one year prior to any Plan's acquisition
of the Certificates.
A fiduciary of a Plan contemplating purchasing a Certificate must make its
own determination that the general conditions set forth above will be satisfied
with respect to such Certificate. However, to the extent Certificates are
subordinate, the Exemption will not apply to an investment by a Plan.
If the general conditions of the Exemption are satisfied, the Exemption 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(e)(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 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
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 Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the 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 Depositors 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)
an obligor 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 Certificates by a Plan and
(3) the holding of Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption 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 Trust. The
Depositors expect that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Certificates so that the
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 Mortgage
Pools, provided that the general conditions of the Exemption are satisfied.
The Exemption 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.
Prohibited Transaction Class Exemption 83-1 for Certain Transactions
Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisitions and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in such mortgage pools, and whether or not such transactions would otherwise be
prohibited under ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool
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sponsor." It appears that, for purposes of PTE 83-1, the term "mortgage pool
pass-through certificate" would include Certificates issued in a single Class or
in multiple Classes that evidence the beneficial ownership of both a specified
percentage of future interest payments (after permitted deductions) and a
specified percentage of future principal payment on a Trust.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of a
specified percentage of future interest payments (after permitted deductions) on
a Trust or only of a specified percentage of future principal payments on a
Trust, (b) Residual Certificates, (c) Certificates evidencing ownership
interests in a Trust which includes Mortgage Loans secured by multifamily
residential properties or shares issued by cooperative housing corporations, or
(d) Certificates which are subordinated to other Classes of Certificates of such
Series. Accordingly, unless exemptive relief other than PTE 83-1 applies, Plans
should not purchase any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans or the property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(ii) the existence of a pool trustee who is not an affiliate of the pool
sponsor, and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor exemption),
the DOL did not have under its consideration interest in pools of the exact
nature as some of the Certificates described herein.
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860B.
Furthermore, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "DISQUALIFIED
ORGANIZATION," which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 such as certain governmental plans, as discussed
above under the caption "Certain Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates -- Residual Certificates
Transferred to or Held by Disqualified Organizations".
The sale of Certificates to a Plan is in no respect a representation by the
Depositors or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
Any Plan fiduciary or other investor considering whether to purchase any
Certificates on behalf of or with "plan assets" of any Plan should consult with
its counsel and refer to the applicable Prospectus Supplement for guidance
regarding the ERISA considerations applicable to the Certificates offered
thereby.
LEGAL INVESTMENT
The applicable Prospectus Supplement will specify whether the Class or
Classes of Certificates offered will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"). If your investment authority is subject to legal restrictions
you should consult your own legal advisors to determine whether and to what
extent such Certificates constitute a legal investment for you.
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USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from each sale of the
Series of Certificates will be received, directly or indirectly, by the
Depositors. In the aggregate, the Originators will contribute or otherwise
transfer the related Mortgage Loans to the Depositors in return for cash, stock
or other property as specified in the related Prospectus Supplement.
PLAN OF DISTRIBUTION
The Certificates offered hereby and by the Supplements to this Prospectus
will be offered in Series. The distribution of the Certificates may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by NationsBanc Montgomery Securities
LLC ("NATIONSBANC MONTGOMERY") acting as underwriter with other underwriters, if
any, named therein. In such event, the Prospectus Supplement may also specify
that the underwriters will not be obligated to pay for any Certificates agreed
to be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositors. In connection with the sale of the Certificates, underwriters may
receive compensation from the Depositors or from purchasers of the Certificates
in the form of discounts, concessions or commissions. The Prospectus Supplement
will describe any such compensation paid by the Depositors.
Alternatively, the Prospectus Supplement may specify that the Certificates
will be distributed by NationsBanc Montgomery acting as agent or in some cases
as principal with respect to Certificates which it has previously purchased or
agreed to purchase. If NationsBanc Montgomery acts as agent in the sale of
Certificates, NationsBanc Montgomery will receive a selling commission with
respect to each series of Certificates, depending on market conditions,
expressed as a percentage of the aggregate principal balance of the related
Mortgage Loans as of the Cut-off Date. The exact percentage for each series of
Certificates will be disclosed in the related Prospectus Supplement. To the
extent that NationsBanc Montgomery elects to purchase Certificates as principal,
NationsBanc Montgomery may realize losses or profits based upon the difference
between its purchase price and the sales price. The Prospectus Supplement with
respect to any series offered other than through underwriters will contain
information regarding the nature of such offering and any agreements to be
entered into between the Depositors and purchasers of Certificates of such
series.
NationsBanc Montgomery is an affiliate of the Depositors. This Prospectus
may be used by NationsBanc Montgomery, to the extent required, in connection
with market making transactions in the Certificates. NationsBanc Montgomery may
act as principal or agent in such transactions.
The Depositors will indemnify NationsBanc Montgomery and any underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments NationsBanc Montgomery and any
underwriters may be required to make in respect thereof.
In the ordinary course of business, NationsBanc Montgomery and the
Depositors may engage in various securities and financing transactions,
including repurchase agreements to provide interim financing of the Depositors'
mortgage loans pending the sale of such mortgage loans or interests therein,
including the Certificates.
The Depositors anticipate that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, 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 Certificates, Holders of Certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
As to each Series of Certificates, only those Classes rated in one of the
four highest rating categories by any Rating Agency will be offered hereby. Any
unrated Class may be initially retained by the Depositors, and may be sold by
the Depositors at any time to one or more institutional investors.
90
<PAGE> 152
RATINGS
Each Class of Offered Certificates of a Series will be rated at their
initial issuance in one of the four highest categories by at least one Rating
Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and other asset backed securities do not represent any assessment
of the likelihood of principal prepayments by borrowers or of the degree by
which such prepayments might differ from those originally anticipated. As a
result, certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might fail
to recoup their initial investments.
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
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to a
Certificate upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. In general, ratings address credit risk and do
not represent any assessment of the likelihood or rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositors and EquiCredit by Cadwalader, Wickersham & Taft, New York, New
York and Charlotte, North Carolina or Hunton & Williams, Charlotte, North
Carolina. Certain federal income tax matters will be passed upon for the
Depositors by Cadwalader, Wickersham & Taft, New York, New York and Charlotte,
North Carolina or Hunton & Williams, Charlotte, North Carolina.
WHERE YOU CAN FIND MORE INFORMATION
The Depositors filed a registration statement (the "REGISTRATION
STATEMENT") relating to the Certificates with the ("SEC" or the "COMMISSION").
This Prospectus is part of the Registration Statement, but the Registration
Statement includes additional information.
Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The Commission also maintains a site on the World
Wide Web at "http://www.sec.gov" at which you can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. The Depositors have filed the Registration Statement,
including all exhibits, through the EDGAR system and therefore such materials
should be available by logging onto the Commission's Web site. The Commission
maintains computer terminals providing access to the EDGAR system at each of the
offices referred to above. Copies of any documents incorporated to this
Prospectus by reference will be provided to each person to whom a Prospectus is
delivered upon written or oral request directed to EQCC Receivable Corporation
and EQCC Asset Backed Corporation, 10401 Deerwood Park Blvd., Jacksonville,
Florida 32256, telephone number (904) 987-5000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Depositors to "incorporate by reference" information it
files with the SEC, which means that the Depositors can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus.
Information that the Depositors file later with the SEC will automatically
update the information in this Prospectus. In all cases, you should rely on the
later information rather than on any different information included in this
Prospectus or the accompanying Prospectus Supplement. The Depositors incorporate
by reference any future annual,
91
<PAGE> 153
monthly and special SEC reports filed by or on behalf of the Trust until the
termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document
the Depositors incorporate by reference, except exhibits to the documents
(unless the exhibits are specifically incorporated by reference) at no cost, by
writing or calling the Treasurer at EQCC Receivable Corporation and EQCC Asset
Backed Corporation, 10401 Deerwood Park Blvd., Jacksonville, Florida 32256,
telephone number (904) 987-5000.
92
<PAGE> 154
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Accrual Period..................... 32
Accrual Certificates............... 32
Actuarial Mortgage Loan............ 15
Adjustable Rate Mortgages.......... 14
Advance............................ 41
ARMs............................... 14
Asset Conservation Act............. 67
Available Payment Amount........... 42
Bankruptcy Code.................... 62
Bankruptcy Commission.............. 63
Bankruptcy Mortgage Loan........... 15
Bankruptcy Plan.................... 15
Balloon Loans...................... 13
Basic Principal Amount............. 33
Book-Entry Certificates............ 32
Buydown Mortgage Loans............. 19
Buydown Period..................... 19
Capitalized Interest Account....... 44
Cash Collateral Account............ 47
Cash Collateral Lender............. 47
Cash Flow Agreement................ 44
Cede............................... 32
CEDEL.............................. 54
CEDEL Participants................. 54
CERCLA............................. 66
Certificateholders................. 20
Certificates....................... 5
Class.............................. 6
Cleanup Costs...................... 66
Closing Date....................... 5
Code............................... 68
Collection Account................. 42
Combined Loan-to-Value Ratio....... 15
Commission......................... 92
Company............................ 22
Companion Class.................... 34
Component.......................... 33
contract borrower.................. 57
Contract Lender.................... 57
Cooperative........................ 56
Cooperative Loans.................. 56
Credit Bureau Risk Scores.......... 25
Credit Grade Matrix................ 26
Credit Provider.................... 45
Crime Control Act.................. 68
Curtailments....................... 32
Custodian.......................... 37
Cut-off Date....................... 5
Debt-to-Income Ratio............... 27
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Definitive Certificates............ 55
Depositaries....................... 55
Depositors......................... 5
Determination Date................. 5
Disqualified Organization.......... 77
DOL................................ 87
DTC................................ 32
DTC Participants................... 53
due-on-sale........................ 64
Due Period......................... 32
EDGAR.............................. 92
Eligible Account................... 39
ERISA.............................. 87
EquiCredit......................... 22
EquiCredit Corporation............. 22
Euroclear.......................... 54
Euroclear Cooperative.............. 54
Euroclear Operator................. 54
Euroclear Participants............. 54
Excess Spread...................... 40
Excluded Plan...................... 89
Exemption.......................... 88
Fair, Isaac........................ 25
FASIT.............................. 68
FHLBB.............................. 64
FHLMC.............................. 11
Fixed Monthly Debt................. 27
FNMA............................... 11
Foreign Holder..................... 79
Garn Act........................... 64
Gross Margin....................... 15
holders............................ 32
Illinois Land Trust................ 36
Index.............................. 15
Indirect DTC Participants.......... 53
Insolvency Laws.................... 22
Insurance Proceeds................. 33
Insurer............................ 46
IRA................................ 78
IRS................................ 78
Issuer............................. 5
land sale contract................. 57
Land Sale Contracts................ 14
Letter of Credit................... 46
Letter of Credit Issuer............ 46
Liquidated Mortgage Loan........... 33
Liquidation Proceeds............... 33
Majority in Aggregate Voting
Interest......................... 51
Mark to Market Regulations......... 78
market discount.................... 72
</TABLE>
93
<PAGE> 155
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Maximum Mortgage Rate.............. 16
MERS............................... 36
Minimum Mortgage Rate.............. 16
Monthly Deposit Date............... 40
Monthly Payments................... 32
Monthly Period..................... 40
Mortgage........................... 14
Mortgages.......................... 12
Mortgage File...................... 36
Mortgage Interest Rate............. 14
Mortgage Loans..................... 6
Mortgage Loan Losses............... 52
Mortgage Loan Schedule............. 36
Mortgage Pool...................... 6
Mortgaged Property................. 14
Mortgagor.......................... 11
NationsBanc Montgomery............. 91
NationsBank........................ 88
Net Liquidation Proceeds........... 33
New Regulations.................... 80
NIV Program........................ 24
Nonrecoverable Advances............ 41
Non-U.S. Persons................... 76
Offered Certificate................ 8
OID Regulations.................... 71
Original Pool Principal Balance.... 14
Originator......................... 5
OSCC-Florida....................... 22
OTS................................ 64
Owners............................. 53
PAC................................ 34
PAC I.............................. 34
PAC II............................. 34
Parties in Interest................ 87
pass-through entity................ 78
Pass-Through Rate.................. 31
Payment Cap........................ 16
Payment Date....................... 5
PCBs............................... 65
Percentage Interest................ 31
Periodic Cap....................... 16
Permitted Instruments.............. 39
Plans.............................. 87
Pooling and Servicing Agreement.... 22
Pool Insurance Policy.............. 46
Pool Insurer....................... 46
Pool Principal Balance............. 45
Prefunding Account................. 43
Prefunding Amount.................. 43
Prefunding Period.................. 43
Prepayment Assumption.............. 70
Prepayment Period.................. 32
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Prepayment Premium................. 16
Primary Servicing Portfolio........ 30
Principal and Interest Account..... 39
Principal Prepayments.............. 32
Prospectus......................... 5
Prospectus Supplement.............. 5
PTE 83-1........................... 89
Qualified Substitute Mortgage
Loan............................. 37
Rating Agency...................... 8
RCRA............................... 66
Record Date........................ 5
Registration Statement............. 92
Regular Certificates............... 68
Released Mortgaged Property
Proceeds......................... 33
Relief Act......................... 67
REMIC.............................. 8
REMICs............................. 68
REMIC Certificates................. 68
REMIC Pool......................... 68
REMIC Regulations.................. 69
REO Properties..................... 20
Representative..................... 5
Representative's Yield............. 41
Reserve Fund....................... 47
Residual Certificateholders........ 74
Residual Certificates.............. 68
Restricted Group................... 88
Revolving Credit Line Loans........ 17
RICO............................... 68
SBJPA of 1996...................... 69
SEC................................ 92
Securities Insurance Policy........ 46
Senior Liens....................... 12
Senior Certificates................ 47
Series............................. 5
Servicer........................... 5
Servicer Termination Event......... 51
Servicing Advances................. 41
Servicing Fee...................... 48
Similar Law........................ 8
SMMEA.............................. 90
Special Hazard Policy.............. 46
Special Payment Amount............. 42
Special Payment Date............... 21
Special Payments................... 21
Special Record Date................ 42
Spread Account..................... 47
standard hazard insurance.......... 49
Stripped Certificates.............. 84
Stripped Certificateholder......... 85
Stripped REMIC Certificates........ 71
Subordinated Certificates.......... 47
</TABLE>
94
<PAGE> 156
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Subsequent Mortgage Loans.......... 43
Substitution Adjustment............ 37
Successor Servicer................. 52
Superliens......................... 66
TAC................................ 35
Tax Counsel........................ 68
Temporary Regulations.............. 79
Terms and Conditions............... 55
Texas Home Equity Loans............ 13
Tiered REMICs...................... 69
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
TILA Amendment..................... 64
Title V............................ 65
Transfer Agreement................. 35
Trust.............................. 5
Trustee............................ 22
Underwriter........................ 88
U.S. Person........................ 77
UST................................ 66
weighted average life.............. 19
</TABLE>
95
<PAGE> 157
EQCC HOME EQUITY LOAN TRUST 199
ISSUER
EQCC RECEIVABLES CORPORATION
EQCC ASSET BACKED CORPORATION
DEPOSITORS
EQUICREDIT CORPORATION
OF AMERICA
AS SERVICER
A SUBSIDIARY OF
BANKAMERICA CORPORATION
$
(APPROXIMATE)
[EQCC HOME EQUITY LOAN ASSET BACKED CERTIFICATES]
[EQUICREDIT FUNDING ASSET BACKED CERTIFICATES],
SERIES 199
CLASS A CERTIFICATES
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
[OTHER UNDERWRITERS]
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and
the accompanying Prospectus. No one has been authorized to
provide you with different information.
The offered Certificates are not being offered in any state
where the offer is not permitted.
The Depositors 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 respective
covers.
Dealers will deliver a Prospectus Supplement and Prospectus
when acting as underwriters of the offered Certificates and
with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the offered Certificates will
deliver a Prospectus Supplement and Prospectus until ninety
days following the date of this Prospectus Supplement.
, 199
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses expected to be incurred by EQCC Asset
Backed Corporation and EQCC Receivables Corporation (collectively, the
"REGISTRANTS") in connection with the issuance and distribution of the
securities being registered other than underwriting discounts and commissions
and costs represented by the salaries and wages of regular employees and
officers of the Registrants. All such expenses, other than the Filing Fee, are
estimated expenses.
<TABLE>
<S> <C>
Filing Fee for Registration Statement....................... $ 278
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Trustees' Fees and Expenses (including counsel fees)........ *
Printing and Engraving Fees................................. *
Rating Agency Fees.......................................... *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Pooling and Servicing Agreement to be entered into with respect to any
of the trusts to be formed among the Registrants, EquiCredit as Servicer and the
trustee thereunder (the "POOLING AND SERVICING AGREEMENT") relating to the
securities being registered, will provide for the indemnification of any
director, officer, employee or agents of the Registrants or EquiCredit, in its
capacity as Servicer thereunder, or in connection with any loss, liability or
expense incurred in connection with legal action relating to the Pooling and
Servicing Agreement and the securities issued pursuant thereto. The Pooling and
Servicing Agreement will provide that any director, officer, employee or agent
of EquiCredit, in its capacity as Servicer thereunder, may rely on any document
of any kind which it in good faith reasonably believes to be genuine and to have
been adopted or signed by the proper authorities respecting any matters arising
thereunder.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability but in
II-1
<PAGE> 159
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith; that indemnification or
advancement of expenses provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS.
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
ITEM 17. UNDERTAKINGS.
(a) UNDERTAKING PURSUANT TO RULE 415:
The Registrants hereby undertake:
(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 event arising after the
effective date of this 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 this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this 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 by the Registrants
pursuant to Section 13 or 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 such 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.
(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) UNDERTAKING IN RESPECT OF DOCUMENTS SUBSEQUENTLY FILED THAT ARE
INCORPORATED BY REFERENCE:
The Registrants hereby undertake that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrants'
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed 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.
II-2
<PAGE> 160
(c) UNDERTAKING IN RESPECT OF INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "ACT") may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have 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
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants 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 Registrants 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> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EQCC
Receivables Corporation certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Form S-3 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Jacksonville, State of Florida, on the
29th day of January 1999.
EQCC RECEIVABLES CORPORATION
By: /s/ JAMES B. DODD
------------------------------------
James B. Dodd
Vice President,
Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William M. Ross, H. Curtis Jordan, Michael E.
Franz, Mark A. Ferrucci and Robert C. Witcher, and each of them, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments and post-effective amendments to this
Form S-3 Registration Statement, and to file the same with all exhibits thereto,
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them or their substitutes, may
lawfully do or cause to be done virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ WILLIAM M. ROSS Director and President January 29, 1999
- ----------------------------------------------------- (Principal Executive
(William M. Ross) Officer)
/s/ H. CURTIS JORDAN Director January 29, 1999
- -----------------------------------------------------
(H. Curtis Jordan)
/s/ MICHAEL E. FRANZ Director, Vice President and January 29, 1999
- ----------------------------------------------------- Treasurer (Principal
(Michael E. Franz) Financial and Accounting
Officer)
/s/ MARK A. FERRUCCI Director January 29, 1999
- -----------------------------------------------------
(Mark A. Ferrucci)
/s/ ROBERT C. WITCHER Director January 29, 1999
- -----------------------------------------------------
(Robert C. Witcher)
</TABLE>
II-4
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EQCC Asset
Backed Corporation certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Form S-3 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Jacksonville, State of Florida, on the
29th day of January 1999.
EQCC ASSET BACKED CORPORATION
By: /s/ JAMES B. DODD
------------------------------------
James B. Dodd
Vice President,
Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William M. Ross, H. Curtis Jordan, Michael E.
Franz, Mark A. Ferrucci, and Adrienne M. Horne, and each of them, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments and post-effective amendments to this
Form S-3 Registration Statement, and to file the same with all exhibits thereto,
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them or their substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ WILLIAM M. ROSS Director and President January 29, 1999
- ----------------------------------------------------- (Principal Executive
(William M. Ross) Officer)
/s/ H. CURTIS JORDAN Director January 29, 1999
- -----------------------------------------------------
(H. Curtis Jordan)
/s/ MICHAEL E. FRANZ Director, Vice President and January 29, 1999
- ----------------------------------------------------- Treasurer (Principal
(Michael E. Franz) Financial and Accounting
Officer)
/s/ MARK A. FERRUCCI Director January 29, 1999
- -----------------------------------------------------
(Mark A. Ferrucci)
/s/ ADRIENNE M. HORNE Director January 29, 1999
- -----------------------------------------------------
(Adrienne M. Horne)
</TABLE>
II-5
<PAGE> 163
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- -------- ------- ------------
<S> <C> <C> <C>
1.1(A)* -- Form of Underwriting Agreement.
1.1(B)* -- Form of Representations Letter.
3.1(A)* -- Amended and Restated Certificate of Incorporation of EQCC
Receivables Corporation.
3.1(B)* -- Amended and Restated Certificate of Incorporation of EQCC
Asset Backed Corporation.
3.2(A)* -- By-laws of EQCC Receivables Corporation.
3.2(B)* -- By-laws of EQCC Asset Backed Corporation.
4.1**** -- Form of Pooling and Servicing Agreement.
5.1** -- Opinion of Cadwalader, Wickersham & Taft.
5.2** -- Opinion of Hunton & Williams.
8.1** -- Opinion of Cadwalader, Wickersham & Taft with respect to
certain tax matters.
8.2** -- Opinion of Hunton & Williams with respect to certain tax
matters.
10.1* -- Form of Securities Insurance Policy.
10.1**** -- Form of Transfer Agreement.
10.2**** -- Form of Administration Agreement.
10.3**** -- Form of Custodial Agreement.
24.1** -- Consent of Cadwalader, Wickersham & Taft (included as part
of Exhibits 5.1 and 8.1).
24.2** -- Consent of Hunton & Williams (included as part of Exhibit
5.2 and 8.2).
25(A)*** -- Power of Attorney as to EQCC Receivables Corporation.
25(B)*** -- Power of Attorney as to EQCC Asset Backed Corporation.
</TABLE>
- ---------------
* Incorporated by reference to the identically numbered exhibit in
Registration Statement No. 33-84912 filed by the Registrants.
** Filed herewith.
*** Included on the signature page of such Registration in this Registration
Statement.
**** To be filed with amendment to Registration Statement.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
January 29, 1999
EQCC Receivables Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
EQCC Asset Backed Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
Re: Home Equity Loan Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration statement
filed with the Securities and Exchange Commission (the "Commission") on January
29, 1999, pursuant to the Securities Act of 1933, as amended (the "Act") (the
"Registration Statement"). The Registration Statement covers Home Equity Loan
Asset Backed Certificates (the "Certificates") to be sold by EQCC Receivables
Corporation and EQCC Asset Backed Corporation (the "Depositors") in one or more
series (each, a "Series") of Certificates. Each Series of Certificates will be
issued under a separate pooling and servicing agreement (each, a "Pooling and
Servicing Agreement") among the Depositors, a trustee to be identified in the
Prospectus Supplement for such Series of Certificates (a "Trustee") and
EquiCredit Corporation of America (the "Servicer"). A form of the Pooling and
Servicing Agreement is included as an Exhibit to the Registration Statement.
Capitalized terms used and not otherwise defined herein have the respective
meanings ascribed to such terms in the Registration Statement.
We have examined originals or copies certified or otherwise identified to
our satisfaction of such documents and records of the Depositors, and such
public documents and records as we have deemed necessary as a basis for the
opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that when a Pooling and
Servicing Agreement for a Series of Certificates has been duly and validly
authorized, executed and delivered by the Depositors, a Trustee and the
Servicer, and the Certificates of such Series have been duly executed,
authenticated, delivered and sold as contemplated in the Registration Statement,
such Certificates will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
<PAGE> 1
[LETTERHEAD]
EXHIBIT 5.2
January 29, 1999
EQCC Receivables Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
EQCC Asset Backed Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
Re: Home Equity Loan Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your special counsel in connection with the registration
statement filed with the Securities and Exchange Commission (the "Commission")
on January 29, 1999 pursuant to the Securities Act of 1933, as amended (the
"Act") (the "Registration Statement"). The Registration Statement covers Home
Equity Loan Asset Backed Certificates (the "Certificates") to be sold by EQCC
Receivables Corporation and EQCC Asset Backed Corporation (the "Depositors") in
one or more series (each, a "Series") of Certificates. Each Series of
Certificates will be issued under a separate pooling and servicing agreement
(each, a "Pooling and Servicing Agreement") among the Depositors, a trustee to
be identified in the Prospectus Supplement for such Series of Certificates and
EquiCredit Corporation of America (the "Servicer"). A form of the Pooling and
Servicing Agreement is included as an Exhibit to the Registration Statement.
Capitalized terms used and not otherwise defined herein have the respective
meanings ascribed to such terms in the Registration Statement.
We have examined originals or copies certified or otherwise identified to
our satisfaction of such documents and records of the Depositors, and such
public documents and records as we have deemed necessary as a basis for the
opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that when a Pooling and
Servicing Agreement for a Series of Certificates has been duly and validly
authorized, executed and delivered by the Depositors, a Trustee and the
Servicer, and the Certificates of such Series have been duly executed,
authenticated, delivered and sold as contemplated in the Registration Statement,
such Certificates will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ HUNTON & WILLIAMS
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD]
January 29, 1999
EQCC Receivables Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
EQCC Asset Backed Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
Re: Home Equity Loan Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
registration statement filed with the Securities and Exchange Commission (the
"Commission") on January 29, 1999, pursuant to the Securities Act of 1933, as
amended (the "Act") (the "Registration Statement"). The Registration Statement
covers Home Equity Loan Asset Backed Certificates (the "Certificates") to be
sold by EQCC Receivables Corporation and EQCC Asset Backed Corporation (the
"Depositors") in one or more series (each, a "Series") of Certificates. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Depositors, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates and EquiCredit Corporation of America (the "Servicer"). A form of
the Pooling and Servicing Agreement is included as an Exhibit to the
Registration Statement. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to such terms in the Registration
Statement.
In rendering the opinion set forth below, we have examined and relied upon
the following: (i) the Registration Statement, the Prospectus and the forms of
Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission, (ii) the form of the Pooling and Servicing
Agreement, substantially in the form filed with the Commission and (iii) such
other documents, records and instruments as we have deemed necessary for the
purposes of this opinion.
As special tax counsel to the Depositors, we have advised the Depositors
with respect to certain federal income tax aspects of the proposed issuance of
the Certificates. Such advice has formed the basis for the description of
material federal income tax consequences for holders of the Certificates that
appears under the headings "Summary of Prospectus -- Tax Status of the
Certificates" and "Certain Federal Income Tax Consequences" in the Prospectus
and under the headings "Summary Information -- Certain Federal Income Tax
Consequences" and "Federal Income Tax Consequences" in the form of Prospectus
Supplement. Such descriptions do not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Certificates, but, with
respect to those federal income tax consequences that are discussed, in our
opinion, the descriptions are accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplements and in the other documents reviewed by us.
Our opinion as to the matters set forth herein could change with respect to a
particular Series of Certificates as a result of changes in facts or
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. Because the Registration Statement
contemplates Series of Certificates with numerous different characteristics, the
particular characteristics of each Series of Certificates must be considered in
determining the applicability of this opinion to a particular Series of
Certificates. The opinion contained in each Prospectus Supplement and Prospectus
prepared pursuant to the Registration Statement is, accordingly, deemed to be
incorporated herein.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Certain Federal Income Tax Consequences" in the Prospectus forming a
part of the Registration Statement. In giving this consent, we do not admit that
we are in the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Certificates under the laws of any
state.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
<PAGE> 1
[LETTERHEAD]
EXHIBIT 8.2
January 29, 1999
EQCC Receivables Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
EQCC Asset Backed Corporation
10401 Deerwood Park Boulevard
Jacksonville, Florida 32256
Re: Home Equity Loan Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
registration statement filed with the Securities and Exchange Commission (the
"Commission") on January 29, 1999, pursuant to the Securities Act of 1933, as
amended (the "Act") (the "Registration Statement"). The Registration Statement
covers Home Equity Loan Asset Backed Certificates (the "Certificates") to be
sold by EQCC Receivables Corporation and EQCC Asset Backed Corporation (the
"Depositors") in one or more series (each, a "Series") of Certificates. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Depositors, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates and EquiCredit Corporation of America (the "Servicer"). A form of
the Pooling and Servicing Agreement is included as an Exhibit to the
Registration Statement. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to such terms in the Registration
Statement.
In rendering the opinion set forth below, we have examined and relied upon
the following: (i) the Registration Statement, the Prospectus and the forms of
Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission, (ii) the form of the Pooling and Servicing
Agreement, substantially in the form filed with the Commission and (iii) such
other documents, records and instruments as we have deemed necessary for the
purposes of this opinion.
As special tax counsel to the Depositors, we have advised the Depositors
with respect to certain federal income tax aspects of the proposed issuance of
the Certificates. Such advice has formed the basis for the description of
material federal income tax consequences for holders of the Certificates that
appears under the headings "Summary of Prospectus -- Tax Status of the
Certificates" and "Certain Federal Income Tax Consequences" in the Prospectus
and under the headings "Summary Information -- Certain Federal Income Tax
Consequences" and "Federal Income Tax Consequences", in the form of Prospectus
Supplement. Such descriptions do not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Certificates, but, with
respect to those federal income tax consequences that are discussed, in our
opinion, the descriptions are accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplements and in the other documents reviewed by us.
Our opinion as to the matters set forth herein could change with respect to a
particular Series of Certificates as a result of changes in facts or
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. Because the Registration Statement
contemplates Series of Certificates with numerous different characteristics, the
particular characteristics of each Series of Certificates must be considered in
determining the applicability of this opinion to a particular Series of
Certificates. The opinion contained in each Prospectus Supplement and Prospectus
prepared pursuant to the Registration Statement is, accordingly, deemed to be
incorporated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Certain Federal Income Tax Consequences" in the Prospectus forming a
part of the Registration Statement. In giving this consent, we do not admit that
we are in
<PAGE> 2
EQCC Receivables Corporation
EQCC Asset Backed Corporation
January 29, 1999
Page 2
the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Certificates under the laws of any
state.
Very truly yours,
/s/ HUNTON & WILLIAMS
