<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1997
REGISTRATION STATEMENT NO. 333-37499
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
AND POST-EFFECTIVE AMENDMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
UCFC ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-123-5336
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4041 ESSEN LANE
BATON ROUGE, LA 70809
(504) 924-6007
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DALE E. REDMAN
CHIEF FINANCIAL OFFICER
4041 ESSEN LANE
BATON ROUGE, LA 70809
(504) 924-6007
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
LEE C. KANTROW, ESQ. REED D. AUERBACH, ESQ.
KANTROW, SPAHT, WEAVER & BLITZER STROOCK & STROOCK & LAVAN LLP
(A PROFESSIONAL LAW CORPORATION) 180 MAIDEN LANE
CITY PLAZA, SUITE 300 NEW YORK, NEW YORK 10038
445 NORTH BOULEVARD
BATON ROUGE, LA 70802
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time on or after the effective date of this Registration Statement, as
determined by market conditions.
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, 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 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>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES REGISTERED REGISTERED (1) PER UNIT (1) (1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Asset Backed Certificates
Asset Backed Notes......... $4,000,000,000 100% $ 4,000,000,000 $1,180,000.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of this amount, $303.03 previously has been paid.
------------------------
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement is a combined prospectus and relates to
Registration Statement No. 333-07081 as previously filed by the Registrant on
Form S-3. Such Registration Statement No. 333-07081 was declared effective on
August 28, 1996. This Registration Statement, which is a new registration
statement, also constitutes Post-Effective Amendment No. 2 to Registration
Statement No. 333-07081, and such Post-Effective Amendment shall hereafter
become effective concurrently with the effectiveness of this Registration
Statement and in accordance with Section 8(c) of the Securities Act of 1933.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 28, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
$
HOME EQUITY LOAN PASS-THROUGH CERTIFICATES,
SERIES 199 AND 199
UCFC ACCEPTANCE CORPORATION
DEPOSITOR
UNITED COMPANIES LENDING CORPORATION(REGISTERED)
SERVICER
------------------------
The Home Equity Loan Pass-Through Certificates, Series 199 and 199 (the
'Certificates') represent beneficial ownership interests in one of two trust
funds, UCFC Loan Trust 199 and UCFC Loan Trust 199 (each, a 'Trust'). The
Classes of Certificates listed below (collectively, the 'Offered Certificates')
will be unconditionally and irrevocably guaranteed as to payment of amounts due
to the beneficial owners ('Owners') of such Certificates to the extent described
herein on each Distribution Date pursuant to the terms of the Certificate
Insurance Policy issued by .
(cover continued on next page)
<TABLE>
<CAPTION>
INITIAL CLASS PASS-THROUGH ASSUMED FINAL
PRINCIPAL BALANCE RATE DISTRIBUTION DATE(1)
<S> <C> <C> <C>
Class A-1........... $ %
Class A-2........... $ %
Class A-3........... $ %
Class A-4........... $ %
Class A-5........... $ %
Class A-6........... $ (2)
</TABLE>
(1) Determined as described under 'Maturity, Prepayment and Yield
Considerations' herein.
(2) The Class A-6 Certificates will bear interest during their initial Accrual
Period of , 199 to , 199 , at % per
annum. During each Accrual Period thereafter, the Class A-6 Certificates
will bear interest at a per annum rate equal to the sum of the London
interbank offered rate for one-month U.S. dollar deposits plus basis
points (the 'Pass-Through Margin'), subject to the Net Funds Cap (as defined
herein). The Pass-Through Margin may be increased in the limited
circumstance described herein.
------------------------
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE RELATED TRUST AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF UCFC ACCEPTANCE CORPORATION, UNITED
COMPANIES LENDING CORPORATION, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE OFFERED CERTIFICATES AND THE HOME EQUITY LOANS ARE
NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY, NOR HAS ANY
GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE 12 OF THE ACCOMPANYING PROSPECTUS.
The Offered Certificates will be purchased by , and
(the 'Underwriters') from the Depositor and will be offered by the
Underwriters from time to time in negotiated transactions or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the Depositor,
including accrued interest, are expected to be approximately % of the
aggregate principal balance of the Offered Certificates before deducting
expenses payable by the Depositor estimated to be $ . See 'Underwriting'
herein.
The Offered Certificates are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that the Offered Certificates will be issued on or
about , 199 , and will thereafter be available from the Underwriters
through the Same Day Funds Settlement System of The Depository Trust Company.
[NAMES OF UNDERWRITERS]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199
<PAGE>
(Cover continued from front page)
The assets of each Trust consist primarily of one or more pools (each a
'Loan Group') of single family residential home equity and home improvement
loans ('Home Equity Loans') secured by liens on condominiums, townhouses, one-
to four-family residences or mobile or manufactured homes treated as real estate
under applicable state law (each, a 'Mortgaged Property' and collectively, the
'Mortgaged Properties'). Loan Group One will consist of fixed rate Home Equity
Loans secured by first or second liens on the related Mortgaged Properties and
Loan Group Two will consist of adjustable rate Home Equity Loans secured by
first liens on the related Mortgaged Properties. All of the Home Equity Loans,
other than the Balloon Loans in Loan Group One (as defined herein), are fully
amortizing. Each Trust also includes funds on deposit in a separate trust
account (each a 'Pre-Funding Account') which may be used to purchase additional
single family residential home equity and home improvement loans secured by
liens on Mortgaged Properties (the 'Subsequent Loans') from time to time on or
before , 199 . On the Closing Date (as defined herein), cash in an
amount not to exceed approximately $ and $ , will be deposited in
the Pre-Funding Account for Loan Group One and Loan Group Two, respectively, and
may be used to acquire fixed rate Subsequent Loans secured by first or second
liens for Loan Group One and adjustable rate Subsequent Loans secured by first
liens for Loan Group Two.
All of the Home Equity Loans were, and any Subsequent Loans will be,
originated, directly or through correspondents or mortgage brokers, or purchased
and re-underwritten, by United Companies (as defined below) or certain
subsidiaries or affiliates thereof (United Companies, together with such
subsidiaries and affiliates, the 'Originators'). Except for certain
representations and warranties relating to the Home Equity Loans (including any
Subsequent Loans) and certain other matters, United Companies' obligations with
respect to the Home Equity Loans (including any Subsequent Loans) will be
limited to its contractual servicing obligations.
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of , 199 (the 'Pooling and Servicing Agreement'),
among UCFC Acceptance Corporation, as depositor (the 'Depositor'), United
Companies Lending Corporation, as servicer ('United Companies' or the
'Servicer'), and as trustee (the 'Trustee'). Only the Offered
Certificates are offered hereby. Distributions of principal and interest on the
Offered Certificates will be made to the extent funds are available therefor on
the 15th day of each month or, if such day is not a business day, on the
succeeding business day commencing in 199 (each, a 'Distribution
Date') to holders of record on the last business day of the calendar month
preceding the month of such Distribution Date (the 'Record Date').
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market for the Offered Certificates, but
no Underwriter is obligated to do so. There can be no assurance that a secondary
market for any of the Offered Certificates will develop or, if one does develop,
that it will continue or offer sufficient liquidity of investment.
As described herein, separate elections will be made to treat certain assets
and Accounts (as defined herein) of each Trust as a 'real estate mortgage
investment conduit' ('REMIC') pursuant to the Internal Revenue Code of 1986, as
amended (the 'Code'). The Offered Certificates will be 'regular interests' in a
REMIC. See 'Federal Income Tax Consequences' herein and in the Prospectus.
The Fixed Rate Certificates (as defined herein) and/or the Class A-6
Certificates may be prepaid in whole in certain circumstances. See 'The Pooling
and Servicing Agreement--Termination' herein.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Certificates offered by this Prospectus Supplement constitute separate
Series of Certificates being offered by the Depositor pursuant to its Prospectus
dated , 199 , of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms not otherwise defined herein have the
meanings assigned to such terms in the Prospectus. See the 'Index of Principal
Terms' in the Prospectus.
<TABLE>
<S> <C>
Issuer................... UCFC Loan Trust 199 - ('Trust One') and UCFC Loan
Trust 199 - ('Trust Two') (each, a 'Trust').
Securities Offered....... Class A-1, Class A-2, Class A-3, Class A-4 and Class
A-5 Certificates (collectively, the 'Fixed Rate
Certificates') and Class A-6 Certificates, with the
initial Class Principal Balances and Pass-Through
Rates set forth or described on the cover page hereof.
Transaction Structure.... In order to comply with various tax and securities
requirements, the transaction has been structured as
follows:
A. Trust One........... The assets of Trust One will consist primarily of Loan
Group One. Distributions on the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Certificates are
measured by reference to payments on, and will reflect
the performance of, the Home Equity Loans, including
any Subsequent Loans, in Loan Group One.
B. Trust Two........... The assets of Trust Two will consist primarily of Loan
Group Two. Distributions on the Class A-6 Certificates
will be measured by reference to payments on, and will
reflect the performance of, the Home Equity Loans,
including any Subsequent Loans, in Loan Group Two.
C. Credit
Enhancement......... Prior to the Subordination Termination Date, the
Excess Interest from each Loan Group will be deposited
into the Reserve Account until the amount on deposit
therein equals the Specified Reserve Account
Requirement for the related Distribution Date. Amounts
on deposit in the Reserve Account will be available to
fund shortfalls in required distributions on a
Distribution Date, regardless of the Loan Group which
experienced the shortfall. In addition, all Classes of
Offered Certificates will have the benefit of the
protection afforded by the Certificate Insurance
Policy described herein, without distinction as to
Trust, Loan Group or Class.
Depositor................ UCFC Acceptance Corporation, a Louisiana corporation
(the 'Depositor'). See 'The Depositor' in the
Prospectus.
Servicer................. United Companies Lending Corporation(Registered), a
Louisiana corporation ('United Companies' or the
'Servicer'), a wholly-owned subsidiary of United
Companies Financial Corporation. The Servicer's
principal executive offices are located at 4041 Essen
Lane, Baton Rouge, Louisiana 70809. See 'The
Originators' herein and in the Prospectus.
Trustee.................. (the 'Trustee').
Originators of the Home
Equity Loans........... The Home Equity Loans were, and any Subsequent Loans
will be, originated, either directly or through
correspondents or mortgage brokers, or purchased and
re-underwritten, by United Companies and certain
affiliates thereof (the 'Originators'). See 'The
Originators' herein and in the Prospectus and 'The
Home Equity Loan Program' in the Prospectus.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Approximate Aggregate
Loan Balance as of the
Cut-Off Date........... $ .
Closing Date............. On or about , 199 .
Cut-Off Date............. The opening of business on , 199 , except
that the Cut-Off Date with respect to any Mortgage
Note (as defined herein) dated on or after
, 199 , will be the date of such Mortgage Note.
The Home Equity Loans.... All of the Home Equity Loans will consist of
mortgages, deeds of trust or other instruments
('Mortgages') creating liens on single-family homes,
including investment properties. Such homes may be
condominiums, townhouses, one- to four-family
residences or mobile or manufactured homes treated as
real estate under applicable state law (each, a
'Mortgaged Property' and collectively, the 'Mortgaged
Properties'). Loan Group One will consist of fixed
rate Home Equity Loans secured by first or second
liens on the related Mortgaged Properties and Loan
Group Two will consist of adjustable rate Home Equity
Loans ('ARMs') secured by first liens on the related
Mortgaged Properties. All of the Home Equity Loans,
other than the Balloon Loans in Loan Group One, will
be fully amortizing, with payments due on the first
day of each month (each, a 'Due Date'). The Home
Equity Loans will not be insured by primary mortgage
insurance policies. The Home Equity Loans are not
covered by any pool insurance or guaranteed by the
Depositor, the Servicer, the Trustee, the Certificate
Insurer or any of their respective affiliates.
The per annum interest rate (the 'Mortgage Rate')
borne by each ARM is subject to adjustment on the date
set forth in the Mortgage Note for such ARM and at
regular intervals thereafter (each, a 'Change Date')
to equal the sum of (i) the applicable index (the
'Index'), and (ii) the number of basis points set
forth in the related Mortgage Note (the 'Gross
Margin'), subject to rounding and to the effects of
the applicable Periodic Rate Cap, Lifetime Cap and
Lifetime Floor. The 'Periodic Rate Cap' limits changes
in the Mortgage Rate for each ARM on each Change Date.
The 'Lifetime Cap' for each ARM is the maximum
Mortgage Rate that may be borne by such ARM, and the
'Lifetime Floor' is the minimum Mortgage Rate that may
be borne by such ARM.
With respect to the ARMs: (i) the Index is the London
interbank offered rate for six-month United States
dollar deposits ('6-Month LIBOR'), as published either
(a) in The Wall Street Journal, of the edition, if
any, specified in the related Mortgage Note, or (b) by
the Federal National Mortgage Association, as
specified in the related Mortgage Note, and available
as of the date 45 days before the applicable Change
Date; (ii) the Change Dates will occur on the date set
forth in the Mortgage Note and every sixth month
thereafter; (iii) the Periodic Rate Cap is basis
points or, in certain cases, basis points on the
first Change Date, and basis points thereafter;
(iv) the Lifetime Cap generally is basis points
greater than the initial Mortgage Rate; and (v) the
Lifetime Floor is either the initial Mortgage Rate or
the rate above the initial Mortgage Rate as specified
in the related Mortgage Note.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Approximately % of the ARMs (by Principal Balance
as of the Cut-Off Date) grant the related Mortgagor
the option to convert the adjustable Mortgage Rate to
a fixed Mortgage Rate (each, a 'Convertible Loan').
The Convertible Loans are eligible for conversion
during the three-year period commencing on the fourth
Change Date and ending on the tenth Change Date. Upon
any such conversion, the applicable Originator is
obligated to repurchase such Home Equity Loan as
described under 'The Home Equity Loans--Convertible
Loans' herein.
Description of the
Certificates........... The Certificates will be issued by the Trusts pursuant
to the Pooling and Servicing Agreement, dated as of
, 199 (the 'Pooling and Servicing
Agreement'), among the Depositor, the Servicer and the
Trustee. In addition to the Offered Certificates, each
Trust will issue one or more additional Classes of
Certificates, the 'Excess Interest Certificates'
which, to a limited extent, are subordinated to the
Offered Certificates. The Excess Interest Certificates
are not being offered hereby. Each Trust also will
issue a residual class of Certificates in each REMIC
created by such Trust (the 'Residual Certificates')
which are not being offered hereby. The Offered
Certificates, the Excess Interest Certificates and the
Residual Certificates are collectively referred to as
the 'Certificates.'
Each Class of Offered Certificates is issuable in
original principal amounts of $25,000 and integral
multiples of $1,000 in excess thereof, except that one
Certificate of each Class may be issued in a different
denomination.
Pre-Funding Accounts..... On the Closing Date, the Trustee will establish and
thereafter maintain with itself a separate trust
account with respect to each of Loan Group One and
Loan Group Two (each, a 'Pre-Funding Account'). On the
Closing Date, cash in an amount not to exceed
approximately $ and $ (each, a
'Pre-Funded Amount') will be deposited in the
Pre-Funding Account for Loan Group One and Loan Group
Two, respectively. Each Pre-Funded Amount may be used
only to (i) acquire additional single family
residential home equity and home improvement loans
secured by liens on Mortgaged Properties (the
'Subsequent Loans') for the related Loan Group, and
(ii) make accelerated payments of principal of the
related Certificates. All Subsequent Loans added to
Loan Group One will bear fixed rates and will be
secured by first or second liens on the related
Mortgage Properties, and all Subsequent Loans added to
Loan Group Two will bear adjustable rates and will be
secured by first liens on the related Mortgage
Properties. During the period (the 'Pre-Funding
Period') from the Closing Date to the earliest to
occur of (i) the applicable Funding Termination Date
(defined below), (ii) an Event of Default under the
Pooling and Servicing Agreement and (iii)
, 199 , amounts on deposit in a Pre-Funding Account
may be withdrawn from time to time to acquire
Subsequent Loans for the related Loan Group in
accordance with the Pooling and Servicing Agreement.
The 'Funding Termination Date' for a Loan Group will
be the date on which the related Pre-Funded Amount has
been reduced to less than $100,000. Any Pre-Funded
Amount remaining in a Pre-Funding Account at the end
of the applicable Pre-Funding Period will be
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
distributed on the Distribution Date at or immediately
following the end of such Pre-Funding Period. If the
Pre-Funded Amount so distributed is less than
$100,000, it will be distributed as a Prepayment and
allocated to the applicable Classes of Offered
Certificates related to Loan Group One or Loan Group
Two, as applicable, as provided herein; otherwise such
amount will be distributed as principal of the
outstanding Classes of Offered Certificates related to
Loan Group One or Loan Group Two, as applicable, pro
rata on the basis of their respective Class Principal
Balances.
Capitalized Interest
Accounts............... On the Closing Date, the Trustee will establish and
thereafter maintain with itself a separate trust
account with respect to each of Loan Group One and
Loan Group Two (each, a 'Capitalized Interest
Account'), into which amounts will be deposited. The
amounts so deposited will be used by the Trustee on
the Distribution Dates during the applicable
Pre-Funding Period to fund the excess, if any, of the
sum of the amount of interest accrued on the Classes
of Certificates related to the applicable Loan Group
at the applicable Pass-Through Rates and the deposit
in respect of the premium for the Certificate
Insurance Policy over the Interest Remittance Amount
for such Loan Group for such Distribution Dates.
Distribution Dates and
Record Dates........... On the 15th day of each month, or, if such day is not
a business day, then the next succeeding business day,
commencing in 199 (each, a 'Distribution
Date'), the Trustee will be required to distribute to
the Owners of record of the Certificates as of the
last business day of the calendar month immediately
preceding the calendar month in which such
Distribution Date occurs (the 'Record Date') such
Owners' Percentage Interests in the amounts required
to be distributed to the Owners of each Class of
Certificates on such Distribution Date.
Available Funds.......... As of any Distribution Date and with respect to any
Loan Group, 'Available Funds' will equal the sum of,
without duplication, (a) the amount on deposit in the
applicable Certificate Account on such Distribution
Date plus (b) any amount transferred from the Reserve
Account to the applicable Certificate Account on such
Distribution Date, minus (c) the monthly deposit in
respect of the fees of the Certificate Insurer and the
Trustee with respect to such Loan Group. The Pooling
and Servicing Agreement provides that the term
'Available Funds' does not include Insured Payments
and does not include any amounts that cannot be
distributed to the Owners of the Certificates by the
Trustee as a result of proceedings under the United
States Bankruptcy Code. See 'Description of the
Certificates--Flow of Funds and Distributions on the
Offered Certificates' herein.
Distributions on the
Certificates
A. Interest
Distributions.......... Interest will accrue on each Fixed Rate Certificate at
the applicable fixed Pass-Through Rate set forth on
the cover hereof for each calendar month. Interest
will accrue on the Class A-6 Certificates at the
then-applicable Class A-6 Pass-Through Rate during the
period commencing on the 15th day of the month
preceding the month of the applicable Distribution
Date (or, in the case of the first Distribution Date,
beginning on the Closing Date) and ending on the
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
14th day of the month of such Distribution Date. Such
period for each Class of Offered Certificates is its
respective 'Accrual Period.' Interest on the Fixed
Rate Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Interest on the Class A-6 Certificates will be
calculated on the basis of a 360-day year for the
actual number of days elapsed in each Accrual Period.
See 'Maturity, Prepayment and Yield Considerations'
herein.
During the first Accrual Period for the Class A-6
Certificates, the Class A-6 Pass-Through Rate will be
% per annum. During each Accrual Period thereafter,
the Class A-6 Pass-Through Rate will be, subject to a
maximum rate equal to the Net Funds Cap (as defined
below) and a minimum rate equal to the Pass-Through
Margin, a per annum rate equal to the sum of the
London interbank offered rate for one-month U.S.
dollar deposits ('1-Month LIBOR'), determined as
described under 'Description of the
Certificates--Calculation of 1-Month LIBOR' herein,
and the Pass-Through Margin. For each Accrual Period
prior to the Servicer Optional Termination Date for
Loan Group Two, the Pass-Through Margin will be basis
points. For each Accrual Period thereafter, the
Pass-Through Margin will be basis points. As to any
Distribution Date, the 'Net Funds Cap' will equal the
lesser of (x) % and (y) a rate equal to the
weighted average Mortgage Rate on the ARMs minus the
sum of (i) the Servicing Fee Rate, (ii) the Trustee's
Fee Rate, (iii) the premium for the Certificate
Insurance Policy (expressed as a per annum rate), and
(iv) if applicable, the weighted average Retained
Interest Rate. The 'Retained Interest Rate' with
respect to each ARM and any Distribution Date will
equal %. The Retained Interest for each ARM will
equal the product of the Retained Interest Rate and
the outstanding principal balance of such ARM as of
the Due Date in the month preceding the month of such
Distribution Date, to the extent collected.
Interest accrued on the Offered Certificates during
each Accrual Period will be distributed on each
Distribution Date to the extent funds are available
therefor. With respect to each Distribution Date,
interest accruing during the related Accrual Period at
the applicable Pass-Through Rate on the related Class
Principal Balance (as defined below) immediately
preceding such Distribution Date, is referred to
herein as the 'Interest Distribution Amount' for such
Class. See 'Description of the Certificates--Flow of
Funds and Distributions on the Offered Certificates'
herein.
B. Principal
Distributions....... As to any Loan Group (including, with respect to Loan
Group One or Loan Group Two, Subsequent Loans assigned
thereto), the 'Basic Principal Amount' for a
Distribution Date will equal the sum of the following:
(i) the principal portion of all scheduled and
unscheduled payments received on the Home Equity Loans
during the calendar month preceding the calendar month
in which such Distribution Date occurs (the
'Remittance Period'), including (a) any full or
partial principal prepayments of any Home Equity Loans
('Prepayments') received during the related Remittance
Period, (b) the proceeds received of any insurance
policy relating to a Home Equity Loan, a Mortgaged
Property or a Mortgaged Property acquired through
foreclosure or by deed-in-lieu of
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
foreclosure (each, an 'REO Property'), 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'), (c) proceeds received in connection with
the liquidation of any defaulted Home Equity Loans,
whether by trustee's sale, foreclosure sale or
otherwise ('Liquidation Proceeds'), net of fees and
advances reimbursable therefrom ('Net Liquidation
Proceeds'), (d) net rental income, if any, from REO
Properties ('REO Proceeds') and (e) proceeds received
in connection with a taking of a Mortgaged Property by
condemnation or the exercise of eminent domain or in
connection with a release of part of the Mortgaged
Property from the related lien ('Released Mortgaged
Property Proceeds'), (ii) the principal portion of all
amounts deposited in the applicable Principal and
Interest Account on the related Remittance Date by the
Depositor or the applicable Originator in connection
with the repurchase of, or the substitution of a
substantially similar home equity loan for, a Home
Equity Loan as to which there is defective
documentation or a breach of a representation or
warranty contained in the Pooling and Servicing
Agreement or by the Servicer in connection with the
purchase of any Home Equity Loan as permitted by the
Pooling and Servicing Agreement, (iii) the principal
balance of each defaulted Home Equity 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 the
preceding clauses (i) and (ii) and (iv) with respect
to Loan Group One or Loan Group Two, any amounts
released from the related Pre-Funding Account at or
following termination of the applicable Pre-Funding
Period which are treated as a Prepayment.
Distributions of principal of a Class of Offered
Certificates will be measured by the Basic Principal
Amount for the related Loan Group. As to any
Distribution Date and Class of Offered Certificates,
the 'Principal Distribution Amount' will be an amount
equal to the portion of the Basic Principal Amount for
the related Loan Group allocated to such Class of
Offered Certificates and the related Carry-Forward
Amount. Distributions of principal will be allocated
among the Classes of Certificates as described herein
under 'Description of the Certificates--Flow of Funds
and Distributions on the Offered Certificates.'
As to any Class of Offered Certificates and any
Distribution Date, the 'Carry-Forward Amount' will
equal the sum of (a) the amount, if any, by which the
amount required to be distributed to the Owners of
such Class of Offered Certificates as of the preceding
Distribution Date exceeded the amount of the actual
distribution (exclusive of amounts representing
Insured Payments) to the Owners of such Class of
Offered Certificates on such preceding Distribution
Date, and (b) interest on the interest component of
the amount, if any, described in clause (a) at
one-twelfth of the applicable Pass-Through Rate for
the immediately preceding Accrual Period.
The 'Class Principal Balance' of any Class of Offered
Certificates as of any date of determination will
equal the original Class Principal Balance thereof on
the Closing Date less the sum of all
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
amounts previously distributed to the Owners of such
Class of Offered Certificates on account of principal.
See 'Description of the Certificates--Flow of Funds
and Distributions on the Offered Certificates' herein.
Registration of the
Offered Certificates... The Offered Certificates initially will be represented
by one or more certificates registered in the name of
Cede & Co., the nominee of The Depository Trust
Company ('DTC'), and will be available only in the
form of book-entries on the records of DTC,
participating members thereof ('Participants') and
other entities, such as banks, brokers, dealers and
trust companies that clear through or maintain
custodial relationships with a Participant, either
directly or indirectly ('Indirect Participants').
Certificates representing the Offered Certificates
will be issued in definitive form only under the
limited circumstances described in the Prospectus.
References herein to 'holders' or 'Owners' reflect the
rights of owners of the Offered Certificates only as
they may indirectly exercise such rights through DTC
and Participants, except as otherwise specified in the
Prospectus. See 'Risk-Factors--Book-Entry Registration
May Affect Liquidity' and 'Description of the
Certificates--Book-Entry Registration' in the
Prospectus.
Servicing of the Home
Equity Loans........... The Servicer has agreed to serve as master servicer
for the Home Equity Loans (including Subsequent Loans)
in accordance with the Pooling and Servicing
Agreement. The Servicer may act through sub-servicers,
including affiliates of the Servicer. The Home Equity
Loans (including Subsequent Loans) will be serviced by
the Servicer on a 'scheduled/actual' basis (i.e.,
'scheduled' interest and 'actual' principal receipts
are required to be passed-through). See 'The Pooling
and Servicing Agreement' herein and in the Prospectus.
Monthly Servicing Fee.... The Servicer will retain a fee equal to % per
annum (the 'Servicing Fee Rate'), payable monthly at
one-twelfth the annual rate, of the then outstanding
principal amount of each Home Equity Loan (including
Subsequent Loans) as of the first day of each calendar
month.
Certificate Insurance
Policy................. a stock insurance corporation (the
'Certificate Insurer'), will provide an insurance
policy (the 'Certificate Insurance Policy') relating
to the Offered Certificates. Subject to the
requirements of the Certificate Insurance Policy
described under 'The Certificate Insurance Policy and
the Certificate Insurer,' the Certificate Insurance
Policy unconditionally and irrevocably guarantees that
the full amount of each Insured Payment (as defined
herein) will be received by the Trustee or its
successor for distribution by the Trustee to the
Owners from the Certificate Insurer. The Certificate
Insurer's obligations under the Certificate Insurance
Policy will be discharged to the extent funds equal to
the amount required to be paid thereunder are received
by the Trustee, whether or not such funds are properly
applied by the Trustee. The Certificate Insurance
Policy is noncancellable for any reason.
The Certificate Insurance Policy does not (i)
guarantee the Originators' obligations to repurchase
Converted Loans or to repurchase or substitute for
Home Equity Loans (including
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Subsequent Loans) with respect to which there has been
a breach of representation, (ii) guarantee any
specified rate of Prepayments, or (iii) provide funds
to redeem the Offered Certificates on any specified
date. The Pooling and Servicing Agreement provides
that to the extent the Certificate Insurer makes
Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the Offered
Certificates with respect to such Insured Payments.
The Certificate Insurer will receive reimbursement for
such Insured Payment, but only from the sources and in
the manner provided in the Pooling and Servicing
Agreement, the Guarantee Agreement and the Insurance
Agreement, dated as of , 199 , among the
Certificate Insurer, the Depositor, the Servicer, the
Trustee and the Underwriters (the 'Insurance
Agreement'). Such subrogation and reimbursement will
have no effect on the Certificate Insurer's
obligations under the Certificate Insurance Policy.
Reserve Account.......... On the Closing Date, the Trustee will establish a
reserve account comprised of three sub-accounts: the
Spread Sub-Account; the Residual Sub-Account; and the
Guarantee Fee Sub-Account (collectively, the 'Reserve
Account'), and an initial deposit may be made into the
Spread Sub-Account. On each Remittance Date on or
prior to the Subordination Termination Date, the
Trustee is required to deposit (i) the Spread for each
Loan Group into the Spread Sub-Account, (ii) the
Residual Remittance Amount for each Loan Group into
the Residual Sub-Account and (iii) the Guarantee Fee
for each Loan Group into the Guarantee Fee
Sub-Account.
As to any Remittance Date and Loan Group, the sum of
the Spread, the Residual Remittance Amount and the
Guarantee Fee will equal the Excess Interest for such
Remittance Date and Loan Group. The 'Excess Interest'
will equal the product of (x) one-twelfth of the
difference between (i) the weighted average Mortgage
Rate of the Home Equity Loans (including Subsequent
Loans, if any) in such Loan Group and (ii) the
Adjusted Pass-Through Rate for such Loan Group, and
(y) the related Loan Group Principal Balance. The
Pooling and Servicing Agreement permits the Reserve
Account to be funded in part by one or more letters of
credit acceptable to the Certificate Insurer.
The 'Adjusted Pass-Through Rate' for any Loan Group
and Distribution Date will equal the sum of (i) the
weighted average Pass-Through Rate on the related
Class(es) of Certificates, (ii) the Servicing Fee
Rate, (iii) the Trustee's Fee Rate, (iv) the premium
for the Certificate Insurance Policy (expressed as a
per annum rate) and (v) if applicable, the weighted
average Retained Interest Rate.
The aggregate amount required to be on deposit at any
time in the Reserve Account (taking into account the
amounts available to be withdrawn under any letters of
credit deposited therein) will be determined in
accordance with the terms of the Pooling and Servicing
Agreement (such amount, the 'Specified Reserve Account
Requirement'). Amounts, if any, on deposit or to be
deposited in the Reserve Account up to the
Subordinated Amount (as defined below) will be
available to fund any shortfall between the Available
Funds for any Loan Group (before any withdrawals from
the Reserve Account on a Distribution Date) and the
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Distribution Amount for the related Class(es) of
Offered Certificates on any Distribution Date.
Withdrawals from the Reserve Account for such purposes
will be made first from the Spread Sub-Account, second
from the Residual Sub-Account and third from the
Guarantee Fee Sub-Account.
The Pooling and Servicing Agreement provides that, in
the event aggregate withdrawals from the Reserve
Account with respect to shortfalls on the Offered
Certificates equal the amount specified in the Pooling
and Servicing Agreement (such amount, the
'Subordinated Amount'), no further withdrawals with
respect to such shortfalls may be made from the
Reserve Account, and the Specified Reserve Account
Requirement will thereafter be zero. The Distribution
Date on which the Subordinated Amount is reduced to
zero is the 'Subordination Termination Date.'
The provisions in the Pooling and Servicing Agreement
relating to the Reserve Account may be amended in any
respect by the Depositor, the Servicer and the
Certificate Insurer without the consent of, or notice
to, the Owners of the Offered Certificates. Such
amendment could reduce or eliminate the funding
requirements of the Reserve Account. In addition,
because amounts in the Reserve Account are available
for all Classes of Offered Certificates, a
disproportionate amount of funds may be used to
benefit one Class of Offered Certificates, thereby
reducing the funds available for the other Classes of
Offered Certificates. Notwithstanding any reduction in
the funding requirements of the Reserve Account, or
the depletion of the Subordinated Amount or the
Reserve Account, the Certificate Insurer will be
obligated on each Distribution Date to fund the full
amount of each Insured Payment on such Distribution
Date. See 'Description of the Certificates--Reserve
Account' herein.
Guarantee Agreement...... Pursuant to an agreement (the 'Guarantee Agreement')
between the Certificate Insurer and Adobe, Inc., a
Nevada corporation which is an indirect, wholly-owned
subsidiary of the Servicer (the 'Guarantor'), the
Guarantor, in consideration of the Guarantee Fee, will
agree to reimburse the Certificate Insurer an amount
up to the amount specified in the Guarantee Agreement
for Insured Payments that are not otherwise reimbursed
as provided in the Pooling and Servicing Agreement and
the Insurance Agreement. Payment of the Guarantee Fee
is subordinated to the limited extent provided herein.
Termination.............. The Servicer will have the right to purchase all the
Home Equity Loans remaining in a Loan Group on any
Remittance Date when the aggregate Loan Balance of
such Home Equity Loans has declined to 10% or less of
an amount equal to the aggregate balances of the Home
Equity Loans in such Loan Group as of the Cut-Off Date
including the aggregate balances of the Subsequent
Loans as of the related subsequent cut-off date(s)
added to the applicable Loan Group (each, a 'Servicer
Optional Termination Date'). See 'The Pooling and
Servicing Agreement--Termination' herein.
Ratings.................. It is a condition of the original issuance of the
Offered Certificates that the Offered Certificates
receive ratings of AAA by Fitch Investors Service L.P.
('Fitch'), Aaa by Moody's Investors Service, Inc.
('Moody's') and, except for the Class A-6
Certificates, AAA by Standard & Poor's, a division of
The
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
McGraw-Hill Companies, Inc. ('S&P'). The Class A-6
Certificates will be rated AAAr by S&P. 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 entity. Such
ratings address credit risk, but do not purport to
address any prepayment risk associated with the
Offered Certificates. See 'Ratings' herein.
Certain Federal Income
Tax Consequences....... REMIC Election. For federal income tax purposes,
separate elections will be made to treat certain of
the assets and Accounts (as defined herein) of each
Trust as a 'real estate mortgage investment conduit'
('REMIC'). The Offered Certificates will be designated
as 'regular interests' in a REMIC.
Tax Status of Offered Certificates. The Offered
Certificates will be treated as debt instruments of
the Trust for federal income tax purposes. Owners of
the Offered Certificates, including Owners that
generally report income on the cash method of
accounting, will be required to include interest on
the Offered Certificates, as applicable, in income in
accordance with the accrual method of accounting.
Original Issue Discount. It is anticipated that the
Offered Certificates will not be issued with original
issue discount. However, any such original issue
discount will be includible in the income of the Owner
as it accrues under a method taking into account the
compounding of interest and using a prepayment
assumption equal to % (as defined herein). No
representation is made as to whether the Home Equity
Loans will prepay at the assumed rate or at any other
rate. See 'Maturity, Prepayment and Yield
Considerations' herein.
General Tax Treatment. In general, the Offered
Certificates will be treated as 'qualifying real
property loans' under Section 593(d) of the Code,
'regular interest(s) in a REMIC' under Section
7701(a)(19)(C) of the Code and 'real estate assets'
under Section 856(c) of the Code in the same
proportion that the assets in the related REMIC
consist of qualifying assets under such Sections. In
addition, interest on the Offered Certificates will be
treated as 'interest on obligations secured by
mortgages on real property' under Section 856(c) of
the Code to the extent that such Offered Certificates
are treated as 'real estate assets' under Section
856(c) of the Code. See 'Federal Income Tax
Consequences' herein and in the Prospectus.
ERISA Considerations..... As described under 'ERISA Considerations' herein, the
Offered Certificates may not be purchased by a pension
or other employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
('ERISA'), or by individual retirement accounts or
Keogh plans covering only a sole proprietor or partner
which are not subject to ERISA but are subject to
Section 4975 of the Code ('Plans'), except pursuant to
certain exemptions from potential prohibited
transaction rules of ERISA which prohibit a broad
range of transactions involving Plan assets and
persons having certain specified relationships to a
Plan and related excise tax provisions of Section 4975
of the Code.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Upon termination of a Pre-Funding Period, it is
believed that Prohibited Transaction Exemption
, Fed. Reg. ( , 199 ) (the
'Exemption'), which provides an exemption for
transactions involving the purchase, holding or
transfer of certain residential mortgage pool
pass-through certificates by Plans, will apply to the
Class or Classes of Offered Certificates related to
the Loan Group for which such Pre-Funding Period has
ended. See 'ERISA Considerations' herein.
Legal Investment
Considerations......... The Class A-6 Certificates will constitute 'mortgage
related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as amended
('SMMEA') so long as they remain rated in one of the
two highest long-term rating categories by at least
one nationally recognized statistical rating
organization. The Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates will not
constitute 'mortgage related securities' for purposes
of SMMEA. See 'Legal Investment' herein and in the
Prospectus.
</TABLE>
S-13
<PAGE>
THE HOME EQUITY LOANS
GENERAL
The Home Equity Loans were, and any Subsequent Loans will be, originated,
directly or through correspondents or mortgage brokers, or purchased and
re-underwritten, by the Originators in accordance with the policies set forth
under 'The Home Equity Loan Program' in the Prospectus. All of the Home Equity
Loans are, and all Subsequent Loans will be, Single Family Loans as described
under 'The Trusts' in the Prospectus. All of the Home Equity Loans are, and all
Subsequent Loans will be, non-conventional home equity and home improvement
loans bearing fixed or adjustable interest rates (the 'Mortgage Rates') and
evidenced by promissory notes (the 'Mortgage Notes') secured by deeds of trust,
security deeds or mortgages on Mortgaged Properties. Certain of the Home Equity
Loans (including Subsequent Loans) may have been made in connection with the
dispositions of previously foreclosed Mortgaged Properties. Except for the
Balloon Loans in Loan Group One, all of the Home Equity Loans are fully
amortizing loans. The Mortgaged Properties securing the Home Equity Loans
(including the Subsequent Loans) consist of single-family residences (which may
be townhouses, one- to four-family dwellings, condominium units or mobile or
manufactured homes treated as real estate under local law). The Mortgaged
Properties may be owner-occupied (which includes second and vacation homes) and
non-owner occupied investment properties. The Home Equity Loans will be divided
into two groups (each, a 'Loan Group'): 'Loan Group One' and 'Loan Group Two.'
Loan Group One will comprise the primary asset of Trust One and Loan Group Two
will comprise the primary asset of Trust Two.
Each Home Equity Loan (including Subsequent Loans, if any) in Loan Group
One will bear interest at a fixed rate. Home Equity Loans (including Subsequent
Loans, if any) in Loan Group One will be secured by first or second liens on the
related Mortgaged Properties while the Home Equity Loans (including Subsequent
Loans) in Loan Group Two will be secured by first liens on the related Mortgaged
Properties. Certain of the Home Equity Loans in Loan Group One will have
original terms to stated maturity of up to 15 years and amortization schedules
of up to 30 years ('Balloon Loans'), leaving a substantial payment due at the
stated maturity (each, a 'Balloon Payment').
Each Home Equity Loan (including Subsequent Loans, if any) in Loan Group
Two will be an ARM. The per annum interest rate borne by each ARM is subject to
adjustment on the date set forth in the Mortgage Note for such ARM and at
regular intervals thereafter (each, a 'Change Date') to equal the sum of (i) the
applicable Index and (ii) the number of basis points set forth in the related
Mortgage Note (the 'Gross Margin'), subject to rounding and to the effects of
the applicable Periodic Rate Cap, Lifetime Cap and Lifetime Floor. The 'Periodic
Rate Cap' limits changes in the Mortgage Rate for each ARM on each Change Date.
The 'Lifetime Cap' for each ARM is the maximum Mortgage Rate that may be borne
by such ARM, and the 'Lifetime Floor' is the minimum Mortgage Rate that may be
borne by such ARM. The ARMs do not provide for negative amortization or limits
on changes in the monthly payments.
With respect to the ARMs: (i) the Index is the London interbank offered
rate for six-month United States dollar deposits ('6-Month LIBOR'), as published
either (a) in The Wall Street Journal of the edition, if any, specified in the
related Mortgage Note, or (b) by the Federal National Mortgage Association, as
specified in the related Mortgage Note, and available as of the date 45 days
before the applicable Change Date; (ii) the Change Dates will occur on the date
set forth in the Mortgage Note and every sixth month thereafter; (iii) the
Periodic Rate Cap is basis points or, in certain cases, basis points on
the first Change Date and basis points thereafter; (iv) the Lifetime Cap
generally is basis points greater than the initial Mortgage Rate; and (v) the
Lifetime Floor is the initial Mortgage Rate or the rate above the initial
Mortgage Rate specified in the related Mortgage Note.
Approximately % (by Principal Balance as of the Cut-Off Date) of the
Home Equity Loans in Loan Group One provide that if each of the first twelve
monthly payments are received within 30 days of the due dates therefor, the
Mortgage Rate will be reduce by 100 basis points for the remaining term of the
Home Equity Loan and the monthly payments will be recalculated to reflect such
reduction and amortize the then-unpaid principal balance by the original
maturity date.
S-14
<PAGE>
CONVERTIBLE LOANS
Approximately % of the ARMs (by Principal Balance as of the Cut-Off
Date) grant the related Mortgagor the option to convert the adjustable Mortgage
Rate to a fixed rate (each, a 'Convertible Loan'). Subject to notice, the
Mortgagor not being in default and the payment of a conversion fee, a Mortgagor
has the option to convert the Mortgage Rate during the three year period
commencing on the fourth Change Date and ending on the tenth Change Date. The
converted fixed Mortgage Rate will equal the FNMA required net yield for 30-year
fixed rate mortgage loans covered by applicable 60-day mandatory delivery
commitments, plus a margin of at least % rounded to the nearest one-eighth
of one percent. In the event that the applicable FNMA rate is not available, the
Servicer will quote a fixed mortgage rate based upon comparable information.
Upon the conversion of any Convertible Loan, the applicable Originator will
be obligated to purchase such Home Equity Loan (each, a 'Converted Loan') at a
price (the 'Purchase Price') equal to 100% of the Principal Balance of such Home
Equity Loan plus accrued interest thereon at the Mortgage Rate applicable to
such Home Equity Loan immediately prior to such conversion date to the first day
of the month in which the Purchase Price is to be distributed. Any Converted
Loan will remain in Trust One until repurchased by the Originator. Any failure
by the Originator to repurchase any such Converted Loan will not constitute an
Event of Default under the Agreement and will result in the inclusion of fixed
rate Home Equity Loans in Loan Group Two. See 'Maturity, Yield and Prepayment
Considerations' herein.
STATISTICAL INFORMATION
Set forth below is certain statistical information as of the Cut-Off Date
regarding the Home Equity Loans expected to be included in each Loan Group as of
the Closing Date. Prior to the Closing Date, Home Equity Loans may be removed
from any Loan Group and other Home Equity Loans may be substituted therefor. The
Depositor believes that the information set forth herein with respect to each
Loan Group as presently constituted is representative of the characteristics of
each Loan Group as it will be constituted at the Closing Date, although certain
characteristics of the Home Equity Loans in one or more Loan Groups may vary.
The sum of the percentage columns in the following tables may not equal 100% due
to rounding.
Loan Group One. As of the Cut-Off Date: the Loan Balances ranged from
approximately $ to $ ; the average Loan Balance was $ ; the
Mortgage Rates ranged from % to %; the weighted average Mortgage Rate
was %; the original Combined Loan-to-Value Ratios ranged from % to
%; the weighted average original Combined Loan-to-Value Ratio was %;
the remaining terms to stated maturity ranged from months to months; the
weighted average remaining term to stated maturity was months; the loan ages
ranged from months to months; the weighted average loan age was month; and
Balloon Loans constituted approximately % of the aggregate Principal
Balance as of the Cut-Off Date of the Home Equity Loans in Loan Group One.
S-15
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
STATE GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------ --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachussetts..........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
------ ------- ------- -------
Total.............. 100.00% 100.00%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
S-16
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIO DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF COMBINED NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LOAN-TO-VALUE RATIOS GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- -------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
5.01- 10.00%.......
10.01- 15.00........
15.01- 20.00........
20.01- 25.00........
25.01- 30.00........
30.01- 35.00........
35.01- 40.00........
40.01- 45.00........
45.01- 50.00........
50.01- 55.00........
55.01- 60.00........
60.01- 65.00........
65.01- 70.00........
70.01- 75.00........
75.01- 80.00........
80.01- 85.00........
85.01- 90.00........
90.01- 95.00........
95.01-100.00........
------ ------- ------ -------
Total.......... 100.00% 100.00%
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
The Combined Loan-to-Value Ratios shown above represent the ratio of the
sum of the principal amount of each Home Equity Loan and the unpaid principal
balance of the related first mortgage loan, if any, at the time of origination
of such Home Equity Loan divided by the lesser of the appraised value of the
related Mortgaged Property at the time of origination (the 'Appraised Values')
or the purchase price of such Mortgaged Property, if applicable, plus the
financed improvements thereto. No assurance can be given that the values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Home Equity Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Home Equity Loans become equal to or greater than
the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
S-17
<PAGE>
MORTGAGE RATE DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
MORTGAGE RATES GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
8.001- 8.500%...........
8.501- 9.000............
9.001- 9.500............
9.501-10.000............
10.001-10.500............
10.501-11.000............
11.001-11.500............
11.501-12.000............
12.001-12.500............
12.501-13.000............
13.001-13.500............
13.501-14.000............
14.001-14.500............
14.501-15.000............
15.001-15.500............
15.501-16.000............
16.001-16.500............
------- ------- ------- -------
Total............... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
DISTRIBUTION OF OUTSTANDING LOAN BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LOAN BALANCES GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01- 50,000.00....
50,000.01-100,000.00....
100,000.01-150,000.00....
150,000.01-200,000.00....
200,000.01-250,000.00....
250,000.01-300,000.00....
300,000.01-350,000.00....
350,000.01-400,000.00....
450,000.01-500,000.00....
------- ------- ------- -------
Total............... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
LIEN STATUS AND OCCUPANCY STATUS
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
LIEN STATUS NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
AND OCCUPANCY STATUS GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
First Lien--owner occupied........
First Lien--non-owner occupied....
First Lien--second home...........
Second Lien--owner occupied.......
------- ------- ------- -------
Multiple Properties...............
Total........................ 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
S-18
<PAGE>
DISTRIBUTION OF LOAN AGES (IN MONTHS)
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
RANGE OF % OF AGGREGATE LOAN BALANCE UNPAID LOAN
LOAN AGES NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
(MONTHS) GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- --------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
0- 6........
7- 12........
13- 18........
19- 24........
37- 42........
43- 48........
55- 60........
61- 66........
73- 78........
79- 84........
115-120........
------- ------- ------- -------
Total..... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
PROPERTY TYPE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
PROPERTY TYPE GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- --------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Single Family Detached.....
Duplex.....................
Triplex....................
Fourplex or Quadplex.......
Condominiums...............
Single Family Row House....
PUD........................
------- ------- ------- -------
Total................. 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
S-19
<PAGE>
DISTRIBUTION OF REMAINING TERM TO MATURITY
(IN MONTHS) AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF MONTHS NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
REMAINING TO MATURITY GROUP ONE LOANS GROUP ONE LOANS CUT-OFF DATE THE CUT-OFF DATE
- --------------------- --------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
37- 48..............
49- 60..............
61- 72..............
73- 84..............
85- 96..............
97-108..............
109-120..............
121-132..............
133-144..............
145-156..............
157-168..............
169-180..............
181-192..............
217-228..............
229-240..............
265-276..............
277-288..............
289-300..............
337-348..............
349-360..............
--------------- ------- ----------------- -------
Total........... 100.00% 100.00%
--------------- ------- ----------------- -------
--------------- ------- ----------------- -------
</TABLE>
Loan Group Two. As of the Cut-Off Date: the Loan Balances ranged from
approximately $ to $ ; the average Loan Balance was $ ; the
current Mortgage Rates ranged from % to %; the weighted average
current Mortgage Rate was %; the original Loan-to-Value Ratios ranged from
% to %; the weighted average original Loan-to-Value Ratio was %;
the remaining terms to stated maturity ranged from months to months; the
weighted average remaining term to stated maturity was months; the loan ages
ranged from months to months; the weighted average loan age was months;
the Gross Margins ranged from % to %; the weighted average Gross
Margin was %; the Lifetime Floors ranged from % to %; the
weighted average Lifetime Floor was %; the Lifetime Caps ranged from %
to %; the weighted average Lifetime Cap was %; and the weighted
average number of months to the next Change Date was months.
S-20
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
STATE GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------ --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Hawaii..................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachussetts..........
Michigan................
Minnesota...............
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....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
--------------- --------------- ---------------- -------
Total.............. 100.00% 100.00%
--------------- --------------- ---------------- -------
--------------- --------------- ---------------- -------
</TABLE>
S-21
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIO DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF ORIGINAL NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LOAN-TO-VALUE RATIOS GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- -------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
15.01- 20.00%.......
20.01- 25.00........
25.01- 30.00........
30.01- 35.00........
35.01- 40.00........
40.01- 45.00........
45.01- 50.00........
50.01- 55.00........
55.01- 60.00........
60.01- 65.00........
65.01- 70.00........
70.01- 75.00........
75.01- 80.00........
80.01- 85.00........
85.01- 90.00........
90.01- 95.00........
95.01-100.00........
------ ------- ------- -------
Total.......... 100.00% 100.00%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
The Loan-to-Value Ratios shown above represent the ratio of the principal
amount of each Home Equity Loan divided by the lesser of the appraised value of
the related Mortgaged Property at the time of origination (the 'Appraised
Values') or the purchase price of such Mortgaged Property, if applicable, plus
the financed improvements thereto. No assurance can be given that the values of
the Mortgaged Properties have remained or will remain at their levels on the
dates of origination of the related Home Equity Loans. If the residential real
estate market should experience an overall decline in property values such that
the outstanding balances of the Home Equity Loans become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
CURRENT MORTGAGE RATE DISTRIBUTION
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF CURRENT NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
MORTGAGE RATES GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- -------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
5.501- 6.000%......
6.001- 6.500.......
6.501- 7.000.......
7.001- 7.500.......
7.501- 8.000.......
8.001- 8.500.......
8.501- 9.000.......
9.001- 9.500.......
9.501-10.000.......
10.001-10.500.......
10.501-11.000.......
11.001-11.500.......
11.501-12.000.......
12.001-12.500.......
12.501-13.000.......
13.001-13.500.......
14.001-14.500.......
------- ------- ------- -------
Total.......... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
S-22
<PAGE>
DISTRIBUTION OF OUTSTANDING LOAN BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LOAN BALANCES GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01- 50,000.00....
50,000.01-100,000.00....
100,000.01-150,000.00....
150,000.01-200,000.00....
200,000.01-250,000.00....
250,000.01-300,000.00....
300,000.01-350,000.00....
350,000.01-400,000.00....
400,000.01-450,000.00....
450,000.01-500,000.00....
------- ------- ------- -------
Total............... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
LIEN STATUS AND OCCUPANCY STATUS
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
LIEN STATUS AND NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
OCCUPANCY STATUS GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
First Lien--owner occupied........
First Lien--non owner occupied....
------- ------- ------- -------
Total........................ 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
DISTRIBUTION OF LOAN AGES (IN MONTHS)
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
RANGE OF % OF AGGREGATE LOAN BALANCE UNPAID LOAN
LOAN AGES NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
(MONTHS) GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- --------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
0- 6..........
7-12..........
13-18..........
25-30..........
37-90..........
91-96..........
------- ------- ------- -------
Total..... 100.00% 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
S-23
<PAGE>
PROPERTY TYPE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
PROPERTY TYPE GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- --------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Single Family Detached.........
Duplex.........................
Triplex........................
Fourplex or Quadplex...........
Condominiums...................
Single Family Row House........
PUD............................
--------------- ------- ----------------- -------
Total..................... 100.00% 100.00%
--------------- ------- ----------------- -------
--------------- ------- ----------------- -------
</TABLE>
DISTRIBUTION OF REMAINING TERM TO MATURITY
(IN MONTHS) AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF MONTHS NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
REMAINING TO MATURITY GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- --------------------- --------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
49- 60..............
109-120..............
133-144..............
169-180..............
229-240..............
265-276..............
289-300..............
313-324..............
325-336..............
337-348..............
349-360..............
--------------- ------- ----------------- -------
Total........... 100.00% 100.00%
--------------- ------- ----------------- -------
--------------- ------- ----------------- -------
</TABLE>
S-24
<PAGE>
DISTRIBUTION OF GROSS MARGINS
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
GROSS MARGINS GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ----------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
2.501-2.750%.....
2.751-3.000......
3.001-3.250......
3.251-3.500......
3.501-3.750......
3.751-4.000......
4.001-4.250......
4.251-4.500......
4.501-4.750......
4.751-5.000......
5.001-5.250......
5.251-5.500......
5.501-5.750......
5.751-6.000......
6.001-6.250......
6.251-6.500......
6.501-6.750......
6.751-7.000......
7.001-7.250......
7.251-7.500......
7.501-7.750......
7.751-8.000......
8.001+...........
--------------- --------------- ---------------- -------
Total....... 100.00% 100.00%
--------------- --------------- ---------------- -------
--------------- --------------- ---------------- -------
</TABLE>
DISTRIBUTION OF LIFETIME CAPS
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LIFETIME CAPS GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ----------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
11.501-12.000%...
12.001-12.500....
12.501-13.000....
13.001-13.500....
13.501-14.000....
14.001-14.500....
14.501-15.000....
15.001-15.500....
15.501-16.000....
16.001-16.500....
16.501-17.000....
17.001-17.500....
17.501-18.000....
18.001-18.500....
18.501-19.000....
19.001-19.500....
19.501-20.000....
20.001+..........
--------------- --------------- ---------------- -------
Total....... 100.00% 100.00%
--------------- --------------- ---------------- -------
--------------- --------------- ---------------- -------
</TABLE>
S-25
<PAGE>
DISTRIBUTION OF LIFETIME FLOORS
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
RANGE OF NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
LIFETIME FLOORS GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ----------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
5.501- 6.000%...
6.001- 6.500....
6.501- 7.000....
7.001- 7.500....
7.501- 8.000....
8.001- 8.500....
8.501- 9.000....
9.001- 9.500....
9.501-10.000....
10.001-10.500....
10.501-11.000....
11.001-11.500....
11.501-12.000....
12.001-12.500....
12.501-13.000....
13.001+..........
------ ------- ------ -------
Total....... 100.00% 100.00%
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
NUMBER OF MONTHS TO
NEXT CHANGE DATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID % OF AGGREGATE
% OF AGGREGATE LOAN BALANCE UNPAID LOAN
MONTHS TO NUMBER OF NUMBER OF AS OF THE BALANCE AS OF
NEXT CHANGE DATE GROUP TWO LOANS GROUP TWO LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1...............
2...............
3...............
4...............
5...............
6...............
7...............
8...............
------ ------- ------ -------
Total...... 100.00% 100.00%
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
SUBSEQUENT LOANS
The Depositor expects to sell Subsequent Loans to Trust One for Loan Group
One and to Trust Two for Loan Group Two during the applicable Pre-Funding
Periods. The purchase price for such Subsequent Loans will equal the outstanding
principal balances thereof as the related subsequent cut-off date and will be
paid by withdrawal of funds on deposit in the applicable Pre-Funding Account.
The Subsequent Loans generally will have been originated more recently than, and
may have other characteristics which differ from, the Home Equity Loans
initially included in the applicable Loan Group. As a result, following any sale
of Subsequent Loans, the description of Loan Group One and/or Loan Group Two set
forth above may not accurately reflect the characteristics of all of the Home
Equity Loans and Subsequent Loans in such Loan Group. However, the Subsequent
Loans must conform to the representations and warranties set forth in the
Pooling and Servicing Agreement. Following the end of each Pre-Funding Period,
the Depositor expects that the Home Equity Loans (including Subsequent Loans) in
Loan Group One and Loan Group Two will have the following approximate
characteristics.
S-26
<PAGE>
LOAN GROUP ONE
<TABLE>
<S> <C>
Average Unpaid Principal Balance....................... at least $
Weighted Average Mortgage Rate......................... %- %
Weighted Average Remaining Term to Stated Maturity..... months- months
Weighted Average Original Combined Loan-to-Value
Ratio................................................ not more than %
Weighted Average Loan Age.............................. 0 month- months
Loans Secured by Primary Residences.................... at least %
Single Family Detached................................. at least %
State Distribution
Florida.............................................. not more than %
Georgia.............................................. not more than %
Indiana.............................................. not more than %
Louisiana............................................ not more than %
Michigan............................................. not more than %
Mississippi.......................................... not more than %
North Carolina....................................... not more than %
Ohio................................................. not more than %
Pennsylvania......................................... not more than %
South Carolina....................................... not more than %
Tennessee............................................ not more than %
Any other individual state........................... not more than %
</TABLE>
LOAN GROUP TWO
<TABLE>
<S> <C>
Average Unpaid Principal Balance....................... at least $
Weighted Average Initital Mortgage Rate................ %- %
Weighted Average Remaining Term to Stated Maturity..... months- months
Weighted Average Original Loan-to-Value Ratio.......... not more than %
Weighted Average Loan Age.............................. 0 month- months
Weighted Average Gross Margin.......................... at least %
Loans Secured by Primary Residences.................... at least %
Single Family Detached................................. at least %
State Distribution
California........................................... not more than %
Connecticut.......................................... not more than %
Florida.............................................. not more than %
Illinois............................................. not more than %
Indiana.............................................. not more than %
Maryland............................................. not more than %
Michigan............................................. not more than %
Missouri............................................. not more than %
North Carolina....................................... not more than %
Ohio................................................. not more than %
Pennsylvania......................................... not more than %
Tennessee............................................ not more than %
Any other individual state........................... not more than %
</TABLE>
S-27
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
Prepayments. The weighted average life of and, if purchased at a price
other than par, the yield to maturity on, a Class of Offered Certificates will
be directly related to the rate of payment of principal of the Home Equity Loans
(which, for purposes of this discussion, includes Subsequent Loans, if any)
within the related Loan Group, including for this purpose Prepayments,
delinquencies, liquidations due to defaults, casualties and condemnations, and
repurchases of Home Equity Loans by the Depositor, the Originators or the
Servicer. The Home Equity Loans may be prepaid by the related obligors on the
Mortgage Notes ('Mortgagors') at any time, generally, without payment of any
prepayment fee or penalty. The actual rate of principal prepayments on pools of
home equity loans is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of home equity loans at any time because of specific factors relating to
the home equity loans in the particular pool, including, among other things, the
age of the home equity loans, the geographic locations of the properties
securing the home equity loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment. Generally, however, because the Home Equity Loans in Loan Group
One bear interest at fixed rates, and the rate of prepayment on fixed rate home
equity loans is sensitive to prevailing interest rates, if prevailing interest
rates were to fall, the Home Equity Loans in Loan Group One may be subject to
higher prepayment rates. Conversely, if prevailing interest rates were to rise,
the rate of prepayments on the Home Equity Loans in Loan Group One could
decrease.
All of the Home Equity Loans in Loan Group Two are ARMs. As is the case
with fixed rate Home Equity Loans, the ARMs may be subject to a greater rate of
principal prepayments in a low interest rate environment. For example, if
prevailing interest rates were to fall, Mortgagors with ARMs may be inclined to
refinance their ARMs with a fixed rate loan to 'lock in' a lower interest rate.
The existence of the applicable Periodic Rate Cap, Lifetime Cap and Lifetime
Floor also may affect the likelihood of prepayments resulting from refinancings.
In addition, the delinquency and loss experience on the ARMs may differ from
that on the fixed rate Home Equity Loans because the amount of the monthly
payments on the ARMs are subject to adjustment on each Change Date. If such
different experience were to occur, the prepayment experience on the Class A-6
Certificates may differ from that on the other Classes of Offered Certificates.
The prepayment experience on non-conventional home equity loans may differ
from that on conventional first mortgage loans, primarily due to the credit
quality of the typical borrower. Because the credit histories of many home
equity borrowers may preclude them from other traditional sources of financing,
such borrowers may be less likely to refinance due to a decline in market
interest rates. Non-conventional home equity loans may experience more
prepayments in a rising interest rate environment as the borrowers' finances are
stressed to the point of default.
The conversion feature of the Convertible Loans may be exercised more often
during periods of rising interest rates as Mortgagors attempt to limit their
risk to higher rates. The applicable Originator is obligated to repurchase any
such Home Equity Loan for which the conversion option is exercised, which
repurchase would result in an increase in the amount of principal available for
distribution to Owners at a time when prepayments would generally not be
expected. If prevailing rates fall significantly, the Convertible Loans 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 exercise their option to convert the
adjustable Mortgage Rates to fixed Mortgage Rates on such Convertible Loans. The
existence of the Periodic Rate Cap and Lifetime Cap also may affect the
likelihood of conversion. The Depositor is not aware of any publicly available
statistics relating to the principal prepayment experience of convertible rate
mortgage loans over an extended period of time, and the Depositor's experience
with respect to convertible rate mortgage loans is insufficient to draw any
conclusions with respect to the expected prepayment rates on the Convertible
Loans. However, in the event that substantial numbers of Mortgagors exercise
their conversion rights, and the Originators repurchase such Converted Loans,
Loan Group Two will experience higher prepayments of principal.
Any such increased prepayments of principal will affect the effective yield
on the Class A-6 Certificates. The effective yield on the Class A-6 Certificates
also will be affected by the failure of the Originators to
S-28
<PAGE>
repurchase Converted Loans and the resulting retention of fixed rate Home Equity
Loans in Loan Group Two. The obligation of the Originators to repurchase
Converted Loans is not insured or guaranteed by any other person.
If purchased at a price other than par, the yield to maturity on an Offered
Certificate will be affected by the rate and timing of payments of principal,
including Prepayments, of the Home Equity Loans within the related Loan Group.
If the actual rate of payments on the Home Equity Loans within the related Loan
Group is slower than the rate anticipated by an investor who purchases an
Offered Certificate at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of payments on
the Home Equity Loans within the related Loan Group is faster than the rate
anticipated by an investor who purchases an Offered Certificate at a premium,
the actual yield to such investor will be lower than such investor's anticipated
yield.
Subsequent Loans. As described herein, the Depositor expects to sell
Subsequent Loans to Trust One for Loan Group One and to Trust Two for Loan Group
Two during the applicable Pre-Funding Periods. If a Pre-Funded Amount is not
used to purchase Subsequent Loans for the related Loan Group, the unused portion
will be applied as a Prepayment and allocated to the related Class or Classes of
Offered Certificates as provided herein, if such unused portion is less than
$100,000; otherwise, such unused funds will be distributed as principal of the
outstanding Classes of Offered Certificates related to the applicable Loan Group
pro rata on the basis of their respective Class Principal Balances, in either
case on the Distribution Date at or immediately after the end of the applicable
Pre-Funding Period.
Assumed Final Distribution Dates. The Assumed Final Distribution Dates for
each Class of Offered Certificates, is set forth on the cover hereof. The
Assumed Final Distribution Dates for the Class A-1, Class A-2, Class A-3, and
Class A-4 Certificates were determined on the basis of the Structuring
Assumptions (defined below) and the assumption that there are no Prepayments.
The Assumed Final Distribution Dates for the Class A-5 and Class A-6
Certificates were determined by adding thirteen months to the date of maturity
of the latest possible maturing Home Equity Loan in the applicable Loan Group
and, further assuming in the case of the Class A-5 and Class A-6 Certificates,
that the Subsequent Loans are purchased in 199 and have a
remaining term to maturity of 360 months. The weighted average life of each
Class of Offered Certificates is likely to be shorter, and the final
Distribution Date could occur significantly earlier than the applicable Assumed
Final Distribution Date because (i) Prepayments are likely to occur, (ii) the
Originators may repurchase Home Equity Loans in the event of breaches of
representations and warranties and (iii) the Servicer may purchase the Home
Equity Loans in the related Loan Group on or after the applicable Servicer
Optional Termination Date.
Balloon Loans. The ability of Mortgagors to make payments of Balloon
Payments will normally depend on the Mortgagor's ability to obtain refinancing
of their Balloon Loans. The ability to obtain refinancing will depend on a
number of factors prevailing at the time refinancing is required, including,
without limitation, real estate values, the Mortgagor's financial situation and
prevailing mortgage loan interest rates. Although the Originators sometimes
provide refinancing of Balloon Loans and may refinance any Home Equity Loan,
they are under no obligation to do so, and make no representation or warranty
that they will do so in the case of any Home Equity Loan. Delinquencies, if any,
in the payment of Balloon Payments may delay the date on which the Class
Principal Balance of one or more Classes of Fixed Rate Certificates is reduced
to zero, and may increase the weighted average lives of such Certificates.
Although a low interest rate environment may facilitate the refinancing of a
Balloon Loan, the receipt and reinvestment by Certificateholders of the proceeds
in such an environment may produce a lower return than that previously received
in respect of the related Balloon Loan. Conversely, a high interest rate
environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults.
ARMs. Each Accrual Period for the Class A-6 Certificates will consist of
the actual number of days elapsed from the 15th day of the month preceding the
month of the applicable Distribution Date (or, in the case of the first Accrual
Period, from the Closing Date) through the 9th day of the month of such
Distribution Date. During the initial Accrual Period for the Class A-6
Certificates, the Pass-Through Rate for the Class A-6 Certificates will be
% per annum. Thereafter, the Class A-6 Pass-Through Rate will be adjusted
by reference to changes in the level of 1-Month LIBOR, subject to the effects of
the Net Funds Cap. Although the Mortgage Rates on the ARMs also are subject to
adjustment, the Mortgage Rates adjust less frequently than the Class A-6
Pass-Through
S-29
<PAGE>
Rate and adjust by reference to 6-Month LIBOR. Changes in 1-Month LIBOR may not
correlate with changes in 6-Month LIBOR and either may not correlate with
prevailing interest rates. It is possible that an increased level of 1-Month
LIBOR could occur simultaneously with a lower level of prevailing interest
rates, which would be expected to result in faster prepayments, thereby reducing
the weighted average life of the Class A-6 Certificates.
Certain of the ARMs were originated with initial Mortgage Rates that were
based on competitive conditions and did not equal the sum of the applicable
Index and the related Gross Margin. As a result, the Mortgage Rates on such ARMs
are more likely to adjust on their first, and possibly subsequent Change Dates,
subject to the effects of the applicable Periodic Rate Cap and Lifetime Cap.
Because the Class A-6 Pass-Through Rate is limited by the Net Funds Cap on each
Distribution Date, limits on changes in the Mortgage Rates of the ARMs may limit
changes in the Class A-6 Pass-Through Rate.
The Net Funds Cap on a Distribution Date will depend, in part, on the
weighted average of the then-current Mortgage Rates of the outstanding ARMs. If
the ARMs bearing higher Mortgage Rates were to prepay, the weighted average
Mortgage Rate of the ARMs, and consequently the Net Funds Cap, would be lower
than otherwise would be the case.
For additional factors which may affect the yield on the Offered
Certificates, see 'Maturity, Prepayment and Yield Considerations' in the
Prospectus.
PAYMENT LAG FEATURE OF THE FIXED RATE CERTIFICATES
The Pooling and Servicing Agreement provides that each Accrual Period for
the Fixed Rate Certificates will be the calendar month prior to each
Distribution Date. Collections on the Home Equity Loans are not distributed to
the Owners of the Offered Certificates until at least the 15th day of the
following month. As a result, the yield to the Owners of the Fixed Rate
Certificates will be slightly lower than would be the case if each Accrual
Period were to be from Distribution Date to Distribution Date.
STRUCTURING ASSUMPTIONS
The information in the decrement tables has been prepared on the basis of
the following assumed characteristics of the Home Equity Loans and the following
additional assumptions (collectively, the 'Structuring Assumptions'): (i) the
Home Equity Loans prepay at the specified percentages of (as defined
below), (ii) no defaults or delinquencies in the payment by Mortgagors of
principal of and interest on the Home Equity Loans are experienced, (iii) the
initial Class Principal Balance of each Class of Offered Certificates is as set
forth on the cover page hereof, (iv) interest accrues on each Class of Offered
Certificates in each period at the applicable Pass-Through Rate or initial
Pass-Through Rate described herein, (v) distributions in respect of the Offered
Certificates are received in cash on the 15th day of each month commencing in
199 , (vi) the Servicer does not exercise its option to
repurchase the Home Equity Loans described herein under 'The Pooling and
Servicing Agreement--Realization Upon Defaulted Home Equity Loans,' the Servicer
does not exercise its option to purchase the remaining Home Equity Loans in Loan
Group One, and the Home Equity Loans in Loan Group Two are purchased on the
first Servicer Optional Termination Date applicable thereto, (vii) the Offered
Certificates are purchased on , 199 , (viii) scheduled
payments on the Home Equity Loans are received on the first day of each month
commencing in the calendar month following the Closing Date and are computed
prior to giving effect to prepayments received on the last day of the prior
month, (ix) prepayments represent prepayments in full of individual Home Equity
Loans and are received on the last day of each month and include 30 days'
interest thereon, commencing in the calendar month of the Closing Date, (x) the
scheduled monthly payment for each Home Equity Loan has been calculated based on
the assumed Home Equity Loan characteristics set forth in the following table
such that each Home Equity Loan will amortize in amounts sufficient to repay the
balance of such Home Equity Loan by its indicated remaining term to maturity,
(xi) all of the indicated Subsequent Loans purchased with funds from the
Pre-Funding Accounts are purchased during 199 , (xii) the Trusts
consist of 15 Home Equity Loans with the characteristics set forth in the
following table, (xiii) the level of 6-Month LIBOR remains constant at %
and (xiv) the Mortgage Rate for each Home Equity Loan in Loan Group Two is
adjusted on its next Change Date (and on subsequent Change Dates, if necessary)
to equal the sum of (a) the assumed level of 6-Month LIBOR and (b) the Gross
Margin (such sum being subject to the Periodic Rate Cap). While it is assumed
that each of the Home Equity Loans prepays at
S-30
<PAGE>
the specified percentages of , this is not likely to be the case. Moreover,
discrepancies will exist between the characteristics of the actual Home Equity
Loans which will be delivered to the Trustee (including Subsequent Loans) and
characteristics of the Home Equity Loans assumed in preparing the tables herein.
Prepayments of home equity loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Offered
Certificates is the (' ') assumption.
assumes that a pool of loans prepays in the first month at a constant prepayment
rate that corresponds in CPR to the given percentage and
increases by an additional each month thereafter until the
month, where it remains at a CPR equal to the given percentage.
The Constant Prepayment Rate ('CPR') represents an assumed constant rate of
prepayment each month, expressed as an annual rate, relative to the then
outstanding principal balance of a pool of home equity loans for the life of
such home equity loans. Neither model purports to be either an historical
description of the prepayment experience of any pool of home equity loans or a
prediction of the anticipated rate of prepayment of any home equity loans,
including the Home Equity Loans to be included in the Loan Groups.
<TABLE>
<CAPTION>
CURRENT REMAINING TERM
MORTGAGE ORIGINAL TERM TO TO MATURITY GROSS MONTHS TO NEXT
PRINCIPAL BALANCE($) RATE(%) MATURITY (MONTHS)(6) (MONTHS)(7) MARGIN(%) CHANGE DATE(8)
-------------------- -------- -------------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Loan Group One
Step (1)............. N/A N/A
Fixed................ N/A N/A
Fixed................ N/A N/A
Fixed-Balloon........ (3) N/A N/A
Fixed (2)............ N/A N/A
Fixed (2)............ N/A N/A
Loan Group Two
6-Month LIBOR........
6-Month LIBOR........
6-Month LIBOR........
6-Month LIBOR........
6-Month LIBOR........
6-Month LIBOR........
6-Month LIBOR(4).....
6-Month LIBOR(5).....
6-Month LIBOR(2).....
</TABLE>
- ------------------
(1) Assumes the Current Mortgage Rate is reduced on , 199 by 1.00%
and the scheduled monthly payment is recalculated for the , 199
principal and interest payment.
(2) Assumes transfer to respective Trust in 199 with monthly payments
calculated thereafter using the assumed characteristics set forth above.
(3) Remaining term to maturity (Balloon Payment). With respect to such Balloon
Loans, the remaining amortizing term is 359 months.
(4) Assumes the loans are interest only to 199 with monthly payments
calculated thereafter using the assumed characteristics set forth above.
(5) Assumes the loans are interest only to 199 with monthly payments
calculated thereafter using the assumed characteristics set forth above.
(6) The original term to maturity (excluding any interest only periods).
(7) The remaining term to maturity represents the number of monthly principal
and interest payments (excluding any interest only periods).
(8) Represents months to next Change Date (excluding any interest only periods).
S-31
<PAGE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions, the
percentages of the initial Class Principal Balances of the Classes of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of and the corresponding weighted average lives of such Classes.
It is not likely that (i) all of the Home Equity Loans will have the
characteristics assumed, (ii) the Home Equity Loans will prepay at the specified
percentages of or at any other constant percentage or (iii) the level of
6-Month LIBOR will remain constant at the level assumed or at any other level.
Moreover, the diverse remaining terms to maturity of the Home Equity Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified percentages of , even if the weighted average
remaining term to maturity of the Home Equity Loans is consistent with the
remaining terms to maturity of the Home Equity Loans specified in the
Structuring Assumptions.
PERCENT OF INITIAL CLASS PRINCIPAL
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
DISTRIBUTION DATE 0% 18% 24% 26% 32% 0% 18% 24% 26% 32%
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
.....................
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--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Principal
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Principal Balance of such Certificate referred to in clause (a).
S-32
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
DISTRIBUTION DATE 0% 18% 24% 26% 32% 0% 18% 24% 26% 32%
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
.....................
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--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Principal
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Principal Balance of such Certificate referred to in clause (a).
S-33
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-6
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
DISTRIBUTION DATE 0% 18% 24% 26% 32% 0% 18% 24% 26% 32%
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
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--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Principal
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Principal Balance of such Certificate referred to in clause (a).
S-34
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Class of Offered Certificates will be issued in original principal
amounts of $25,000 and integral multiples of $1,000 in excess thereof, except
that one Certificate of each Class may be issued in a different denomination.
Each Trust will issue one or more additional Classes of Certificates, the
'Excess Interest Certificates' which, to a limited extent, are subordinated to
the Offered Certificates. The Excess Interest Certificates are not being offered
hereby. Each Trust also will issue a residual class in each REMIC created by
such Trust (the 'Residual Certificates') which are not being offered hereby.
DISTRIBUTION DATES AND DISTRIBUTIONS
On the 15th day of each month, or, if such day is not a business day then
the next succeeding business day, commencing in 199 , (each, a
'Distribution Date'), the Trustee will be required to distribute to the Owners
of record of the Certificates as of the last business day of the calendar month
immediately preceding the calendar month in which such Distribution Date occurs
(the 'Record Date'), such Owners' Percentage Interests in the amounts required
to be distributed to the Owners of each Class of Certificates on such
Distribution Date. For so long as the Offered Certificates are in book-entry
form with DTC, the only 'Owner' of the Offered Certificates will be Cede & Co.,
as nominee of DTC. See 'Risk Factors--Book-Entry Registration May Affect
Liquidity' and 'Description of the Certificates--Book-Entry Registration' in the
Prospectus.
Each Owner of record of a Certificate will be entitled to receive such
Owner's Percentage Interest in the amounts due on such Distribution Date to the
Owners of the related Class of Certificates. The 'Percentage Interest' of each
Offered Certificate as of any date of determination will be equal to the
percentage obtained by dividing the principal balance of such Certificate as of
the Cut-Off Date by the Class Principal Balance of the applicable Class of
Certificates as of the Cut-Off Date.
FLOW OF FUNDS AND DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The Principal and Interest Accounts. The Pooling and Servicing Agreement
requires the Servicer to establish one or more custodial accounts (each, a
'Principal and Interest Account') on behalf of the Trustee at a depository
institution meeting the requirements set forth in the Pooling and Servicing
Agreement. A separate Principal and Interest Account will be established and
maintained for each Loan Group. The Pooling and Servicing Agreement requires the
Servicer to deposit all collections (other than amounts escrowed for taxes and
insurance and other than the Retained Interest) related to the Home Equity Loans
to the applicable Principal and Interest Account on a daily basis (but no later
than the first business day after receipt). All funds in the Principal and
Interest Accounts are required to be invested in Eligible Investments.
Investment earnings on funds held in the Principal and Interest Accounts are for
the account of the Servicer.
Pursuant to the Pooling and Servicing Agreement, on the seventh day (the
'Remittance Date') of each month commencing in 199 , the Servicer is
required to remit to the Trustee the following amounts with respect to each Loan
Group (including any related Subsequent Loans): (i) an amount equal to the sum
of (x) the aggregate portions of the interest payments (whether or not
collected) becoming due on the Home Equity Loans in the related Loan Group
during the immediately preceding Remittance Period, calculated at the applicable
Adjusted Pass-Through Rate (defined below) and (y) any Compensating Interest
(calculated for this purpose at the applicable Adjusted Pass-Through Rate) due
with respect to the Home Equity Loans in the related Loan Group with respect to
the immediately preceding Remittance Period, but for purposes of this clause (i)
net of the Servicing Fee (the amount described in this clause (i) being the
'Interest Remittance Amount'), (ii) an amount equal to the sum of (x) all
scheduled principal collected by the Servicer on the Home Equity Loans in the
related Loan Group during the immediately preceding Remittance Period and (y)
any Prepayments, Net Liquidation Proceeds (but only to the extent that such Net
Liquidation Proceeds do not exceed the Loan Balance of the related Home Equity
Loan), REO Proceeds and Released Mortgaged Property Proceeds, in each case, only
to the extent collected on the Home Equity Loans in the related Loan Group
during the preceding Remittance Period (the amount described in this clause (ii)
being the 'Principal Remittance Amount'), (iii) all Loan Purchase Prices and
Substitution Amounts with respect to such Remittance Date and the related Loan
Group and (iv) an amount equal to the Excess Interest for the related Loan
Group. The 'Excess Interest' with respect to each Loan Group and for any
Remittance Date is the product of (x) one-twelfth of the difference between (i)
the
S-35
<PAGE>
weighted average Mortgage Rate on the Home Equity Loans in such Loan Group as of
the first day of the related Remittance Period and (ii) the applicable Adjusted
Pass-Through Rate plus, in the case of Loan Group Two, the Retained Interest
Rate and (y) the related Loan Group Principal Balance as of the last day of the
related Remittance Period, to the extent such amount is received or advanced.
For any Remittance Date, the Interest Remittance Amount, the Principal
Remittance Amount and the amounts described in clause (iii) of the second
preceding sentence, with respect to each Loan Group, are collectively referred
to as the 'Monthly Remittance' for such Remittance Date.
The 'Adjusted Pass-Through Rate' for a Loan Group will equal the sum of the
following, each expressed as a per annum rate: (i) the Servicing Fee; (ii) the
premiums due to the Certificate Insurer; (iii) the fees due to the Trustee; and
(iv) as to Loan Group One, the weighted average of the Pass-Through Rates for
the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates and as
to Loan Group Two, the Pass-Through Rate for the Class A-6 Certificates (as in
effect for the applicable Accrual Period).
Delinquency Advances. The Pooling and Servicing Agreement requires that
if, on any Remittance Date, the amount then on deposit in any Principal and
Interest Account from collections on the related Loan Group with respect to the
preceding Remittance Period is less than the applicable Monthly Remittance plus,
prior to the Subordination Termination Date, the aggregate amount of Excess
Interest for the related Loan Group with respect to the immediately preceding
Remittance Period, then the Servicer is required to deposit to the applicable
Principal and Interest Account a sufficient amount of its own funds
('Delinquency Advances') to make such amount equal to the sum of the Interest
Remittance Amount, the Principal Remittance Amount, plus, prior to the
Subordination Termination Date, the aggregate amount of Excess Interest related
to such Loan Group.
The Servicer is permitted to fund its payment of Delinquency Advances on
any Remittance Date from collections on the Home Equity Loans deposited in the
applicable Principal and Interest Account subsequent to the related Remittance
Period, but must reimburse such Principal and Interest Account for any such
amounts on or prior to a subsequent Remittance Date on which such amounts are
required.
Accounts. The Pooling and Servicing Agreement provides that the Trustee
will create and maintain the Excess Interest Accounts, the Insured Payment
Accounts, the Certificate Accounts, the Premium Accounts, the Pre-Funding
Accounts, the Capitalized Interest Accounts and the Reserve Account, including
the Spread Sub-Account, the Residual Sub-Account and the Guarantee Fee
Sub-Account (collectively, the 'Accounts'). Pursuant to the Pooling and
Servicing Agreement, the Trustee will be required to maintain a separate
accounting, on a Loan Group basis, of the amounts deposited in or withdrawn from
each of the Accounts. The Pooling and Servicing Agreement provides that the
Trustee will (i) deposit the initial deposit, if any, in the Spread Sub-Account,
(ii) deposit the Pre-Funded Amounts in the Pre-Funding Accounts, (iii) deposit
the required amounts in the Capitalized Interest Accounts, (iv) deposit monthly
in the appropriate Certificate Account (each, a 'Certificate Account') the
remittances received from the Servicer with respect to the Home Equity Loans in
the related Loan Group described in clauses (i) through (iii) above under 'The
Principal and Interest Accounts,' (v) deposit monthly in the appropriate Excess
Interest Account (each, an 'Excess Interest Account') all remittances of Excess
Interest received from the Servicer with respect to the related Loan Group, (vi)
deposit monthly in the appropriate Premium Account (each, a 'Premium Account')
an amount equal to one-third of the quarterly premium due for the Certificate
Insurance Policy and (vii) deposit all Insured Payments in the appropriate
Insured Payment Account (each, an 'Insured Payment Account'). On each
Distribution Date prior to the Subordination Termination Date, the Trustee will
withdraw, in the priority indicated, the following amounts from each Excess
Interest Account and deposit such amounts as follows: (i) the Spread to the
Spread Sub-Account; (ii) the Residual Remittance Amount to the Residual
Sub-Account; and (iii) the Guarantee Fee to the Guarantee Fee Sub-Account;
provided, however, that no such amount will be required to be so deposited to
the extent that such deposit would cause the aggregate amount so deposited in
the Reserve Account to exceed the Specified Reserve Account Requirement for such
Distribution Date.
The premium for the Certificate Insurance Policy will be payable quarterly
in advance. On each third Distribution Date, commencing in 199 , the
Trustee will withdraw the quarterly premium then due for the Certificate
Insurance Policy from each Premium Account and deposit such amount in the
related Certificate Account for payment to the Certificate Insurer on such
Distribution Date. Any funds remaining in the Premium Accounts after such
withdrawal will be distributed to the Owners of the applicable Class of Residual
Certificates.
S-36
<PAGE>
Distributions on Offered Certificates. On each Distribution Date, in
preparation of making distributions to Certificate Owners, the Trustee will be
required (i) on the Distribution Dates prior to termination of the applicable
Pre-Funding Period, to transfer from the applicable Capitalized Interest Account
to the related Certificate Account an amount equal to the excess of (a) the
Interest Distribution Amount for each related Class of Certificates, over (b)
the Interest Remittance Amount for such Loan Group, (ii) on the Distribution
Date occurring at or immediately following the end of the applicable Pre-Funding
Period, to transfer from the related Pre-Funding Account to the applicable
Certificate Account the amount remaining on deposit in such Pre-Funding Account,
(iii) if the amount on deposit in the Certificate Account with respect to the
related Loan Group is insufficient to pay the full amount of the Distribution
Amount for the related Class or Classes of Offered Certificates, and the fees of
the Trustee and the Certificate Insurer applicable to such Loan Group for such
Distribution Date, to transfer to such Certificate Account the amount of such
insufficiency first, from the Spread Sub-Account, second from the Residual
Sub-Account and third from the Guarantee Fee Sub-Account, in each case to the
extent of amounts available therein, (iv) from amounts on deposit in each
Certificate Account, to pay the premium due the Certificate Insurer and the fees
of the Trustee applicable to the related Loan Group and (v) to transfer to the
appropriate Certificate Account from funds on deposit in the related Insured
Payment Account, the amount of any shortfalls in the Distribution Amounts for
the related Class or Classes of Offered Certificates.
On each Distribution Date, the Trustee will be required to make the
following disbursements and transfers from the applicable Certificate Account:
(i) from the Certificate Account for Loan Group One in the following order
of priority:
(a) concurrently, to the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates, the applicable Interest Distribution Amount for
such Distribution Date;
(b) sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates, in that order, the applicable Principal
Distribution Amount, until their respective Class Principal Balances have
been reduced to zero;
(c) to the Certificate Insurer, any remaining Reimbursement
Obligations (as defined in the Insurance Agreement); and
(d) to the Residual Certificates, any remaining funds and, at or
immediately following the end of the Pre-Funding Period for Loan Group One,
any amounts remaining in the Capitalized Interest Account for Loan Group
One.
(ii) from the Certificate Account for Loan Group Two in the following order
of priority:
(a) to the Class A-6 Certificates, the Interest Distribution Amount
for such Distribution Date;
(b) to the Class A-6 Certificates, the Principal Distribution Amount
until the Class Principal Balance thereof has been reduced to zero;
(c) to the Certificate Insurer, any remaining Reimbursement
Obligations; and
(d) to the Residual Certificates, any remaining funds and, at or
immediately following the end of the Pre-Funding Period for Loan Group Two,
any amounts remaining in the Capitalized Interest Account for Loan Group
Two.
Any distributions in reduction of the Class Principal Balance of a Class of
Offered Certificates on a Distribution Date will include any Carry-Forward
Amount for such Class and Distribution Date to the extent funds are available
therefor.
On each Distribution Date, to the extent the amount on deposit in the
Reserve Account exceeds the Specified Reserve Account Requirement for such
Distribution Date, such excess will be distributed to the Owners of the Excess
Interest Certificates or paid to the person entitled thereto.
If prior to any Distribution Date, the Trustee determines that Available
Funds for a Loan Group on such Distribution Date will be insufficient to fund
the full amount of the Distribution Amount for the related Class or Classes of
Offered Certificates, the Trustee will be required to make a claim for an
Insured Payment under the Certificate Insurance Policy.
S-37
<PAGE>
The Pooling and Servicing Agreement provides that to the extent the
Certificate Insurer makes Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the applicable Class of Offered
Certificates with respect to such Insured Payments, will be deemed, to the
extent of the payments so made, to be a registered Owner of such Class of
Offered Certificates and will be entitled to reimbursement for such Insured
Payments, with interest thereon at the applicable Pass-Through Rate on each
Distribution Date following the making of an Insured Payment, only after the
Owners of the applicable Class of Offered Certificates have received the amount
due such Owners on such Distribution Date.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Distribution Date, and the term 'Home Equity Loans' includes Subsequent Loans.
'Accrual Period' means with respect to any Distribution Date and (i) the
Fixed Rate Certificates, the calendar month preceding the month of such
Distribution Date and (ii) the Class A-6 Certificates, the period beginning on
the 15th day of the month preceding the month of such Distribution Date (or, in
the case of the first Payment Date, beginning on the Closing Date) and ending on
the 14th day of the month of such Distribution Date.
'Available Funds' means, as of any Distribution Date and with respect to
any Loan Group, the sum, without duplication, of (a) the amount on deposit in
the applicable Certificate Account on such Distribution Date, plus (b) any
amount transferred from the Reserve Account to the applicable Certificate
Account on such Distribution Date, minus (c) the monthly deposits in respect of
the premium due the Certificate Insurer and the monthly fees of the Trustee
applicable to such Loan Group. The Pooling and Servicing Agreement provides that
the term 'Available Funds' does not include Insured Payments and does not
include any amounts that cannot be distributed to the Owners of the Offered
Certificates by the Trustee as a result of proceedings under the United States
Bankruptcy Code.
'Basic Principal Amount' means, as to any Distribution Date and with
respect to any Loan Group, the sum, without duplication, of the following
amounts with respect to such Loan Group: (i) the principal portion of all
scheduled and unscheduled payments received on the Home Equity Loans during the
calendar month preceding the calendar month in which such Distribution Date
occurs (the 'Remittance Period'), including (a) any full or partial principal
prepayments of any Home Equity Loans ('Prepayments') received during the related
Remittance Period, (b) the proceeds of any insurance policy relating to a Home
Equity Loan, a Mortgaged Property or a property related to Mortgages foreclosed
or for which deeds in lieu of foreclosure have been accepted, and held by the
Servicer pending disposition (an 'REO Property'), net of proceeds to be applied
to the repair of the Mortgaged Property or released to the Mortgagor and net of
expenses reimbursable therefrom ('Insurance Proceeds'), (c) proceeds received in
connection with the liquidation of any defaulted Home Equity Loans, whether by
trustee's sale, foreclosure sale or otherwise ('Liquidation Proceeds'), net of
fees and advances reimbursable therefrom ('Net Liquidation Proceeds'), (d) net
rental income, if any, from REO Properties ('REO Proceeds') and (e) proceeds
received in connection with a taking of a Mortgaged Property by condemnation or
the exercise of eminent domain or in connection with a release of part of the
Mortgaged Property from the related lien ('Released Mortgaged Property
Proceeds'), (ii) the principal portion of all amounts deposited into the
applicable Principal and Interest Account by the Depositor or the Originators in
connection with the repurchase of, or the substitution of a substantially
similar home equity loan for, a Home Equity Loan as to which there is defective
documentation or a breach of a representation or warranty contained in the
Pooling and Servicing Agreement or by the Servicer in connection with the
purchase of any Home Equity Loan as permitted by the Pooling and Servicing
Agreement, (iii) the principal balance of each defaulted Home Equity 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 the preceding clauses (i) and (ii) and
(iv) with respect to Loan Group One or Loan Group Two, any amounts released from
the related Pre-Funding Account at or following termination of the applicable
Pre-Funding Period which are treated as a Prepayment.
'Carry-Forward Amount' means with respect to any Class of Offered
Certificates the sum of (i) the amount, if any, by which (x) the related
Distribution Amount as of the immediately preceding Distribution Date exceeded
(y) the amount of the actual distribution (exclusive of any amount representing
Insured Payments) to the Owners of such Class of Offered Certificates on such
preceding Distribution Date and (ii) interest on the
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<PAGE>
interest component of the amount, if any, described in clause (i) at one-twelfth
the applicable Pass-Through Rate for the immediately preceding Accrual Period.
'Class Principal Balance' means with respect to any Class of Offered
Certificates, the Class Principal Balance of such Class on the Closing Date,
reduced by the sum of all amounts previously distributed to the Owners of such
Class of Offered Certificates in respect of principal on all previous
Distribution Dates.
'Distribution Amount' means with respect to any Class of Offered
Certificates and any Distribution Date, the sum of the applicable Principal
Distribution Amount and the applicable Interest Distribution Amount for such
Distribution Date.
'Interest Distribution Amount' means with respect to any Class of Offered
Certificates and any Distribution Date, the interest accrued during the related
Accrual Period at the applicable Pass-Through Rate on the related Class
Principal Balance immediately prior to such Distribution Date.
'Principal Distribution Amount' means with respect to any Class of Offered
Certificates and any Distribution Date, the sum of (i) an amount equal to the
portion of the Basic Principal Amount for the related Loan Group for such
Distribution Date allocated to such Class of Offered Certificates and (ii) the
applicable Carry-Forward Amount for such Distribution Date.
CALCULATION OF LIBOR
The Class A-6 Certificates initially will bear a Pass-Through Rate of
% per annum during the Accrual Period beginning on , 199 and
ending on , 199 . Thereafter, on the second business day preceding
each Distribution Date (each such date, an 'Interest Determination Date'), the
Trustee will determine the London interbank offered rate for one-month U.S.
dollar deposits ('LIBOR') for the next Accrual Period for the Class A-6
Certificates on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on the Reuters Screen LIBO
Page, as of 11:00 a.m. (London time) on such Interest Determination Date. As
used in this section, 'business day' means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; 'Reuters
Screen LIBO Page' means the display designated as page 'LIBO' on the Reuter
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and 'Reference Banks' means leading banks selected by the Trustee
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Reuters Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by the
Trustee and (iv) not controlling, controlled by, or under common control with,
the Depositor.
On each Interest Determination Date, LIBOR for the related Accrual Period
for the Class A-6 Certificates will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for
the Class A-6 Certificates shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period
for the Class A-6 Certificates shall be the higher of (x) LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate. The 'Reserve Interest Rate' shall be the rate per annum that
the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by
the Trustee are quoting on the relevant Interest Determination Date to the
principal London offices of leading banks in the London interbank market
or, in the event that the Trustee cannot determine such arithmetic mean,
(ii) the lowest one-month U.S. dollar lending rate which New York City
banks selected by the Trustee are quoting on such Interest Determination
Date to leading European banks.
(c) If on the first Interest Determination Date, the Trustee is
required but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be %.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-6 Certificates for the related Accrual Period shall (in
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<PAGE>
the absence of manifest error) be final and binding. Each such rate of interest
may be obtained by telephoning the Trustee at ( ) - .
RESERVE ACCOUNT
On the Closing Date, the Trustee will establish and thereafter maintain
with itself a reserve account comprised of three sub-accounts: the Spread
Sub-Account; the Residual Sub-Account; and the Guarantee Fee Sub-Account
(collectively, the 'Reserve Account'). On the Closing Date, an initial deposit
may be made into the Spread Sub-Account. On each Remittance Date on or prior to
the Subordination Termination Date, the Trustee is required to deposit (i) the
Spread for each Loan Group into the Spread Sub-Account, (ii) the Residual
Remittance Amount for each Loan Group into the Residual Sub-Account and (iii)
the Guarantee Fee for each Loan Group into the Guarantee Fee Sub-Account. As to
any Remittance Date and Loan Group, the sum of the Spread, the Residual
Remittance Amount and the Guarantee Fee will equal the Excess Interest for such
Remittance Date and Loan Group. The Pooling and Servicing Agreement permits the
Reserve Account to be funded in part by cash or by one or more letters of credit
(each, a 'Letter of Credit').
The aggregate amount required to be on deposit at any time in the Reserve
Account (after taking into account the amounts available to be withdrawn under
any Letters of Credit deposited therein) will be determined in accordance with
the terms of the Pooling and Servicing Agreement (such amount, the 'Specified
Reserve Account Requirement'). Amounts, if any, on deposit in the Reserve
Account up to the Subordinated Amount (as defined below) will be available to
fund any shortfall between the Available Funds for any Loan Group (before any
withdrawals from the Reserve Account on a Distribution Date) and the
Distribution Amount for the related Class or Classes of Offered Certificates.
Withdrawals from the Reserve Account for such purposes will be made first from
the Spread Sub-Account, second from the Residual Sub-Account and third from the
Guarantee Fee Sub-Account.
The Pooling and Servicing Agreement provides that, in the event aggregate
withdrawals from the Reserve Account with respect to shortfalls on the Offered
Certificates equal the amount specified in the Pooling and Servicing Agreement
(such amount, the 'Subordinated Amount'), no further withdrawals with respect to
such shortfalls may be made from the Reserve Account, and the Specified Reserve
Account Requirement will thereafter be zero. The Distribution Date on which the
Subordinated Amount is reduced to zero is the 'Subordination Termination Date.'
The Pooling and Servicing Agreement additionally provides that the
Specified Reserve Account Requirement and the Subordinated Amount may decline
over time based on criteria established by the Certificate Insurer, even if no
withdrawals from the Reserve Account are made.
The provisions of the Pooling and Servicing Agreement relating to the
Reserve Account may be amended in any respect by the Depositor, the Servicer and
the Certificate Insurer without the consent of, or notice to, the Owners of the
Offered Certificates. Such amendment could reduce or eliminate the funding
requirements of the Reserve Account. In addition, because amounts in the Reserve
Account are available for all Classes of Offered Certificates, a
disproportionate amount of funds may be used to benefit one Class of Offered
Certificates, thereby reducing the funds available for the other Classes of
Offered Certificates. Notwithstanding any reduction in or elimination of the
funding requirements of the Reserve Account, or depletion of the Subordinated
Amount, the Certificate Insurer will be obligated, in accordance with the terms
of the Certificate Insurance Policy, on each Distribution Date to fund the full
amount of the Distribution Amount for each Class of the Offered Certificates on
such Distribution Date. If the Certificate Insurer breaches its obligations, any
realized losses on the Home Equity Loans will be allocated among the Offered
Certificates on a pro rata basis.
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<PAGE>
THE ORIGINATORS
OVERVIEW
United Companies, headquartered in Baton Rouge, Louisiana, originates,
purchases, sells and services primarily first lien, non-conventional, home
equity loans which are typically not loans for the purchase of homes. These
loans are made primarily to individuals who may not otherwise qualify for
conventional loans which are readily marketable to government-sponsored mortgage
agencies or conduits and available through most commercial banks and many other
lending institutions. It operates through a branch network, correspondent (i.e.,
wholesale) loan programs and bulk purchases by an affiliate. As of ,
199 , United Companies' branch network consisted of offices located in
states.
An affiliate of United Companies, UNICOR Mortgage(Registered), Inc.
('UNICOR') which, as of , 199 was operating in states, offers fixed
and adjustable rate home equity loans to borrowers of a credit quality
comparable to borrowers who typically receive loans through the United
Companies' branch network. Loans may be secured by one or more single family,
owner-occupied or non-owner occupied, and multi-family properties. A network of
field account executives solicit qualifying loans from mortgage correspondents
and brokers within target markets by employing a combination of direct
solicitation, participation in seminars, trade shows and conventions, as well as
advertising directed at the mortgage lender/broker market.
Correspondents and brokers are subjected to an approval process, including
but not limited to verification that appropriate local, state and federal
requirements for licensing are obtained and maintained and are required to
execute a contract with UNICOR prior to closing any loans. Appraisers and
closing agents are also subjected to an approval process including verification
that certification and licensing requirements are obtained and maintained. To
maintain uniformity, loans are closed utilizing UNICOR loan closing documents
which are generated by its central loan closing department and which contain
terms substantially similar to those utilized by the branch network. All loans
are underwritten prior to approval and funding by United Companies personnel
under guidelines comparable to those used for loans originated through the
branch network.
United Companies operates another wholesale loan network which offers
substantially the same products as the UNICOR program to banks and other
depository institutions through its division operating under the registered
servicemark GINGER MAE(Registered), the acronym for the Good Neighbor
Reinvestment Mortgage Assistance Loan Program. This program is intended to
permit participating institutions to originate loans to borrowers who do not
qualify for conventional credit. Loans purchased by United Companies under this
program are underwritten by the United Companies personnel prior to approval and
funding under substantially the same guidelines as those utilized by UNICOR. As
of , 199 , GINGER MAE(Registered) had financial institutions in
states participating in the GINGER MAE(Registered) program.
Home Equity Loans purchased in bulk by Southern Mortgage Acquisition, Inc.,
an affiliate of United Companies are re-underwritten by United Companies or
UNICOR personnel prior to purchase utilizing the underwriting guidelines of
United Companies.
HOME EQUITY LOANS
The Originators' principal product is a home equity loan with a fixed
amount, interest rate and term to maturity, which is typically secured by a
first mortgage on the borrower's residence. These types of loans are commonly
referred to as 'B' and 'C' grade loans. These loans are distinct from home
equity revolving lines of credit, not offered by the Originators, which are
generally secured by a second mortgage and typically carry a floating interest
rate. United Companies also offers a first lien, adjustable rate home equity
loan product, and, for the year ending December 31, 199 , originated
approximately $ million of this product. United Companies is an approved
FNMA and FHLMC seller/servicer and an approved FHA lender. The Originators
originated billion in home equity loans during the year ended December 31,
199 . The Originators also make second mortgage loans, and have made agency
conforming first mortgage loans and consumer loans
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<PAGE>
secured by personal property. Such agency conforming and consumer lending has
been substantially terminated. Most of the Originators' loan originations are
sold in the secondary market and servicing rights are retained by United
Companies on substantially all loans sold.
As of , 199 approximately % in aggregate principal amount
of the home equity loans owned by the Originators and/or serviced by United
Companies are secured by a first mortgage with the remaining % in aggregate
principal amount secured by second or multi-property mortgages. The average home
equity loan at origination was approximately $ during 199 , up from
$ during 199 , and increased to $ during 199 . Typically, the
proceeds of the home equity loan will be used by the borrower to refinance an
existing first mortgage in order to finance home improvements or for debt
consolidation. During 199 , the Originators originated $ billion, in
first mortgage home equity loans, including $ million, in first lien
adjustable rate loans, and $ million, in second and multi-property loans.
On most home equity loans for home improvements, the loan proceeds are disbursed
to an escrow agent which, according to guidelines established by the
Originators, releases such proceeds upon completion of the improvements or in
draws as the work on the improvements progresses. Costs incurred by the borrower
for loan origination including origination points, and appraisal, legal and
title fees, are often included in the amount financed. Contractual maturities
range from five to thirty years.
The Originators' principal market for home equity loans is individuals who
may not otherwise qualify for conventional loans which are readily marketable to
the government-sponsored mortgage agencies or conduits and available through
most commercial banks and many other lending institutions. Loans to such
borrowers generally produce higher fee and interest income as compared to loans
to customers of banks and thrifts. There are generally numerous competitors for
these borrowers in each of the Originators' geographic markets. Principal
competitors include recognized national and regional lenders. The Originators
believe that prompt underwriting and response to loan applications provide a
competitive advantage in loan originations.
DELINQUENCY AND LOSS EXPERIENCE
The following two tables set forth information relating to the delinquency,
default and loan loss experience of United Companies for its servicing portfolio
of home equity loans as of the dates indicated in the first table and for the
periods indicated in the second table, including loans owned by United Companies
or its affiliates and loans serviced for others.
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<PAGE>
DELINQUENCY EXPERIENCE ON UNITED COMPANIES' PORTFOLIO
OF HOME EQUITY LOANS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------- ------------------
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of home equity loans.....................
Dollar amount of home equity loans.............. $ $ $ $ $
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Delinquency Period(1)...........................
30-59 days.................................... % % % % %
60-89 days.................................... % % % % %
90 days and over.............................. % % % % %
Defaults(1)
Foreclosures in process....................... % % % % %
Bankruptcy.................................... % % % % %
Real Estate Owned & Serviced.................... $ $ $ $ $
</TABLE>
- ------------------
(1) As a percentage of total 'dollar amount of home equity loans' as of the date
indicated.
LOAN LOSS EXPERIENCE ON UNITED COMPANIES' PORTFOLIO
OF HOME EQUITY LOANS
<TABLE>
<CAPTION>
MONTHS
YEAR ENDING DECEMBER 31, ENDING
-------------------------------------- ------------------------
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average dollar amount of home equity loans
outstanding during period..................... $ $ $ $ $
Net Losses
Gross Losses(1)............................... $ $ $ $ $
Recoveries(2)................................. $ () $ () $ () $ () $ ()
---------- ---------- ---------- ---------- ----------
Net Losses(3)................................. $ $ $ $ $
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net Losses as a percentage of average amount
outstanding................................... % % % %(4) %(4)
</TABLE>
- ------------------
(1) 'Gross Losses' are amounts which have been determined to be uncollectible
relating to home equity loans for each respective period.
(2) 'Recoveries' are recoveries from liquidation proceeds and deficiency
judgments.
(3) 'Net Losses' means 'Gross Losses' minus 'Recoveries.'
(4) Annualized
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Loans are placed on a non-accrual status when they are 150 days past due.
The above delinquency, default and loan loss experience represents United
Companies' recent experience. However, the delinquency, default and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of the portfolio. In addition, United Companies can neither quantify
the impact of property value declines, if any, on the Home Equity Loans nor
predict whether, to what extent or how long such declines may exist. In a period
of such decline, the rates of delinquencies, defaults and losses on the Home
Equity Loans could be higher than those heretofore experienced in the mortgage
lending industry in general. Adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Home Equity Loans and,
accordingly, the actual rates of delinquencies, defaults and losses. As a
result, the information in the above tables should not be considered as a basis
for assessing the likelihood, amount or severity of delinquencies or losses on
the Home Equity Loans and no assurance can be given that the delinquency and
loss experience presented in the tables will be indicative of such experience on
the Home Equity Loans.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued in classes (each, a 'Class') pursuant to
the Pooling and Servicing Agreement, dated as of 1, 199 (the 'Pooling
and Servicing Agreement'), among the Depositor, the Servicer and the Trustee.
The Trustee will make available for inspection a copy of the Pooling and
Servicing Agreement (without exhibits or schedules) to the Owners of the
Certificates on written request. The following summary, together with the
information set forth in the Prospectus under the caption 'The Pooling and
Servicing Agreement' describes the material terms of the Pooling and Servicing
Agreement, but does not purport to describe all of the terms of the Pooling and
Servicing Agreement and is therefore qualified in its entirety by reference to
the Pooling and Servicing Agreement. Reference is made to the Prospectus for
important additional information regarding the terms of the Pooling and
Servicing Agreement and the Certificates.
PRE-FUNDING ACCOUNT
On the Closing Date, the Trustee will establish and thereafter maintain
with itself a separate trust account with respect to each of Loan Group One and
Loan Group Two (each, a 'Pre-Funding Account'). On the Closing Date, cash in an
amount not to exceed approximately $ and $ (each, a 'Pre-Funded
Amount') will be deposited in the Pre-Funding Account for Loan Group One and
Loan Group Two, respectively. Each Pre-Funded Amount may be used only to (i)
acquire additional single family residential home equity and home improvement
loans (the 'Subsequent Loans') for the related Loan Group and (ii) make
accelerated payments of principal of the Offered Certificates related to such
Loan Group. All Subsequent Loans added to Loan Group One will bear fixed rates,
and all Subsequent Loans added to Loan Group Two will bear adjustable rates.
During the period (the 'Pre-Funding Period') from the Closing Date to the
earliest to occur of (a) the applicable Funding Termination Date (defined
below), (b) an Event of Default under the Pooling and Servicing Agreement and
(c) , 199 , amounts on deposit in a Pre-Funding Account may be
withdrawn from time to time to acquire Subsequent Loans for the related Loan
Group in accordance with the Pooling and Servicing Agreement. The 'Funding
Termination Date' for a Loan Group will be the date on which the related
Pre-Funded Amount has been reduced to less than $100,000. Any Pre-Funded Amount
remaining in a Pre-Funding Account at the end of the applicable Pre-Funding
Period will be distributed on the Distribution Date at or immediately following
the end of such Pre-Funding Period. If the Pre-Funded Amount so distributed is
less than $100,000, it will be distributed as a Prepayment and allocated to the
Classes of Offered Certificates related to Loan Group One or Loan Group Two, as
applicable, as provided herein; otherwise such amount will be distributed as
principal of the Classes of Offered Certificates related to Loan Group One or
Loan Group Two, as applicable, pro rata on the basis of their respective Class
Principal Balances.
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<PAGE>
CAPITALIZED INTEREST ACCOUNTS
On the Closing Date, the Trustee will establish and thereafter maintain
with itself a separate trust account with respect to each of the Loan Group One
and Loan Group Two (each, a 'Capitalized Interest Account'), into which amounts
will be deposited. The amounts so deposited will be used by the Trustee on the
Distribution Dates during the applicable Pre-Funding Period to fund the excess,
if any, of the sum of the amount of interest accrued on the Classes of
Certificates related to the applicable Loan Group at the applicable Pass-Through
Rates and the deposit in respect of the premium for the Certificate Insurance
Policy, over the Interest Remittance Amount for such Loan Group for such
Distribution Dates.
COMPENSATING INTEREST
A full month's interest at the applicable Adjusted Pass-Through Rate (minus
the Servicing Fee), plus, prior to the Subordination Termination Date, a full
month's Excess Interest with respect to each Home Equity Loan in a Loan Group,
is due to the Trustee on the outstanding Loan Balance of each Home Equity Loan
as of the beginning of each Remittance Period. If a Prepayment of a Home Equity
Loan occurs during any calendar month, any difference between the interest
collected from the Mortgagor during such calendar month and the full month's
interest at the applicable Adjusted Pass-Through Rate, plus, prior to the
Subordination Termination Date, a full month's Excess Interest with respect to
such Home Equity Loan ('Compensating Interest') that is due is required to be
deposited by the Servicer to the applicable Principal and Interest Account and
will be included in the Monthly Remittance and the aggregate amount of Excess
Interest, if any, to be made available to the Trustee for each Loan Group on the
next succeeding Remittance Date; provided, however, that the Servicer's
obligation in respect of Compensating Interest is limited to the aggregate
amount of its Servicing Fee for the related Remittance Period.
EVIDENCE OF COMPLIANCE
The accountant's report and officer's certificate referred to in the
Prospectus under 'The Pooling and Servicing Agreement--Evidence of Compliance'
must be delivered on or before the last day of April of each year, commencing in
199 .
REMOVAL AND RESIGNATION OF SERVICER
The Certificate Insurer or, with the consent of the Certificate Insurer,
the Trustee (or the Owners acting on behalf of the Trustee) may remove the
Servicer upon the occurrence of any Event of Default, as defined in the
Prospectus under 'The Pooling and Servicing Agreement--Removal and Resignation
of the Master Servicer.' In addition, the Certificate Insurer has the option to
remove the Servicer in the event that certain delinquency triggers set forth in
the Pooling and Servicing Agreement are met.
TERMINATION
The Pooling and Servicing Agreement provides that a Trust will terminate
upon the payment to the Owners of all related Certificates from amounts other
than those available under the Certificate Insurance Policy all amounts required
to be paid to such Owners upon the final payment and other liquidation (or any
advance made with respect thereto) of the last Home Equity Loan in the
applicable Loan Group or Loan Groups.
At its option, the Servicer may purchase all (but not fewer than all)
remaining Home Equity Loans and other property acquired by foreclosure, deed in
lieu of foreclosure or otherwise, then constituting a Loan Group, and thereby
effect early retirement of the related Certificates, on any Distribution Date
when the aggregate outstanding Loan Balances of the Home Equity Loans in such
Loan Group is 10% or less of an amount equal to the aggregate principal balances
of the related Home Equity Loans on the Cut-Off Date including, the aggregate
balances of the Subsequent Loans as of the related subsequent cut-off date(s)
added to the applicable Loan Group.
The Owners of the applicable Class or Classes of Offered Certificates would
receive from the proceeds of such purchase any accrued interest thereon together
with any principal not yet paid, in the order set forth herein under
'Description of the Certificates--Flow of Funds and Distributions on Offered
Certificates.'
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<PAGE>
THE TRUSTEE
Pursuant to the Pooling and Servicing Agreement, will serve
as trustee of each Trust. See 'The Pooling and Servicing Agreement--The Trustee'
in the Prospectus.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
The following information has been furnished by the Certificate Insurer for
use herein.
(the 'Certificate Insurer') will issue its Certificate
Insurance Policy for the Offered Certificates. The Certificate Insurance Policy
unconditionally guarantees the payment of principal and scheduled interest on
the Offered Certificates. The Insurer will make each required Insured Payment to
the Trustee on the later of (i) the Distribution Date on which such Insured
Payment is distributable to the Owners of the Offered Certificates pursuant to
the 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 Certificate Insurance Policy.
The Insurer's obligation under the Certificate Insurance Policy will be
discharged to the extent that funds are received by the Trustee for distribution
to the Owners of the Offered Certificates, whether or not such funds are
properly distributed by the Trustee.
For purposes of the Certificate Insurance Policy, 'Owner of an Offered
Certificate' as to a particular Certificate, does not and may not include the
Trust, the Servicer, any Subservicer, the Depositor or any Originator.
The Certificate Insurance Policy does not guarantee to the Owners any
specified rate of prepayments of principal of the Home Equity Loans or any
specified return.
The Certificate Insurance Policy is noncancellable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/
CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK
INSURANCE LAW.
[Description of Certificate Insurer].
CAPITALIZATION
The following table sets forth the capitalization of the Certificate
Insurer as of December 31, 199 and December 31, 199 , respectively, on the basis
of generally accepted accounting principles. No material adverse change in the
capitalization of the Certificate Insurer has occurred since December 31, 199 .
<TABLE>
<CAPTION>
DECEMBER 31, 199 DECEMBER 31, 199
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Unearned Premiums....................... $ $
Other Liabilities.......................
Stockholder's Equity
Common Stock..........................
Additional Paid-in Capital............
Unrealized Gains/(Losses).............
Foreign Currency Translation
Adjustment.........................
Retained Earnings.....................
----------------- -----------------
Total Stockholder's Equity..............
----------------- -----------------
Total Liabilities and Stockholder's
Equity................................ $ $
----------------- -----------------
----------------- -----------------
</TABLE>
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<PAGE>
For further financial information concerning the Certificate Insurer, see
the audited financial statements of the Certificate Insurer included as Appendix
A to this Prospectus Supplement.
Copies of the Certificate Insurer's quarterly and annual statutory
statements filed by the Certificate Insurer with the New York Insurance
Department are available upon request.
The Certificate Insurer does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or the Prospectus or any
information or disclosure contained herein or therein, or omitted herefrom or
therefrom, other than with respect to the accuracy of the information regarding
the Certificate Insurance Policy and the Certificate Insurer set forth under the
heading 'The Certificate Insurance Policy and the Certificate Insurer' herein
and in Appendix A hereto.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Reserve Account and by the
Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. Moneys may not be withdrawn from the Reserve Account, nor may a
claim be made under the Certificate Insurance Policy in an attempt to guarantee
or insure that any particular rate of prepayment is experienced by either Trust.
FEDERAL INCOME TAX CONSEQUENCES
Separate elections will be made to treat the Home Equity Loans and certain
other assets owned by each Trust as a real estate mortgage investment conduit
('REMIC') for federal income tax purposes. The Offered Certificates will be
designated as regular interests in a REMIC (the 'Regular Certificates' or the
'REMIC Regular Certificates'). See 'Federal Income Tax Consequences' in the
Prospectus.
Because the Offered Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the 'Code'), and interest paid or accrued on
such Certificates, including original issue discount with respect to any such
Certificates issued with original issue discount, will be taxable to Owners in
accordance with the accrual method of accounting. It is anticipated that the
Regular Certificates, except possibly the Class A-6 Certificates, will not be
subject to the original issue discount provisions. See 'Federal Income Tax
Consequences--REMIC Regular Certificates-- Original Issue Discount' in the
Prospectus. The prepayment assumption that will be used in determining the rate
of accrual of original issue discount is %. No representation is made as to
the rate at which prepayments actually will occur. In addition, certain Classes
of Regular Certificates may be treated as having been issued at a premium. See
'Federal Income Tax Consequences--REMIC Regular Certificates--Premium' in the
Prospectus.
LEGAL INVESTMENT
The Class A-6 Certificates will constitute 'mortgage related securities'
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA')
so long as they remain rated in one of the two highest long-term rating
categories by at least one nationally recognized statistical rating
organization. The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 will
not constitute 'mortgage related securities' for purposes of SMMEA. See 'Legal
Investment' in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
imposes certain requirements on those employee benefit plans to which it applies
('ERISA Plans') and on those persons who are fiduciaries with respect to such
ERISA Plans. Certain employee benefit plans, such as governmental plans (as
defined in ERISA Section 3(32)) and certain church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA. In accordance with ERISA's general
fiduciary standards, before investing in an Offered Certificate, an ERISA Plan
fiduciary should determine whether such an investment is permitted under the
governing ERISA Plan instruments and is appropriate for the ERISA Plan in view
of its overall investment policy and the composition and diversification of its
portfolio.
S-47
<PAGE>
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a 'Plan') are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ('parties in interest' and 'disqualified persons'). Such
transactions are treated as 'prohibited transactions' under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Depositor, the Originators, the Certificate Insurer, the Underwriter
and the Trustee and certain of their affiliates might be considered 'parties in
interest' or 'disqualified persons' with respect to the Plan. If so, the
acquisition, holding or transfer of Offered Certificates by or on behalf of such
Plan could be considered to give rise to a 'prohibited transaction' within the
meaning of ERISA and the Code unless an exemption is available. Furthermore, if
an investing Plan's assets were deemed to include an interest in the Home Equity
Loans and any other assets of the related Trust and not merely an interest in
the related Offered Certificates, transactions occurring in the servicing of the
Home Equity Loans might constitute prohibited transactions unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing of the Home Equity Loans are noted below.
The Department of Labor ('DOL') has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the 'Plan Asset Regulations'), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an 'equity' investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. Thus, a Plan fiduciary considering an investment in the
Offered Certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code.
DOL has granted to an administrative exemption (Prohibited
Transaction Exemption ; Fed. Reg. ( , 199 ) (the 'Exemption')
from certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption which may be applicable to the Offered Certificates if or
any of its affiliates is either the sole underwriter or manager or co-manager of
the underwriting syndicate, or a selling or placement agent. The conditions
which must be satisfied for the Exemption to apply to the purchase, holding and
transfer of the Offered Certificates are the following:
(i) The acquisition of the Offered Certificates by a Plan is on terms
(including the price for the Offered Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party.
(ii) The rights and interest evidenced by a Class of Offered
Certificates acquired by the Plan are not subordinated to the rights and
interest evidenced by any other Certificates of the related Trust.
(iii) The Offered Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Moody's, Duff & Phelps Credit Rating
Co., S&P or Fitch ('Authorized Rating Agencies') and the investment pool
consists only of assets of the type enumerated in the Exemption, and which
have been included in other investment pools; certificates evidencing
interests in such other investment pools have been rated in one of the
three highest generic rating categories by an Authorized Rating Agency for
at least one year prior to a Plan's acquisition of certificates; and
certificates evidencing interests in such other investment pool have been
purchased by investors other than Plans for at least one year prior to a
Plan's acquisition of the Offered Certificates.
(iv) The sum of all payments made to in connection with
the distribution of the Offered Certificates represents not more than
reasonable compensation for distributing the Offered Certificates. The sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Home Equity Loans to
S-48
<PAGE>
the related Trust represents not more than the fair market value for such Home
Equity Loans. The sum of all payments made to and retained by the Servicer or
any other servicer represents not more than reasonable compensation for such
services under the Pooling and Servicing Agreement and reimbursement of the
servicer's reasonable expenses in connection therewith.
(v) The Trustee must not be an affiliate of any member of the
Restricted Group as defined below.
In addition, it is a condition that the Plan investing in the Offered
Certificates be an 'accredited investor' as defined in Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended.
It is believed that upon the termination of a Pre-Funding Period, the
Exemption will apply to the purchase, holding and resale of the Classes of
Offered Certificates related to the Loan Group for which such Pre-Funding Period
has ended.
The Exemption does not apply to Plans sponsored by the Originators, the
Depositor, the Certificate Insurer, , the Trustee, the Servicer, any
other servicers or any Mortgagor with respect to Home Equity Loans included in
the related Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in such Trust or any affiliate of such parties
(the 'Restricted Group'). No exemption is provided from the restrictions of
ERISA for the acquisition or holding of Offered Certificates on behalf of an
'Excluded Plan' by any person who is a fiduciary with respect to the assets of
such Excluded Plan. For purposes of the Offered Certificates, an Excluded Plan
is a Plan sponsored by any member of the Restricted Group. In addition, no
Plan's investment in any Class of Offered Certificates may exceed 25% of all of
the Certificates of such Class outstanding at the time of the Plan's acquisition
and after the Plan's acquisition of such Class of Offered Certificates, no more
than 25% of the assets over which the fiduciary has investment authority may be
invested in securities of a trust containing assets which are sold or serviced
by the same entity. Finally, in the case of initial issuance (but not secondary
market transactions), at least 50% of each Class of Offered Certificates, and at
least 50% of the aggregate interest in the Trust, must be acquired by persons
independent of the Restricted Group.
Before purchasing an Offered Certificate in reliance on the Exemption or
any other exemption, a fiduciary of a Plan should confirm that the requirements
set forth in such exemption would be satisfied. Any Plan fiduciary considering
the purchase of an Offered Certificate should consult with its counsel with
respect to the potential applicability of ERISA and the Code to such investment.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Offered Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio. Special caution should be exercised before a Plan
purchases an Offered Certificate in such circumstances.
S-49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the 'Underwriting Agreement') among the Depositor and the Underwriters named
below (the 'Underwriters') the Depositor has agreed to sell to the Underwriters
and each Underwriter has agreed to purchase from the Depositor the principal
amount of each Class of Offered Certificates set forth below after its name.
<TABLE>
<CAPTION>
UNDERWRITER CLASS PRINCIPAL AMOUNT
- --------------------------------------------- ----- ----------------
<S> <C> <C>
[Name of Underwriter]........................ A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
A-6 $
----------------
Total:.................................. $
----------------
----------------
[Name of Underwriter]........................ A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
A-6 $
----------------
Total:.................................. $
----------------
----------------
</TABLE>
The Offered Certificates will be offered by the Underwriters from time to
time in negotiated transactions or otherwise, at varying prices to be determined
at the time of sale. Proceeds to the Depositor, including accrued interest, are
expected to be approximately % of the aggregate principal balance of the
Offered Certificates, before deducting expenses payable by the Depositor in
connection with the Offered Certificates, estimated to be $ . In
connection with the purchase and sale of the Offered Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
REPORTS OF EXPERTS
The financial statements of , for the year ended ,
199 , appearing in Appendix A of this Prospectus Supplement, have been audited
by , independent auditors, as set forth in their report thereon
appearing in Appendix A, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain tax matters concerning the issuance of the Certificates will be
passed upon by Stroock & Stroock & Lavan LLP, New York, New York. Certain legal
matters relating to the validity of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. Stroock &
Stroock & Lavan LLP represents the Servicer and United Companies Financial
Corporation, an affiliate of the Depositor and the Servicer, from time to time.
S-50
<PAGE>
RATINGS
It is a condition of the original issuance of the Offered Certificates that
they receive ratings of AAA by Fitch, Aaa by Moody's and, except for the Class
A-6 Certificates, AAA by S&P. The Class A-6 Certificates will be rated AAAr by
S&P. Such ratings are the highest long-term ratings assigned to securities by
such rating agencies. The 'r' symbol is appended to the rating by S&P of those
Certificates that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. The absense of an 'r'
symbol in the ratings of the other Offered Certificates should not be taken as
an indication that such Certificates will exhibit no volatility or variability
in total return. The ratings do not address the Originators' ability to
repurchase Converted Loans or the possibility that, as a result of principal
prepayments, Owners may receive a lower than anticipated yield. Such ratings
will be based primarily on the ratings assigned to the claims paying ability of
the Certificate Insurer. Any reduction in such ratings of the Certificate
Insurer would most likely result in a reduction in the ratings given to the
Offered Certificates. The ratings will be the views only of such rating
agencies. There is no assurance that any such ratings will continue for any
period of time or that such ratings will not be revised or withdrawn. Any such
revision or withdrawal of such ratings may have an adverse effect on the market
price of the Offered Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
S-51
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the Registration
Statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 28, 1997
PROSPECTUS
$4,000,000,000
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
------------------------
UCFC ACCEPTANCE CORPORATION
(DEPOSITOR)
------------------------
The Asset-Backed Certificates (the 'Certificates') and the Asset-Backed
Notes (the 'Notes' and, collectively with the Certificates, the 'Securities')
described herein may be sold from time to time in one or more series (each, a
'Series') in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a 'Prospectus
Supplement'). Each Series of Securities will include either one or more classes
of Certificates or, if Notes are issued as part of a Series, one or more Classes
of Notes and one or more Classes of Certificates, as set forth in the related
Prospectus Supplement. The locations of certain capitalized terms used herein
are set forth in 'Index of Principal Terms' beginning on page 83.
The Certificates of a Series will evidence undivided interests in certain
assets deposited into a trust (each, a 'Trust') by UCFC Acceptance Funding
Corporation (the 'Depositor') pursuant to a Pooling and Servicing Agreement or a
Trust Agreement, as described herein. The Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness of the related
Trust. The Trust for a Series of Securities will include (a) Mortgage Assets,
which may include (i) one or more pools of closed-end home equity loans (the
'Home Equity Loans'), secured by mortgages on one- to four-family residential or
mixed-use properties, and (ii) securities ('Private Securities') backed or
secured by Home Equity Loans (the 'Underlying Loans'), (b) certain monies
received or due thereunder on or after the date specified in the related
Prospectus Supplement (the 'Cut-off Date'), (c) if specified in the related
Prospectus Supplement, funds on deposit in one or more pre-funding accounts
and/or capitalized interest accounts and (d) reserve funds, letters of credit,
surety bonds, insurance policies or other forms of credit support as described
herein and in the related Prospectus Supplement. Amounts on deposit in a
pre-funding account for any Series will be used to purchase additional Home
Equity Loans during the funding period specified in the related Prospectus
Supplement in the manner specified therein. The amount initially deposited in a
pre-funding account for a Series of Securities will not exceed twenty-five
percent of the aggregate principal amount of such Series of Securities.
Certain of the Mortgage Assets may have been originated or acquired by
affiliates of UCFC Acceptance Corporation (the 'Depositor'), including United
Companies Lending Corporation(Registered) ('United Companies') UNICOR
Mortgage(Registered), Inc., GINGER MAE(Registered), Inc. and Southern Mortgage
Acquisition, Inc. These affiliates, together with any other affiliates of the
Depositor which originate or purchase Mortgage Assets from third parties, are
collectively referred to herein as the 'Originators.'
Each Series of Securities will be issued in one or more classes (each, a
'Class'). Interest on and principal of the Securities of a Series will be
payable on the date or dates specified in the related Prospectus Supplement
(each, a 'Distribution Date'), at the times, at the rates, in the amounts and in
the order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with respect to
the amount, percentage (which may be 0%) and timing of distributions of
principal, interest or both and one or more Classes may be subordinated to other
Classes with respect to distributions of principal, interest or both as
described herein and in the related Prospectus Supplement. The Mortgage Assets
and other assets comprising the Trust may be divided into one or more Mortgage
Groups and each Class of the related Series will evidence beneficial ownership
of the corresponding Mortgage Group, as applicable.
The yield on each Class of Securities of a Series may be affected by the
rate of payment of principal (including prepayments) of the Mortgage Assets in
the related Trust and the timing of receipt of such payments as described herein
and in the related Prospectus Supplement. A Trust may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement.
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust or specified portions thereof as a 'real estate mortgage
investment conduit' ('REMIC') for federal income tax purposes. See 'Federal
Income Tax Consequences.'
------------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A SERIES
EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND ARE NOT GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, THE TRUSTEE, THE SERVICER OR
BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS OTHERWISE SPECIFIED IN THE
RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR ENTITY. THE
DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF SECURITIES WILL
BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH IN THE
RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE 12.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters or by selling security holders, as more
fully described under 'Method of Distribution' herein and in the related
Prospectus Supplement. Prior to issuance, there will have been no market for the
Securities of any Series, and there can be no assurance that a secondary market
for the Securities will develop, or if it does develop, that it will continue.
This Prospectus may not be used to consummate sales of a Series of Securities
unless accompanied by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder, among other things, will set forth with respect to such Series of
Securities: (i) a description of the Class or Classes of such Securities; (ii)
the rate of interest or other applicable rate (or the manner of determining such
rate) and authorized denominations of each Class of such Securities; (iii)
certain information concerning the Mortgage Assets and insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third party
guarantees or other forms of credit enhancement, if any, relating to one or more
Pools or all or part of the related Securities; (iv) the specified interest of
each Class of Securities in, and manner and priority of, the distributions on
the Mortgage Assets; (v) information as to the nature and extent of
subordination with respect to such Series of Securities, if any; (vi) the
Distribution Dates; (vii) information regarding the Master Servicer; (viii) the
circumstances, if any, under which each Trust may be subject to early
termination; (ix) whether a REMIC election will be made and the designation of
the regular and residual interest therein; and (x) additional information with
respect to the plan of distribution of such Securities.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities Act
of 1933, as amended (the '1933 Act'), with the Securities and Exchange
Commission (the 'Commission') with respect to the Securities. The Registration
Statement and amendments thereof and the exhibits thereto are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains an Internet Web site that
contains reports, proxy and information statements and other information
regarding the registrants that file electronically with the Commission,
including the Depositor. The address of such Internet Web site is
(http://www.sec.gov).
Each Trust will be required to file certain reports with the Commission
pursuant to the requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'). The Depositor intends to cause each Trust to suspend
filing such reports if and when such reports are no longer required under the
Exchange Act.
REPORTS TO HOLDERS
Periodic and annual reports concerning the Securities and the related Trust
will be provided to the Holders. See 'The Agreements--Reports to Holders.' If
the Securities of a Series are to be issued in book-entry form, such reports
will be provided to the Holder of record and beneficial owners of such
Securities will have to rely on the procedures described herein under
'Description of the Securities--Book-Entry Registration.'
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of each Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of any offering of the Certificates
issued by such Trust shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for all purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to UCFC Acceptance Corporation,
4041 Essen Lane, Baton Rouge, Louisiana 70809 Attention: Secretary, telephone
(504) 924-6007.
2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement. Capitalized terms used but not defined in this Prospectus shall have
the meanings assigned to such terms elsewhere in this Prospectus. See 'Index of
Principal Terms' beginning on page .
<TABLE>
<S> <C>
Title of Securities...... Asset-Backed Certificates (the 'Certificates') and
Asset-Backed Notes (the 'Notes,' and collectively with
the Certificates, the 'Securities'), issuable in
Series.
Depositor................ UCFC Acceptance Corporation, a Louisiana corporation.
The principal office of the Depositor is located in
Baton Rouge, Louisiana. See 'The Depositor' and 'The
Originators.'
The Master Servicer...... The Prospectus Supplement relating to any Series of
Securities will name the entities (which may include
United Companies Lending Corporation(Registered)
('United Companies'), one of the other Originators or
an affiliate of the Originators and may additionally
include other unrelated entities) which will act,
directly or through one or more Sub-servicers (as
defined herein), as master servicer (each, in such
capacity, the 'Master Servicer'). The principal office
of United Companies is located in Baton Rouge,
Louisiana. See 'The Originators.'
The Mortgage Assets...... The primary assets of each Trust will consist of one
or more pools (each, a 'Pool') of mortgage loans and
certain other mortgage-related assets (collectively,
the 'Mortgage Assets') specified in the related
Prospectus Supplements, which may include (i) first
and second lien mortgage loans, deeds of trust or
participations therein secured by detached or
semi-detached one-family dwelling units, two- to
four-family dwelling units, townhouses, rowhouses,
individual condominium units in condominium buildings,
individual units in planned unit developments, mobile
or manufactured homes treated as real estate under
applicable state law, and certain mixed use and other
dwelling units (collectively, 'Single Family Loans'),
(ii) first and second lien mortgage loans, deeds of
trust or participations therein secured by multifamily
residential properties, such as rental apartment
buildings or projects containing five or more
residential units ('Multifamily Loans'), or (iii)
privately issued mortgage-backed securities ('Private
Mortgage-Backed Securities' or 'PMBS'). Single Family
Loans and Multifamily Loans are sometimes referred to
herein collectively as 'Mortgage Loans.'
A. Mortgage Loans........ Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Loans will be
non-conventional loans (i.e., loans which are not
insured or guaranteed by any governmental agency). The
payment terms of the Mortgage Loans to be included in
any Pool will be described in the related Prospectus
Supplement and may include any of the following
features, combinations thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate
(a 'Fixed Rate') or may be payable at a rate that
is adjustable from time to time in relation to an
index, that may be fixed for a period of time or
under certain circumstances and is followed by an
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
adjustable rate, a rate that otherwise varies
from time to time, or a rate that is convertible
from an adjustable rate to a fixed rate (each, an
'Adjustable Rate'). Changes to an Adjustable Rate
may be subject to periodic limitations, maximum
rates, minimum rates or a combination of such
limitations. Accrued interest may be deferred and
added to the principal of a Mortgage Loan for
such periods and under such circumstances as may
be specified in the related Prospectus
Supplement. Mortgage Loans may permit the payment
of interest at a rate lower than the Mortgage
Rate for a period of time or for the life of the
Mortgage Loan, and the amount of any difference
may be contributed from funds supplied by the
seller of the properties securing the related
Mortgage Loan (the 'Mortgaged Properties') or
another source or may be treated as accrued
interest and added to the principal of the
Mortgage Loan.
(b) Principal may be payable on a level
debt service basis to fully amortize the Mortgage
Loan over its term, may be calculated on the
basis of an assumed amortization schedule that is
significantly longer than the original term to
maturity or on an interest rate that is different
from the interest rate on the Mortgage Loan, or
may not be amortized during all or a portion of
the original term. Payment of all or a
substantial portion of the principal may be due
on maturity (a 'balloon payment'). From time to
time, principal may include interest that has
been deferred and added to the principal balance
of the Mortgage Loan.
(c) Monthly payments of principal and
interest may be fixed for the life of the
Mortgage Loan, may increase over a specified
period of time ('graduated payments'), or may
change from period to period. Mortgage Loans may
include limits on periodic increases or decreases
in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject
to a prepayment fee, which may be fixed for the
life of the Mortgage Loan or may decline over
time, and may be prohibited for the life of the
Mortgage Loan or for certain periods ('lockout
periods'). Certain Mortgage Loans may permit
prepayments after expiration of the applicable
lockout period and may require the payment of a
prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may
permit prepayments without payment of a fee
unless the prepayment occurs during specified
time periods. The Mortgage Loans may include
due-on-sale clauses which permit the mortgagee to
demand payment of the entire Mortgage Loan in
connection with the sale or certain other
transfers of the related Mortgaged Properties.
Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting
standards of the applicable Originator.
The Mortgaged Properties may be located in any one of
the fifty states or the District of Columbia. Unless
otherwise specified in the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
related Prospectus Supplement, all of the Mortgage
Loans will be covered by standard hazard insurance
policies ('Standard Hazard Insurance Policies')
insuring against losses due to fire and various other
causes. The Mortgage Loans with Loan-to-Value Ratios
(as defined below) in excess of 80% may be covered by
a primary mortgage guaranty insurance policy which
provides compensation to a mortgage noteholder in the
event of default by the obligor under such Mortgage
Note ('Primary Mortgage Insurance Policies'), as
described in the related Prospectus Supplement. It is
expected that the Mortgage Loans will have been
originated or purchased by the Originators, through
their retail offices, through their correspondent
(i.e., wholesale) loan programs or their bulk purchase
program.
The Prospectus Supplement for each Series of
Securities will specify with respect to all Mortgage
Loans included in each related Pool, among other
things, (i) the aggregate outstanding principal
balance and the average outstanding principal balance
of the Mortgage Loans in such Pool as of the date
specified in the Prospectus Supplement (the 'Cut-off
Date'), (ii) the largest principal balance and the
smallest principal balance of any of the Mortgage
Loans, (iii) the types of Mortgaged Properties
securing the Mortgage Loans, (iv) the original terms
to maturity of the Mortgage Loans, (v) the weighted
average term to maturity of the Mortgage Loans as of
the Cut-off Date and the range of the terms to
maturity, (vi) the earliest origination date and
latest maturity date of any of the Mortgage Loans,
(vii) the ranges of the Loan-to-Value Ratios at
origination, (viii) the weighted average Mortgage Rate
and ranges of Mortgage Rates borne by the Mortgage
Loans, (ix) in the case of Mortgage Loans having
Adjustable Rates, the weighted average of the
Adjustable Rates as of the Cut-off Date and maximum
permitted Adjustable Rates, if any, and (x) the
geographic distribution of the Mortgaged Properties on
a state-by-state basis.
B. Private
Mortgage-Backed
Securities.......... Private Mortgage-Backed Securities may include (i)
mortgage participations or pass-through certificates
representing beneficial interests in certain mortgage
loans or (ii) collateralized mortgage obligations
('CMOs') secured by such mortgage loans. Although
individual mortgage loans underlying a Private
Mortgage-Backed Security may be insured or guaranteed
by the United States or an agency or instrumentality
thereof, they need not be, and the Private
Mortgage-Backed Securities themselves will not be, so
insured or guaranteed. Payments on the Private
Mortgage-Backed Securities will be distributed
directly to the Trustee as registered owner of such
Private Mortgage-Backed Securities.
The Prospectus Supplement for each Series of
Securities will specify, with respect to any Private
Mortgage-Backed Securities owned by the related Trust:
(i) the aggregate approximate principal amount and
type of Private Mortgage-Backed Securities; (ii)
certain characteristics of the mortgage loans
underlying the Private Mortgage-Backed Securities,
including (A) the payment features of such mortgage
loans, (B) the approximate aggregate principal amount,
if known, of the underlying mortgage loans which are
insured or guaranteed by a governmental entity, (C)
the servicing fee
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or range of servicing fees with respect to such
mortgage loans, and (D) the minimum and maximum stated
maturities of the mortgage loans at origination; (iii)
the maximum original term-to-stated maturity of the
Private Mortgage-Backed Securities; (iv) the weighted
average term-to-stated maturity of the Private
Mortgage-Backed Securities; (v) the pass-through or
certificate rate or ranges thereof for the Private
Mortgage-Backed Securities; (vi) the weighted average
pass-through or certificate rate of the Private
Mortgage-Backed Securities; (vii) the issuer of the
Private Mortgage-Backed Securities (the 'PMBS
Issuer'), the servicer of the Private Mortgage-Backed
Securities (the 'PMBS Servicer') and the trustee of
the Private Mortgage-Backed Securities (the 'PMBS
Trustee'); (viii) certain characteristics of credit
support, if any, such as reserve funds, insurance
policies, letters of credit, financial guaranty
insurance policies or third party guarantees, relating
to the mortgage loans underlying the Private Mortgage-
Backed Securities, or to such Private Mortgage-Backed
Securities themselves; (ix) the terms on which the
underlying mortgage loans for such Private
Mortgage-Backed Securities may, or are required to, be
repurchased prior to stated maturity; and (x) the
terms on which substitute mortgage loans may be
delivered to replace those initially deposited with
the PMBS Trustee. See 'The Trusts--Private
Mortgage-Backed Securities.'
Description of the
Securities............. Certificates are issuable from time to time in Series
pursuant to a Pooling and Servicing Agreement or Trust
Agreement. Each Certificate of a Series will evidence
an interest in the Trust for such Series, or in a
Mortgage Group specified in the related Prospectus
Supplement. Notes are issuable from time to time in a
Series pursuant to an Indenture.
The Securities of any Series may be issued in one or
more Classes, as specified in the related Prospectus
Supplement. A Series of Securities may include one or
more Classes of senior Securities (collectively,
'Senior Securities') which receive certain
preferential treatment specified in the related
Prospectus Supplement with respect to one or more
Classes of subordinate Securities (collectively, the
'Subordinated Securities'). Certain Series or Classes
of Securities may be covered by Enhancement (as
defined below) in the related Prospectus Supplement.
Each Class of Securities within a Series will evidence
the interests specified in the related Prospectus
Supplement, which may (i) include the right to receive
distributions allocable only to principal, only to
interest or to any combination thereof; (ii) include
the right to receive distributions only of prepayments
of principal throughout the lives of the Securities or
during specified periods; (iii) be subordinated in the
right to receive distributions of scheduled payments
of principal, prepayments of principal, interest or
any combination thereof to one or more other Classes
of Securities of such Series throughout the lives of
the Securities or during specified periods or may be
subordinated with respect to certain losses or
delinquencies; (iv) include the right to receive such
distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include
the right to receive distributions in
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accordance with a schedule or formula or on the basis
of collections from designated portions of the assets
in the related Trust; (vi) include, as to Securities
entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or an
adjustable rate; and (vii) include, as to Securities
entitled to distributions allocable to interest, the
right to distributions allocable to interest only
after the occurrence of events specified in the
related Prospectus Supplement, and in each case, may
accrue interest until such events occur, as specified
in such Prospectus Supplement. The timing and amounts
of such distributions may vary among Classes, over
time, or otherwise as specified in the related
Prospectus Supplement.
Pre-Funding and
Capitalized Interest
Accounts............... If specified in the related Prospectus Supplement, a
Trust will include one or more segregated trust
accounts (each, a 'Pre-Funding Account') for the
related Series. If so specified, on the closing date
for such Series, a portion of the proceeds of the sale
of the Securities of such Series (such amount, the
'Pre-Funded Amount') will be deposited in the
Pre-Funding Account and may be used to purchase
additional Mortgage Assets during the period of time,
not to exceed six months, specified in the related
Prospectus Supplement (the 'Pre-Funding Period'). The
Mortgage Assets to be so purchased will be required to
have certain characteristics specified in the related
Prospectus Supplement. If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the
end of the Pre-Funding Period, such amount will be
applied in the manner specified in the related
Prospectus Supplement to prepay the Classes of
Securities of the applicable Series specified in the
related Prospectus Supplement. The amount initially
deposited in a Pre-Funding Account for a Series of
Securities will not exceed twenty-five percent of the
aggregate principal amount of such Series of
Certificates.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a 'Capitalized
Interest Account') may be established for the related
Series. On the closing date for such Series, a portion
of the proceeds of the sale of the Securities of such
Series may be deposited in the Capitalized Interest
Account and used to fund the excess, if any, of the
sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the
related Prospectus Supplement, certain fees and
expenses during the Pre-Funding Period, such as
Trustee fees and credit enhancement fees, over the
amount of interest available therefor from the
Mortgage Assets in the Trust. If so specified in the
related Prospectus Supplement, amounts on deposit in
the Capitalized Interest Account may be released to
the person specified in the related Prospectus
Supplement prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified
in the related Prospectus Supplement. Any amounts on
deposit in the Capitalized Interest Account at the end
of the Pre-Funding Period that are not necessary for
such purposes will be distributed to the person
specified in the related Prospectus Supplement.
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Credit Enhancement....... Enhancement with respect to a Series or any Class of
Securities may include any one or more of the
following: a financial guaranty insurance policy,
overcollateralization, a letter of credit, a cash
reserve fund, insurance policies, one or more Classes
of Subordinated Securities , derivative products or
other forms of credit enhancement, or any combination
thereof (collectively, 'Enhancement'). The Enhancement
with respect to any Series or any Class of Securities
may be structured to provide protection against
delinquencies and/or losses on the Mortgage Assets,
against changes in interest rates, or other risks, to
the extent and under the conditions specified in the
related Prospectus Supplement. Any form of Enhancement
will have certain limitations and exclusions from
coverage thereunder, which will be described in the
related Prospectus Supplement. Further information
regarding any provider of the Enhancement (the
'Enhancer'), including financial information when
material, will be included in the related Prospectus
Supplement. See 'Credit Enhancement.'
Advances................. The Master Servicer and, if applicable, each mortgage
servicing institution that services a Mortgage Loan in
a Pool on behalf of the Master Servicer (each, a
'Sub-servicer') generally will be obligated to advance
amounts corresponding to all or a portion of
delinquent interest payments on such Mortgage Loan
monthly (or at such other intervals specified in the
Prospectus Supplement) until the date on which the
related Mortgaged Property is sold at a foreclosure
sale or the related Mortgage Loan is otherwise
liquidated or charged off. Any such obligation to make
advances may be limited to amounts due to holders of
Senior Securities, to amounts deemed to be recoverable
from late payments or liquidation proceeds, for
specified periods or any combination thereof, in each
case as specified in the related Prospectus
Supplement. See 'The Agreements--Delinquency Advances
and Compensating Interest.'
Compensating Interest.... With respect to each Mortgage Loan as to which the
Master Servicer receives a principal payment in full
in advance of the final scheduled due date (a
'Principal Prepayment'), the Master Servicer generally
will be required to remit to the Trustee, from amounts
otherwise payable to the Master Servicer as servicing
compensation, an amount generally representing the
excess of interest on the principal balance of such
Mortgage Loan prior to such Principal Prepayment over
the amount of interest actually received on the
related Mortgage Loan during the applicable period.
See 'The Agreements--Delinquency Advances and
Compensating Interest.'
Optional Termination..... The Master Servicer, the holders of REMIC Residual
Certificates (as defined herein), or certain other
entities specified in the related Prospectus
Supplement may have the option to effect early
retirement of one or more Classes or a Series of
Securities through the purchase of the Mortgage Assets
in the related Trust, subject to the principal balance
of the related Mortgage Assets being less than the
percentage, not more than 25%, specified in the
related Prospectus Supplement of the aggregate
principal balance of the Mortgaged Assets at the
Cut-off Date for the related Class or Series. See 'The
Agreements--Termination; Optional Termination.'
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FEDERAL INCOME TAX
CONSEQUENCES
A. DEBT SECURITIES AND
REMIC RESIDUAL
SECURITIES........ If (i) an election is made to treat all or a portion
of a Trust Fund for a Series as a 'real estate
mortgage investment conduit' (a 'REMIC') or (ii) so
provided in the related Prospectus Supplement, a
Series of Securities will include one or more Classes
of taxable debt obligations under the Internal Revenue
Code of 1986, as amended (the 'Code'). Stated interest
with respect to such Classes of Securities will be
reported by a Holder in accordance with the Holder's
method of accounting except that, in the case of
Securities constituting 'regular interests' in a REMIC
('Regular Interests'), such interest will be required
to be reported on the accrual method regardless of a
Holder's usual method of accounting. Certain Classes
of Securities may be issued with original issue
discount that is not de minimis. In such cases, the
Holder will be required to include original issue
discount in gross income as it accrues, which may be
prior to the receipt of cash attributable to such
income. If a Security is issued at a premium, the
Holder may be entitled to make an election to amortize
such premium on a constant yield method.
In the case of a REMIC election, a Class of Securities
may be treated as REMIC 'residual interests'
('Residual Interest'). A Holder of a Residual Interest
will be required to include in its income its pro rata
share of the taxable income of the REMIC. In certain
circumstances, the Holder of a Residual Interest may
have REMIC taxable income or tax liability
attributable to REMIC taxable income for a particular
period in excess of cash distributions for such period
or have an after-tax return that is less than the
after-tax return on comparable debt instruments. In
addition, a portion (or, in some cases, all) of the
income from a Residual Interest (i) except in certain
circumstances with respect to a Holder classified as a
thrift institution under the Code, may not be subject
to offset by losses from other activities or
investments, (ii) for a Holder that is subject to tax
under the Code on unrelated business taxable income,
may be treated as unrelated business taxable income
and (iii) for a foreign holder, may not qualify for
exemption from or reduction of withholding. In
addition, (x) Residual Interests are subject to
transfer restrictions and (y) certain transfers of
Residual Interests will not be recognized for federal
income tax purposes. Further, individual holders are
subject to limitations on the deductibility of
expenses of the REMIC.
B. NON-REMIC
PASS-THROUGH
SECURITIES........ If so specified in the related Prospectus Supplement,
the Trust Fund for a Series will be treated as a
grantor trust and will not be classified as an
association taxable as a corporation for federal
income tax purposes and Holders of Securities of such
Series ('Pass-Through Securities') will be treated as
owning directly rights to receive certain payments of
interest or principal, or both, on the Mortgage Assets
held in the Trust for such Series. All income with
respect to a Stripped Security (as defined herein)
will be accounted for as original issue discount and,
unless otherwise specified in the related Prospectus
Supplement, will be reported by
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the Trustee on an accrual basis, which may be prior to
the receipt of cash associated with such income.
C. OWNER TRUST
SECURITIES........ If so specified in the Prospectus Supplement, the
Trust will be treated as a partnership for purposes of
federal and state income tax. Each Noteholder, by the
acceptance of a Note of a given Series, will agree to
treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a Certificate
of a given Series, will agree to treat the related
Trust as a partnership in which such Certificateholder
is a partner for federal income and state tax
purposes. Alternative characterizations of such Trust
and such Certificates are possible, but would not
result in materially adverse tax consequences to
Certificateholders. See 'Federal Income Tax
Consequences.'
ERISA Considerations..... Subject to the considerations discussed under 'ERISA
Considerations' herein and in the related Prospectus
Supplement, the Notes may be eligible for purchase by
employee benefit plans. The related Prospectus
Supplement will provide further information with
respect to the eligibility of a Class of Certificates
for purchase by employee benefit plans.
Fiduciaries of employee benefit plans or other
retirement plans or arrangements, including individual
retirement accounts, certain Keogh plans, and
collective investment funds and separate accounts in
which such plans, accounts or arrangements are
invested, that are subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), or
the Code should carefully review with their legal
advisors whether an investment in Certificates will
cause the assets of the related Trust to be considered
plan assets under the Department of Labor ('DOL')
regulations set forth in 29 C.F.R. Section 2510.3-101
(the 'Plan Asset Regulations'), thereby subjecting the
Trustee and the Master Servicer to the fiduciary
investment standards of ERISA, and whether the
purchase, holding or transfer of Certificates gives
rise to a transaction that is prohibited under ERISA
or subject to the excise tax provisions of Section
4975 of the Code, unless a DOL administrative
exemption applies. See 'ERISA Considerations.'
Legal Investment......... A Trust may include Mortgage Loans which do not
represent first liens. Accordingly, as disclosed in
the related Prospectus Supplement, certain Classes of
Securities offered hereby and by the related
Prospectus Supplement may not constitute 'mortgage-
related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ('SMMEA') and,
if so, will not be legal investments for certain types
of institutional investors under SMMEA.
Institutions whose investment activities are subject
to legal investment laws and regulations or to review
by certain regulatory authorities may be subject to
additional restrictions on investment in certain
Classes of Securities. Any such institution should
consult its own legal advisors in determining whether
and the extent to which a Class of Securities
constitutes legal investments for such investors. See
'Legal Investment' herein.
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Registration of
Securities............. Securities may be represented by book-entry
certificates registered in the name of Cede & Co.
('Cede'), as nominee of The Depository Trust Company
('DTC'). Persons acquiring beneficial ownership
interests in such Securities will hold their interests
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. So long as such
Securities are in book-entry form, such Securities
will be evidenced by one or more Securities registered
in the name of Cede, as the nominee of DTC, or one of
the relevant depositaries (collectively, the 'European
Depositaries'). 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 of Cedel and Euroclear,
respectively, and each a participating member of DTC.
The interests of such Holders will be represented by
book-entries on the records of DTC, participating
members thereof and other entities, such as banks,
brokers, dealers and trust companies that clear
through or maintain custodial relationships with a
participant, either directly or indirectly. In such
case, Holders will not be entitled to receive
definitive certificates representing such Holders'
interests, except in certain circumstances described
in the related Prospectus Supplement. References
herein to 'Holders' or 'Owners' reflect the rights of
owners of the Securities issued as book-entry
certificates only as they may indirectly exercise such
rights through DTC and participants, except as
otherwise specified in the related Prospectus
Supplement. See 'Description of the
Securities--Book-Entry Registration' herein.
Ratings.................. It will be a requirement that each Class of Securities
offered by this Prospectus and the related Prospectus
Supplement be rated by at least one nationally
recognized statistical rating organization (each, a
'Rating Agency') in one of its four highest applicable
rating categories. The rating or ratings applicable to
Securities of each Series offered hereby and by the
related Prospectus Supplement will be as set forth in
the related Prospectus Supplement. There is no
assurance that the rating initially assigned to such
Securities will not be subsequently lowered or
withdrawn by the Rating Agency. In the event the
rating initially assigned to any Securities is
subsequently lowered for any reason, no person or
entity will be obligated to provide any credit
enhancement in addition to the Enhancement, if any,
specified in the related Prospectus Supplement.
A securities rating should be evaluated independently
of similar ratings on different types of securities. A
securities rating is not a recommendation to buy, hold
or sell securities and does not address the effect
that the rate of prepayments on the Mortgage Assets
for a Series may have on the yield to investors in the
Securities of such Series. See 'Risk Factors--Ratings
Are Not Recommendations.'
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RISK FACTORS
NO SECONDARY MARKET
Prior to issuance, there will have been no market for the Securities of any
Series. There can be no assurance that a secondary market for the Securities
will develop or, if a secondary market does develop, that it will provide
Holders of the Securities with liquidity of investment or that it will continue
for the lives of the Certificates. Certain Classes of the Securities may not
constitute 'mortgage related securities' under the Secondary Mortgage Market
Enhancement Act of 1984, as amended ('SMMEA'). Certain investors may be subject
to legal restrictions which could preclude them from purchasing such non-SMMEA
Securities and which may have a negative effect on the development of a
secondary market in the Securities.
TRUST ASSETS ARE ONLY SOURCE OF REPAYMENT
The assets of any Trust, including the Mortgage Loans and any Enhancement,
will be the sole source of funds for the payment of the required distributions
on the Securities of the related Series. The Certificates of a Series represent
beneficial ownership interests in, and the Notes of a Series represent
obligations of, the related Trust only and do not represent interests in or
other obligations of the Depositor or the Master Servicer. There will be no
recourse to the Depositor or any other person for any default on the Notes or
any failure to receive distributions on the Certificates. Neither the Securities
nor the Mortgage Assets are insured or guaranteed by any governmental agency.
Holders of Notes will be required under the Indenture to proceed only
against the Mortgage Assets and other assets constituting the related Trust in
the case of a default with respect to such Notes and may not proceed against any
assets of the Depositor or any affiliate. There is no assurance that the market
value of the Mortgage Assets or any other assets for a Series will at any time
be equal to or greater than the aggregate principal amount of the Securities of
such Series then outstanding, plus accrued interest thereon. Moreover, upon an
event of default under the Indenture for a Series of Notes and a sale of the
assets in the Trust or upon a sale of the assets of a Trust for a Series of
Certificates, the Trustee, the Master Servicer, if any, the Enhancer and any
other service provider specified in the related Prospectus Supplement generally
will be entitled to receive the proceeds of any such sale to the extent of
unpaid fees and other amounts owing to such persons under the related Agreement
prior to distributions to Holders of Securities. Upon any such sale, the
proceeds thereof may be insufficient to pay in full the principal of and
interest on the Securities of such Series.
BOOK-ENTRY REGISTRATION MAY AFFECT LIQUIDITY
Issuance of the Securities in book-entry form may reduce the liquidity of
such Securities in the secondary trading market since some investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates. Since transactions in Securities will, in most cases, be able to
be effected only through Participants, Indirect Participants and certain banks,
the ability of a Holder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Securities, may be limited due to lack of a physical certificate representing
the Securities. Holders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Holders either directly or indirectly through Indirect
Participants. See 'Description of the Securities--Book-Entry Registration.'
PROPERTY VALUES MAY BE INSUFFICIENT
Potential Decline in Value of Mortgaged Property. An overall decline in
the market value of residential real estate, the general condition of a
Mortgaged Property, or other factors, could adversely affect the values of the
Mortgaged Properties such that the outstanding balances of the Mortgage Loans,
together with any other liens on the Mortgaged Properties, equal or exceed the
value of the Mortgaged Properties. Such a decline could extinguish the interest
of the related Trust in the Mortgaged Property before having any effect on the
interest of the related senior mortgagee. Certain areas of the country have
experienced, may continue to experience or may
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hereafter experience a significant decline in real estate values. The Depositor
will not be able to quantify the impact of any property value declines on the
Mortgage Loans or predict whether, to what extent or how long such declines may
continue. In periods of such decline, the actual rates of delinquencies,
foreclosures and losses on the Mortgage Loans could be higher than those
historically experienced in the mortgage lending industry in general.
Characteristics of Second Mortgages. Certain of the Mortgage Loans will be
home equity loans secured by junior liens subordinate to the rights of the
mortgagee under each related senior mortgage ('Second Mortgage Loans'). As a
result, the proceeds from any liquidation, insurance or condemnation proceedings
will be available to satisfy the principal balance of a Second Mortgage Loan
only to the extent that the claims, if any, of each such senior mortgagee are
satisfied in full, including any related foreclosure costs. In addition, a
second mortgagee may not foreclose on the Mortgaged Property securing the Second
Mortgage Loan unless it forecloses subject to the related senior mortgage, in
which case it must either pay the entire amount of each senior mortgage to the
applicable mortgagee at or prior to the foreclosure sale or undertake the
obligation to make payments on each senior mortgage in the event of a default
thereunder. Generally, a servicer will satisfy each such senior mortgage at or
prior to the foreclosure sale only to the extent that it determines that any
amounts so paid will be recoverable from future payments and collections on the
Second Mortgage Loans or otherwise. The Trusts will not have any source of funds
(and may not be permitted under the REMIC provisions of the Code) to satisfy any
such senior mortgage or make payments due to any senior mortgagee. See 'Certain
Legal Aspects of the Mortgage Loans-- Foreclosure/Repossession.'
Balloon Loans. Certain of the Mortgage Loans may constitute 'Balloon
Loans.' Balloon Loans are originated with a stated maturity of less than the
period of time of the corresponding amortization schedule. As a result, upon the
maturity of a Balloon Loan, the Mortgagor will be required to make a 'balloon
payment' which will be significantly larger than such Mortgagor's previous
monthly payments. The ability of such a Mortgagor to repay a Balloon Loan at
maturity frequently will depend on such Mortgagor's ability to refinance the
Mortgage Loan. The ability of a Mortgagor to refinance such a Mortgage Loan will
be affected by a number of factors, including the level of available mortgage
rates at the time, the value of the related Mortgaged Property, the Mortgagor's
equity in the related Mortgaged Property, the financial condition of the
Mortgagor, the tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by Holders of the proceeds in
such an environment may produce a lower return than that previously received in
respect of the related Mortgage Loan. Conversely, a high interest rate
environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. None of the Depositor,
the Originators, the Master Servicer or the Trustee will be obligated to provide
funds to refinance any Mortgage Loan.
Risks Associated with Liquidation of Defaulted Mortgage Loans. General
economic conditions and other factors (which may not affect real property
values) have an impact on the ability of Mortgagors to repay Mortgage Loans.
Loss of earnings, illness, divorce and other similar factors may lead to an
increase in delinquencies and bankruptcy filings by Mortgagors. In the event of
personal bankruptcy of a Mortgagor, it is possible that a Trust 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 or
permanently reduce the principal balance of such Mortgage Loan, thus either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to a Trust, any remaining balance on
such Mortgage Loan may not be recoverable.
In the case of Multifamily Loans, such other factors could include
excessive building resulting in an oversupply of housing stock or a decrease in
employment reducing the demand for units in an area; federal, state or local
regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that such
losses are not covered by Enhancement, such losses will be borne, at least in
part, by the Holders of the related Series.
Even assuming that the Mortgaged Properties provide adequate security for
the Mortgage Loans, substantial delays could be encountered in connection with
the liquidation of defaulted Mortgage Loans and corresponding
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delays in the receipt of related proceeds by the Holders could occur. An action
to foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by
state statutes and rules and is subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Liquidation Proceeds (net of expenses)
sufficient to repay all amounts due on the related Mortgage Loan. The Master
Servicer will be entitled to deduct from Liquidation Proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
Liquidated Mortgage Loan and not yet repaid, including unreimbursed Delinquency
Advances and Servicing Advances, payments to prior lienholders, legal fees and
costs of legal action, real estate taxes, and maintenance and preservation
expenses. In the event that any Mortgaged Properties fail to provide adequate
security for the related Mortgage Loans, insufficient funds are available from
any Enhancement, Holders could experience a loss on their investment.
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 a Master 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 larger
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the outstanding principal balance of the smaller
Mortgage Loan than would be the case with a larger Mortgage Loan. Because the
average outstanding principal balances of the Mortgage Loans which are Second
Mortgage Loans are small relative to the size of the Mortgage Loans in a typical
pool composed entirely of first mortgages, realizations net of liquidation
expenses on defaulted Mortgage Loans which are Second Mortgage Loans may also be
smaller as a percentage of the principal amount of such Mortgage Loans than
would be the case with a typical pool of first mortgage loans.
Environmental Risks. Under environmental legislation and case law
applicable in various states, a secured party that takes a deed in lieu of
foreclosure, acquires a Mortgaged Property at a foreclosure sale or which, prior
to foreclosure, has been involved in decisions or actions which may lead to
contamination of a Mortgaged Property, may be liable for the costs of cleaning
up a contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a Mortgage Note (such as a Trust)
which, under the terms of the related Agreement, is not required to take an
active role in operating the Mortgaged Properties. See 'Certain Legal Aspects of
the Mortgage Loans--Environmental Considerations.'
Risks Associated with Non-Owner Occupied Properties. Certain of the
Mortgaged Properties relating to Mortgage Loans may not be owner occupied. It is
possible that the rate of delinquencies, foreclosures and losses on Mortgage
Loans secured by non-owner occupied properties could be higher than for Mortgage
Loans secured by the primary residence of the borrower.
CONSUMER PROTECTION LAWS MAY AFFECT MORTGAGE LOANS
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of the Originators and the
Master Servicer. In addition, most states have other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the Mortgage Loans. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations of
these laws, policies and principles may limit the ability of the Master Servicer
to collect all or part of the principal of or interest on the Mortgage Loans,
may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions. See 'Certain Legal Aspects of the Mortgage Loans.'
The Mortgage Loans may also be subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; (iii) the Real Estate Settlement Procedures Act, which establishes
certain requirements for disclosure
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regarding mortgage transactions and originators of mortgage loans; and (iv) the
Fair Credit Reporting Act, which regulates the use and reporting of information
related to the borrower's credit experience.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the 'Act') which amended the Truth in Lending Act as it
applies to mortgages subject to the Act. The Act requires certain additional
disclosures, specifies the timing of such disclosures and limits or prohibits
the inclusion of certain provisions in mortgages subject to the Act. The Act
also provides that any purchaser or assignee of a mortgage covered by the Act is
subject to all of the claims and defenses which the borrower could assert
against the original lender. The maximum damages that may be recovered under the
Act from an assignee is the remaining amount of indebtedness plus the total
amount paid by the borrower in connection with the Mortgage Loan. Any Trust for
which the Mortgage Assets include Mortgage Loans subject to the Act would be
subject to all of the claims and defenses which the borrower could assert
against the applicable Originator. Any violation of the Act which would result
in such liability would be a breach of the Originator's representations and
warranties, and the Originator would be obligated to cure, repurchase or, if
permitted by the related Agreement, substitute for the Mortgage Loan in
question.
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), or similar state legislation, a
Mortgagor who enters military service after the origination of the related
Mortgage Loan (including a Mortgagor who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage Loan and is
later called to active duty) may not be charged interest (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. It
is possible that such action could affect, for an indeterminate period of time,
the ability of the Master Servicer to collect full amounts of interest on
certain of the Mortgage Loans. In addition, the Relief Act imposes limitations
which impair the ability of the Master Servicer to foreclose on an affected
Mortgage Loan during the Mortgagor's period of active duty status. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned by the inability to realize upon the Mortgaged Property in a
timely fashion.
YIELD MAY VARY
The yields to maturity of the Classes of Securities of a Series will be
affected by the amount and timing of principal payments on the related Mortgage
Assets, the allocation of available funds and/or losses among such Classes, the
interest rates or amounts of interest payable on such Classes and the purchase
prices paid for such Classes. The interaction of the foregoing factors may have
different effects on, and create different risks for the various Classes of
Securities, and the effects and/or risks for any one Class may vary over the
life of such Class. Investors should carefully consider the different
consequences of such risks for different Classes of Securities of a Series as
described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may still be imposed in connection therewith. The
rate of prepayments of the Mortgage Loans cannot be predicted and may be
affected by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternative financing and
homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that a Trust will experience.
Although published statistical data regarding the effects of interest rates
on prepayment rates for home equity loans of the type typically made or acquired
by the Originators ('Home Equity Loans') is limited, a number of factors suggest
that the prepayment behavior of a pool including Home Equity Loans may be
significantly different from that of a pool composed entirely of agency
conforming, non-conforming 'jumbo' or government insured (i.e., 'traditional')
first mortgage loans with equivalent interest rates and maturities. One such
factor is the typically smaller average principal balance of a Home Equity Loan
which may result in a higher prepayment rate than that of a traditional first
mortgage loan with a larger average balance, regardless of the interest rate
environment. A small principal balance, however, also may make refinancing a
Home Equity Loan at a lower interest rate less attractive to the borrower
relative to refinancing a larger balance first mortgage loan, as the perceived
impact to the borrower of lower interest rates on the size of the monthly
payment for a Home Equity Loan may be less than for a traditional first mortgage
loan with a larger balance. Other factors that might
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be expected to affect the prepayment rate of a pool of Home Equity Loans include
the amounts of, and interest rates on, the underlying senior mortgage loans, if
any, and the use of first mortgage loans as long-term financing for home
purchase and home equity loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, the Mortgage Loans which are
Home Equity Loans may experience a higher rate of prepayment than traditional
first mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on Home Equity Loans for federal income
tax purposes may further increase the rate of prepayments of such home equity
loans. See 'Maturity, Prepayment and Yield Considerations.'
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of Mortgaged Properties subject to 'due-on-sale'
provisions and liquidations due to default, as well as the receipt of proceeds
from physical damage, credit life and disability insurance policies. In
addition, repurchases or purchases from a Trust of Mortgage Loans required to be
made by the Originators or by the Master Servicer under the related Agreement
will have the same effect on the Holders as a prepayment of such Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, all of the
Single Family Loans contain 'due-on-sale' provisions, and the Master Servicer
will be required to enforce such provisions unless (i) such enforcement would
materially increase the risk of default or delinquency on, or materially
decrease the security for, such Mortgage Loan or (ii) such enforcement is not
permitted by applicable law, in which case the Master Servicer is authorized to
permit the purchaser of the related Mortgaged Property to assume the Mortgage
Loan. Additionally, the Originators' practice of soliciting refinancings from
existing borrowers may have the effect of increasing the rate of prepayments,
due to refinancings, on the Mortgage Loans. See 'The Home Equity Loan
Program--Refinancing Policy' herein.
Prepayments on the Mortgage Loans comprising or underlying the Mortgage
Assets for a Series generally will result in a faster rate of distributions of
principal on the Securities. Thus, the prepayment experience on the Mortgage
Loans comprising or underlying the Mortgage Assets will affect the average life
and yield to investors of each Class and the extent to which each such Class is
paid prior to its final scheduled Distribution Date. A Series may include
Classes of Securities which pay 'interest only' or are entitled to receive a
disproportionately high level of interest distributions as compared to the
amount of principal to which such Classes of Securities are entitled (each, an
'Interest Weighted Class') or Classes of Securities which pay 'principal only'
or are entitled to receive a disproportionately high level of principal
distributions compared to the amount of interest to which such Classes of
Securities are entitled (each, a 'Principal Weighted Class'). A Series may
include an Interest Weighted Class offered at a significant premium or a
Principal Weighted Class offered at a substantial discount. Yields on such
Classes of Securities will be extremely sensitive to prepayments on the Mortgage
Loans comprising or underlying the Mortgage Assets for such Series. In general
if a Security, including a Security of an Interest Weighted Class, is purchased
at a premium and principal distributions on the Mortgage Loans occur at a rate
faster than anticipated at the time of purchase, the investor's actual yield to
maturity could be significantly lower than that assumed at the time of purchase.
Where the amount of interest allocated with respect to an Interest Weighted
Class is extremely disproportionate to principal, a Holder could, under some
such prepayment scenarios, fail to recoup its original investment. Conversely,
if a Security, including a Security of a Principal Weighted Class, is purchased
at a discount and principal distributions thereon occur at a rate slower than
assumed at the time of purchase, the investor's actual yield to maturity could
be significantly lower than that originally anticipated. Any rating assigned to
the Securities by a Rating Agency will reflect only such Rating Agency's
assessment of the likelihood that timely distributions will be made with respect
to such Securities in accordance with the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments on the
Mortgage Loans underlying or comprising the Mortgage Assets will be made by
Mortgagors or of the degree to which the rate of such prepayments might differ
from that originally anticipated. As a result, such rating will not address the
possibility that prepayment rates higher or lower than anticipated by an
investor may cause such investor to experience a lower than anticipated yield,
or that an investor purchasing an Interest Weighted Class at a significant
premium might fail to recoup its initial investment. Depending on the prevailing
interest rate environment, prepayments may be more likely to occur with respect
to adjustable-rate mortgage loans which may be included in a Pool. Prepayment
and yield considerations related to adjustable-rate mortgage loans will be set
forth in the related Prospectus Supplement.
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Collections on the Mortgage Loans may vary due to the level of incidence of
delinquent payments and of prepayments. Collections on the Mortgage Loans may
also vary due to seasonal purchasing and payment habits of Mortgagors.
Prepayments on Private Mortgage-Backed Securities will be a function of the
prepayment, repurchase and default experience on the underlying Mortgage Loans
as described above as well as the allocation of such prepayments among the
various classes of the related series of Private Mortgage-Backed Securities and
the types and scope of credit enhancement, if any, supporting such securities.
If a Trust includes Private Mortgage-Backed Securities, the Prospectus
Supplement for the related Series of Securities will describe the various
factors affecting prepayments.
PRE-FUNDING AND ADDITIONAL MORTGAGE ASSETS MAY ADVERSELY AFFECT INVESTMENT
If a Trust includes a Pre-Funding Account and the principal balance of
additional Mortgage Assets delivered to the Trust during the Pre-Funding Period
is less than the Pre-Funded Amount, the Holders of the Securities of the related
Series will receive a prepayment of principal as and to the extent described in
the related Prospectus Supplement. Any such principal prepayment may adversely
affect the yield to maturity of the applicable Securities. Since prevailing
interest rates are subject to fluctuation, there can be no assurance that
investors will be able to reinvest such a prepayment at yields equaling or
exceeding the yield on the related Securities. It is possible that the yield on
any such reinvestment will be lower, and may be significantly lower, than the
yield on the related Securities.
Each additional Mortgage Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and the related Agreement. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or Enhancer) prior to the issuance of the related Series and are designed
to ensure that if such additional Mortgage Assets were included as part of the
initial Mortgage Assets, the credit quality of such assets would be consistent
with the initial rating of each Class of Securities of such Series. The
Depositor will certify to the Trustee that all conditions precedent to transfer
of the additional Mortgage Assets, including the satisfaction of the eligibility
criteria, to the Trust have been satisfied. Following the transfer of additional
Mortgage Assets to the Trust, the aggregate characteristics of the Mortgage
Assets then held in the Trust may vary from those of the initial Mortgage Assets
of such Trust. As a result, the additional Mortgage Assets may adversely affect
the performance of the related Securities.
The ability of a Trust to invest in additional Mortgage Assets during the
related Pre-Funding Period will be dependent on the ability of the Originators
to originate or acquire Mortgage Assets that satisfy the requirements for
transfer to the Trust specified in the related Prospectus Supplement. The
ability of the Originators to originate or acquire such Mortgage Assets will be
affected by a variety of social and economic factors, including the prevailing
level of market interest rates, unemployment levels, and consumer perceptions of
general economic conditions.
BANKRUPTCY OF THE DEPOSITOR MAY ADVERSELY AFFECT INVESTMENT
In the event of the bankruptcy of the Depositor, a trustee in bankruptcy of
the Depositor or its creditors could attempt to recharacterize the sale of the
Mortgage Assets to the related Trust as a borrowing by the Depositor. If such
recharacterization were to be upheld, the related Holders could be deemed to be
creditors of the Depositor, with the Mortgage Assets constituting security for
such debt, and thus, the Mortgage Assets may be subject to the automatic stay of
the bankruptcy court having jurisdiction over the Depositor's bankruptcy estate.
Even if such allegations are unsuccessful, Holders may be subject to substantial
delays in distributions due to the bankruptcy proceedings. If such an attempt
were successful, a trustee in bankruptcy could elect to accelerate payment of
the Securities and liquidate the Mortgage Assets, with the Holders entitled to
the then outstanding principal amount thereof together with accrued interest.
Thus, the Holders could lose the right to future payments of interest, and might
suffer reinvestment loss in a lower interest rate environment.
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RATINGS ARE NOT RECOMMENDATIONS
Each Class of Securities offered by this Prospectus and the related
Prospectus Supplement must be rated in one of the four highest rating categories
by the Rating Agency identified in the related Prospectus Supplement. Any such
rating would be based on, among other things, the adequacy of the value of the
Mortgage Assets and any Enhancement with respect to such Series. Such rating
should not be deemed a recommendation to purchase, hold or sell Securities,
inasmuch as it does not address market price or suitability for a particular
investor. There is also no assurance that any such rating will remain in effect
for any given period of time or may not be lowered or withdrawn entirely by the
Rating Agency if in its judgment circumstances in the future so warrant. In
addition to being lowered or withdrawn due to any erosion in the adequacy of the
value of the Mortgage Assets, such rating might also be lowered or withdrawn,
among other reasons, because of an adverse change in the financial or other
condition of an Enhancer or a change in the rating of such Enhancer's long term
debt.
THE TRUSTS
The Notes of each Series will be secured by the pledge of the assets of the
related Trust, and the Certificates of each Series will represent interests in
the assets of the related Trust. A Trust for any Series of Certificates will
include the Mortgage Assets consisting of (A) a Pool comprised of (i) Single
Family Loans or (ii) Multifamily Loans, (B) Private Mortgage-Backed Securities,
or (C) a combination of (A) and (B), in each case, as specified in the related
Prospectus Supplement, together with payments in respect of such Mortgage Assets
and certain other accounts, obligations or agreements, in each case as specified
in the related Prospectus Supplement.
The Securities will be non-recourse obligations of the related Trust. The
assets of the Trust specified in the related Prospectus Supplement for a Series
of Securities, unless otherwise specified in the related Prospectus Supplement,
will serve as collateral only for that Series of Securities. Holders of a Series
of Notes may only proceed against such collateral securing such Series of Notes
in the case of a default with respect to such Series of Notes and may not
proceed against any assets of the Depositor or the related Trust not pledged to
secure such Notes.
The Mortgage Assets for a Series will be transferred by the Depositor to
the Trust. Mortgage Loans relating to a Series will be serviced by the Master
Servicer pursuant to a Pooling and Servicing Agreement, with respect to a Series
consisting of only Certificates or a Sale and Servicing Agreement (each, a 'Sale
and Servicing Agreement') between the Depositor, the Trust and the Master
Servicer, with respect to a Series that includes Notes.
As used herein, 'Agreement' means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series that includes Notes, the Indenture and the Sale and
Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust relating to a
Series of Securities may be a business trust formed under the laws of the state
specified in the related Prospectus Supplement pursuant to a trust agreement
(each, a 'Trust Agreement') between the Depositor and the Trustee of such Trust
specified in the related Prospectus Supplement.
Certain of the Mortgage Assets may have been originated or purchased by the
Originators, through their retail branch offices or their correspondent (i.e.,
wholesale) loan programs. Other Mortgage Assets may have been acquired by the
Depositor, any Originator or an affiliate thereof in the open market or in
privately negotiated transactions. See 'The Home Equity Loan
Program--Underwriting of Home Equity Loans.'
THE MORTGAGE LOANS--GENERAL
The real property (including manufactured housing and mobile homes, to the
extent treated as real property under the laws of the applicable jurisdictions)
which secures repayment of the Mortgage Loans (the 'Mortgaged Properties') may
be located in any one of the fifty states or the District of Columbia. Unless
otherwise specified in the related Prospectus Supplement, the Mortgage Loans
will be conventional loans (i.e., loans that are not insured or guaranteed by
any governmental agency). Mortgage Loans with Loan-to-Value Ratios and/or
certain principal balances may be covered wholly or partially by Primary
Mortgage Insurance Policies. Unless otherwise
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specified in the related Prospectus Supplement, all of the Mortgage Loans will
be covered by Standard Hazard Insurance Policies. The existence and extent of
any such coverage will be described in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans in a Pool will provide for payments to be made monthly ('monthly
pay'). Unless otherwise specified in the related Prospectus Supplement, the due
dates for payments on the monthly-pay Mortgage Loans in a Pool will occur
throughout the month.
The payment terms of the Mortgage Loans to be included in a Trust will be
described in the related Prospectus Supplement and may include any of the
following features or combination thereof or other features described in the
related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate that is
adjustable from time to time in relation to an index, a rate that is fixed
for period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a rate
that is convertible from an adjustable rate to a fixed rate. The specified
rate of interest on a Mortgage Loan is its 'Mortgage Rate.' Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Mortgage Loan for such periods and
under such circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest at a
rate lower than the Mortgage Rate for a period of time or for the life of
the Mortgage Loan, and the amount of any difference may be contributed from
funds supplied by the seller of the Mortgaged Property securing the related
Mortgage Loan or another source or may be treated as accrued interest added
to the principal of the Mortgage Loan.
(b) Principal may be payable on a level debt service basis to fully
amortize the Mortgage Loan over its term, may be calculated on the basis of
an assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
Mortgage Rate, or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal may
be due on maturity ('balloon payments'). Principal may include interest
that has been deferred and added to the principal balance of the Mortgage
Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time
('graduated payments') or may change from period to period. Mortgage Loans
may include limits on periodic increases or decreases in the amount of
monthly payments and may include maximum or minimum amounts of monthly
payments. Mortgage Loans having graduated payment provisions may require
the monthly payments of principal and interest to increase for a specified
period, provide for deferred payment of a portion of the interest due
monthly during such period, and recoup the deferred interest through
negative amortization whereby the difference between the scheduled payment
of interest and the amount of interest actually accrued is added monthly to
the outstanding principal balance. Other Mortgage Loans sometimes referred
to as 'growing equity' mortgage loans may provide for periodic scheduled
payment increases for a specified period with the full amount of such
increases being applied to principal.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the Mortgage Loan or may decline over
time, and may be prohibited for the life of the Mortgage Loan or for
certain periods ('lockout periods'). Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments without
payment of a fee unless the prepayment occurs during specified time
periods. The Mortgage Loans may include due-on-sale clauses which permit
the mortgagee to demand payment of the entire Mortgage Loan in connection
with the sale or
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* Whenever the terms 'Pool' and 'Securities' are used in this Prospectus, such
terms will be deemed to apply, unless the context indicates otherwise, to one
specific Pool and the 'Securities' representing the debt of, or certain
beneficial ownership interests, as described below, in a single Trust
consisting primarily of the Mortgage Loans in such Pool. Similarly, the term
'Trust' will refer to one specific Trust.
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certain transfers of the related Mortgaged Property. Other Mortgage Loans
may be assumable by persons meeting the then applicable underwriting
standards of the applicable Originator.
The Prospectus Supplement for each Series of 'Securities' will contain
information, as of the date of such Prospectus Supplement and to the extent then
specifically known to the Depositor, with respect to the Mortgage Loans
contained in the related Pool, including (i) the aggregate outstanding principal
balance and the average outstanding principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii) the largest principal balance and the
smallest principal balance of any of the Mortgage Loans, (iii) the types of
Mortgaged Properties securing the Mortgage Loans (e.g., one- to four-family
houses, vacation and second homes, manufactured housing and mobile homes (to the
extent permanently affixed and treated as real property under the laws of the
applicable jurisdiction), multifamily apartments or other real property), (iv)
the original terms to maturity of the Mortgage Loans, (v) the weighted average
term to maturity of the Mortgage Loans as of the related Cut-off Date and the
range of the terms to maturity; (vi) the earliest origination date and latest
maturity date of any of the Mortgage Loans, (vii) the ranges of Loan-to-Value
Ratios at origination, (viii) the Mortgage Rate and ranges of Mortgage Rates
borne by the Mortgage Loans, (ix) in the case of Mortgage Loans having
Adjustable Rates, the weighted average of the Adjustable Rates, if any, and (x)
the geographical distribution of the Mortgaged Properties on a state-by-state
basis.
If specific information respecting the Mortgage Assets is not known at the
time the related Series of Securities initially is offered, more general
information of the nature described below will be provided in the Prospectus
Supplement, and specific information will be set forth in a report on Form 8-K
to be filed with the Commission within fifteen days after the initial issuance
of such Securities (the 'Detailed Description'). A copy of the Agreement with
respect to each Series of Securities will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement. A schedule of the Mortgage Assets relating to such Series will be
attached to, or incorporated by reference into, the Agreement delivered to the
Trustee upon delivery of the Securities.
The 'Loan-to-Value Ratio' of a Mortgage Loan at any given time is the
fraction, expressed as a percentage, the numerator of which is the current
principal balance of the related Mortgage Loan at the date of determination and
the denominator of which is the Collateral Value of the related Mortgaged
Property. 'Collateral Value' is the appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal (as reviewed and approved by the
applicable Originator) made at the time of the origination of the related
Mortgage Loan, or (ii) the sales price of such Mortgaged Property at such time
of origination, in either case, plus any financed improvements. With respect to
a Mortgage Loan the proceeds of which were used to refinance an existing
mortgage loan, the appraised (as reviewed and approved by the related
Originator) value of the Mortgaged Property will be based upon the appraisal (as
reviewed and approved by the related Originator) obtained at the time of
refinancing.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels 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 principal
balances of the Mortgage Loans (plus any additional financing by other lenders
on the same Mortgaged Properties), in a particular Pool become equal to or
greater than the value of such Mortgaged Properties or if the general condition
of a Mortgaged Property declines, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. Because a Pool may contain Mortgage Loans with
original Loan-to-Value Ratios of up to 100% at origination, any overall decline
in property values or of particular Mortgaged Properties will be likely to
result in the outstanding principal balance of such Mortgage Loans becoming
greater than the value of such Mortgaged Properties which may give rise to the
consequences discussed in the preceding sentence.
The only obligations of the Depositor with respect to a Series of
Securities will be to provide from the applicable Originator (or, where the
Depositor or any Originator acquired a Mortgage Loan from another originator,
obtain from such originator) certain representations and warranties concerning
the Mortgage Loans and to assign to the Trustee for such Series of Securities
the Depositor's rights with respect to such representations and warranties. See
'The Agreements--Assignment of Mortgage Loans.' The obligations of the Master
Servicer with respect to the Mortgage Loans will consist principally of its
contractual servicing
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obligations under the related Agreement (including its obligations to make
Servicing Advances and to enforce the obligations of the Sub-servicers) and its
obligation to make certain Delinquency Advances in the event of delinquencies in
payments on or with respect to the Mortgage Loans in the amounts described
herein under 'The Agreements--Delinquency Advances and Compensating Interest.'
The obligations of a Master Servicer to make Delinquency Advances may be subject
to limitations, to the extent provided herein and in the related Prospectus
Supplement.
SINGLE FAMILY LOANS
'Single Family Loans' will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first or second
liens on one- to four-family residential properties. Single Family Loans also
may include loans or participations therein secured by mortgages or deeds of
trust on condominium units in condominium buildings together with such
condominium units' appurtenant interests in the common elements of the
condominium buildings.
The Mortgaged Properties relating to Single Family Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units in
condominium buildings, individual units in planned unit developments, mobile or
manufactured homes treated as real estate under applicable state law, and
certain mixed use and other dwelling units. Such Mortgaged Properties may
include vacation and second homes or investment properties.
MULTIFAMILY LOANS
Multifamily Loans will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first or second
liens on rental apartment buildings or projects containing five or more
residential units.
Mortgaged Properties which secure Multifamily Loans may include high-rise,
mid-rise and garden apartments. Certain of the Multifamily Loans may be secured
by apartment buildings owned by cooperatives. In such cases, the cooperative
owns all the apartment units in the building and all common areas. The
cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or 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 mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the cooperative. The cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of Mortgage
Loans, or (b) collateralized mortgage obligations ('CMOs') secured by Mortgage
Loans. Private Mortgage-Backed Securities will have been issued pursuant to a
private mortgage-backed securities agreement (the 'PMBS Agreement'). The
seller/servicer of the underlying Mortgage Loans will have entered into the PMBS
Agreement with the PMBS Trustee under the PMBS Agreement. The PMBS Trustee or
its agent, or a custodian, will possess the Mortgage Loans underlying such
Private Mortgage-Backed Security. Mortgage Loans underlying a Private
Mortgage-Backed Security will be serviced by the PMBS Servicer directly or by
one or more sub-servicers who may be subject to the supervision of the PMBS
Servicer. Unless otherwise described in the Prospectus Supplement, the PMBS
Servicer will be a Federal National Mortgage Association ('FNMA') or Federal
Home Loan Mortgage Corporation ('FHLMC') approved servicer and, if Federal
Housing Administration ('FHA') Loans underlie the Private Mortgage-
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Backed Securities, approved by the Department of Housing and Urban Development
('HUD') as an FHA mortgagee.
The PMBS Issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of mortgage
loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the Prospectus Supplement, the PMBS Issuer may be the Depositor or
an affiliate thereof. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, the PMBS Issuer will not have guaranteed any of the
assets conveyed to the related underlying trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Mortgage Loans underlying the Private Mortgage-Backed Securities
may be guaranteed by an agency or instrumentality of the United States, the
Private Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
The Mortgage Loans underlying the Private Mortgage-Backed Securities may
consist of fixed rate, level payment, fully amortizing loans or graduated
payment mortgage loans, buydown loans, adjustable rate mortgage loans, or loans
having balloon or other special payment features. Such Mortgage Loans may be
Single Family Loans or Multifamily Loans.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Mortgage Loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series of
Securities for which the related Trust includes Private Mortgage-Backed
Securities will specify (such disclosure may be on an approximate basis and will
be as of the date specified in the related Prospectus Supplement) to the extent
relevant and to the extent such information is reasonably available to the
Depositor and the Depositor reasonably believes such information to be reliable
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans underlying the Private Mortgage-Backed
Securities including (A) the payment features of such Mortgage Loans, (B) the
approximate aggregate principal balance, if known, of underlying Mortgage Loans
insured or guaranteed by a governmental entity, (C) the servicing fee or range
of servicing fees with respect to the underlying Mortgage Loans, and (D) the
minimum and maximum stated maturities of the underlying Mortgage Loans at
origination, (iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average term-to-stated maturity of
the Private Mortgage-Backed Securities, (v) the pass-through or certificate rate
of the Private Mortgage-Backed Securities, (vi) the weighted average
pass-through or certificate rate of the Private Mortgage-Backed Securities,
(vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the
PMBS Trustee for such Private Mortgage-Backed Securities, (viii) certain
characteristics of credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees relating to the Mortgage Loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (ix) the terms on which the underlying
Mortgage Loans for such Private Mortgage-Backed Securities may, or are required
to, be purchased prior to their stated maturity or the stated maturity of the
Private Mortgage-Backed Securities and (x) the terms on which other Mortgage
Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
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USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the sale
of the Securities of each Series to acquire the Mortgage Assets to be deposited
in the related Trust, and to pay other expenses connected with pooling such
Mortgage Assets and issuing such Securities. Any amounts remaining after such
payments may be used for general corporate purposes. The Depositor expects to
sell Securities in Series from time to time.
THE DEPOSITOR
UCFC Acceptance Corporation (the 'Depositor') was incorporated in the State
of Louisiana on March 26, 1993, and is an indirect wholly-owned subsidiary of
United Companies Financial Corporation (the 'Parent'). The Depositor maintains
its principal offices at 4041 Essen Lane, Baton Rouge, Louisiana 70809. Its
telephone number is (504) 924-6007.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
THE ORIGINATORS
It is anticipated that the Mortgage Loans will be purchased by the
Depositor from United Companies Lending Corporation(Registered) ('United
Companies'), UNICOR Mortgage(Registered), Inc. ('UNICOR'), GINGER
MAE(Registered), Inc. ('GINGER MAE') and Southern Mortgage Acquisition, Inc.
('SMAI') (collectively, the 'Originators').
Each of the Originators is a Louisiana corporation and an indirect
wholly-owned subsidiary of the Parent. The Parent is a financial services
holding company having mortgage lending operations focused on the origination,
purchase, sale and servicing of first mortgage, non-conventional, home equity
loans. The Parent's principal offices are in Baton Rouge, Louisiana.
Because the nature of the business of the Originators involves the
collection of numerous accounts, the validity of liens and compliance with state
and federal lending laws, each is subject to numerous claims and legal actions
in the ordinary course of its business. While it is impossible to estimate with
certainty the ultimate legal and financial liability with respect to such claims
and actions, the management of United Companies believes, based on information
currently available, that the aggregate amount of such liabilities will not
result in monetary damage which in the aggregate would have a material adverse
effect on the financial condition of the Originators.
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THE HOME EQUITY LOAN PROGRAM
GENERAL
Each of the Originators engages in a different method of loan production:
United Companies originates loans through a branch network; UNICOR conducts a
wholesale operation which acquires loans primarily from brokers and
correspondents; GINGER MAE, which currently is operating as a division of United
Companies, conducts a wholesale operation which acquires loans from banks and
other depository institutions; and SMAI acquires loans in bulk purchases. Each
of United Companies, UNICOR and GINGER MAE has its own staff of underwriters in
order to provide better service to its respective customers. SMAI applies the
underwriting standards of United Companies to the loans that it purchases.
Regardless of the manner of origination, the appropriate underwriters apply
essentially similar underwriting standards.
UNDERWRITING OF HOME EQUITY LOANS
The underwriting function is centralized in Baton Rouge. The underwriting
process is intended to assess both the prospective borrower's ability to repay
the loan and the adequacy of the real property security as collateral for the
loan granted. On a case by case basis, after review and approval by the
Originator's underwriters, home equity loans may be made which vary from the
underwriting guidelines.
The Originators originate fixed rate home equity loans with original terms
to maturity not to exceed: 360 months for single family, owner occupied first
mortgages; 360 months for single family, non-owner occupied first mortgages; 360
months for single family, combination owner occupied/rental property first
mortgages; and 180 months for single family, owner occupied second mortgages.
The fixed rate home equity loan amounts generally do not exceed $500,000, in the
case of loans secured by first liens, and $150,000, in the case of loans secured
by second liens, in each case unless a higher amount is specifically approved by
the applicable underwriters. Except for Balloon Loans, all of the Originators'
fixed rate home equity loans are fully amortizing. UNICOR originates and the
other Originators may originate a fixed rate loan with an original term to
maturity ranging from 60 to 240 months and a longer amortization schedule
ranging from 180 to 360 months ('Balloon Loans'). Balloon Loans must be secured
by first liens on single family, owner occupied residential properties. UNICOR
and GINGER MAE also originate fixed rate home equity loans which provide that
the interest rate may decrease by one percentage point if the borrower makes the
first 12 consecutive monthly payments without a delinquency. At that time, the
monthly payments will be recalculated to fully amortize the loan at the reduced
rate over the remaining term to maturity. Adjustable rate home equity loans
originated by the Originators generally fully amortize over a period not to
exceed 360 months. The maximum loan amount for adjustable rate home equity loans
is $500,000 unless a higher amount is specifically approved by the applicable
underwriters.
The homes used for collateral to secure the fixed rate home equity loans
may be owner occupied, non-owner occupied rental properties or a combination of
owner occupied/rental properties, which in any case are one- to four-family
residences (which may be a detached or semi-detached row house, townhouse, a
condominium unit or a unit in a planned unit development). In addition, such
loans may be secured by single-family owner occupied manufactured or mobile
homes with land if the manufactured or mobile homes are permanently affixed and
defined as real estate under applicable state law. Certain loans may be secured
by a leasehold interest and the improvements thereon. Second mortgages are
generally permitted only for fixed rate home equity loans and generally are
limited to one- to four-family owner occupied property. Such a loan secured by a
second mortgage typically will not be made if the first mortgage is a balloon or
an individual or owner financed mortgage. The homes used for collateral to
secure adjustable rate home equity loans may be owner occupied or non-owner
occupied rental properties, which in any case are one- to four-family residences
(which may be a detached or semi-detached, row house, townhouse, a condominium
unit or a unit in a planned unit development).
In general, the value of each property proposed as security for a home
equity loan is required to be determined by a current appraisal from an
independent appraiser who has been approved by United Companies. The Originators
select the appraiser and order the appraisal except for broker or correspondent
originated home
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equity loans for which the broker or the correspondent selects the appraiser
from a list of appraisers pre-approved by United Companies.
The Originators require that the appraisal provide an adequately supported
estimate of the value of the property proposed as security for the requested
home equity loan and a complete, accurate description of the property. In some
cases, the appraisal is subject to completion of improvements which are to be
made with the proceeds of the proposed home equity loan. The property is
analyzed by the Originators, based on the appraisal, to determine its
acceptability as security for the loan requested.
The total amount of a home equity loan generally includes origination fees,
credit life insurance premium, if any, prepaid interest and other closing costs
(such as the cost of an appraisal report and title insurance premiums).
Loan-to-value is the percentage equal to the note amount divided by the lesser
of appraised value or the purchase price of the real estate plus financed
improvements for the real estate. For fixed rate and adjustable rate home equity
loans originated through UNICOR or GINGER MAE, the maximum loan-to-value is 90%,
with the maximum for rural properties generally being 80%. For home equity loans
originated through United Companies, an Underwriting Loan-to-Value Ratio, as
described below, is utilized. The total amount of a home equity loan, net of the
origination fees, credit life insurance premium, if any, prepaid tax and
insurance escrow, real estate tax service fee, loan application fee and prepaid
interest, is defined as the 'Cash Out'. The 'Underwriting Loan-to-Value Ratio'
for underwriting purposes is the Cash Out divided by the appraised value or
purchase price of the property plus financed improvements for the real estate,
whichever is less. The Cash Out with respect to fixed rate and adjustable rate
home equity loans originated through United Companies is limited to 90% of the
lesser of the applicable appraised value or purchase price of the property.
Because the Underwriting Loan-to-Value Ratio is based on the Cash Out rather
than the actual principal balance of the related loan, the Loan-to-Value Ratio
of such loan will be higher and could be substantially higher than the
Underwriting Loan-to-Value Ratio. However, the Loan-to-Value Ratio may not
exceed 100%.
Generally, the maximum Underwriting Loan-to-Value Ratio is 85% for a loan
with a second mortgage on the property. With respect to rural properties, the
maximum Underwriting Loan-to-Value Ratio (utilizing only up to ten acres and the
improvements thereon) is 80%. The maximum Underwriting Loan-to-Value Ratio
generally applicable to non-owner occupied homes and owner occupied
manufactured/mobile homes with land is generally 80%.
Verification of personal financial information for each applicant is
required by the Originators. The applicant's total monthly obligations
(including principal and interest on each mortgage, tax assessments, other
loans, charge accounts and all scheduled indebtedness) generally should not
exceed 50% of a borrower's gross monthly income. In the case of adjustable rate
home equity loans, the debt ratio calculation is based upon the principal and
interest payment amount utilizing the maximum rate on the second change date.
Generally, the borrowers are required to have two years of employment with their
current employer or two years of like experience. Applicants who are salaried
employees must provide current employment information in addition to recent
employment history. Originators verify this information for salaried borrowers
based on written confirmation from employers, or a combination of a telephone
confirmation from the employer and the most recent pay stub and the most recent
W-2 tax form. A self-employed applicant is generally required to provide copies
of complete federal income tax returns (including schedules) filed for the most
recent two years. Re-verification of the foregoing information generally is not
undertaken for home equity loans purchased through the bulk purchase program of
the Originators.
A credit report by an independent, nationally recognized credit reporting
agency reflecting the applicant's credit history is required. The credit report
should reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies and similar instances of adverse credit
that can be discovered by a search of public records. Verification is required
to be obtained of the first mortgage balance, if any, its status and whether
local taxes, interest, insurance and assessments are included in the applicant's
monthly payment. All taxes and assessments not included in the payment are
required to be verified as current. A borrower's mortgage payment history
generally should reflect no more than three payments over 30 days delinquent in
the last twelve months; however, in some cases, a borrower is permitted to have
no more than five
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payments over 30 days delinquent in the last twelve months and one payment over
60 days delinquent in the last twelve months. Credit analysis is subjective and
subject to interpretation in the underwriting process.
Certain laws protect loan applicants by offering them a timeframe after
loan documents are signed, called the 'rescission period,' during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law.
The Originators generally require title insurance coverage on each home
equity loan they originate. The Originators and their assignees are generally
named as the insured on the title insurance policies and the addressee of the
title opinion.
The borrower is required to obtain property insurance in an amount
sufficient to cover in the case of a first mortgage the new loan and in the case
of a fixed rate second mortgage, the new loan and any prior mortgage. If the sum
of an outstanding first mortgage, if any, and the fixed rate home equity loan
exceeds the lesser of replacement or insurable value, insurance equal to the
lesser of replacement or insurable value may be accepted. The Originator
requires that its name and address are properly added to the 'mortgagee clause'
of the insurance policy. In the event the Originator's name is added to a 'loss
payee clause' and the policy does not provide for written notice of policy
changes or cancellation, an endorsement adding such provision is required. The
borrower is required to obtain flood insurance to the extent such insurance is
available under the Flood Disaster Protection Act of 1973, as amended.
After a loan is underwritten, approved and funded, the mortgage loan
packages are reviewed and monitored by home office loan review personnel. A
random sample of the mortgage loan packages are subsequently subjected to a
quality control audit.
SERVICING OF HOME EQUITY LOANS
United Companies performs the following services for investors to whom it
has sold home equity loans and retained servicing: investor reporting;
collecting and remitting periodic principal and interest payments to investors
and performing other administrative services, including maintaining required
escrow accounts for payment of real estate taxes and standard hazard insurance;
determining the adequacy of standard hazard insurance; advising investors of
delinquent loans; conducting foreclosure proceedings, and inspecting and
reporting on the physical condition of the Mortgaged Properties securing the
Mortgage Loans; and disposing of foreclosed properties. United Companies is
generally obligated to advance interest on delinquent home equity loans to the
secondary market investors at the pass-through rate until satisfaction of the
note, liquidation of the Mortgaged Property or charge off of the home equity
loan. To the extent that the amount recovered through liquidation of collateral
is insufficient to cover the unpaid balance of the Home Equity Loan, United
Companies incurs a loss up to the limit specified in the related loan sale
agreement. In connection with its servicing activities, United Companies sends
to borrowers payment coupon books that specify the fixed payment amount and due
date in the case of fixed rate home equity loans and the adjusted payment amount
and due date in the case of adjustable rate home equity loans and the late
payment amount, if any. Due dates for payments generally occur on the first day
of the calendar month. With respect to adjustable rate home equity loans, United
Companies provides written notices to borrowers of upcoming rate adjustments
along with new payment coupon books reflecting the adjusted payment amounts.
United Companies, as the Master Servicer, is required under each Agreement
to service the Mortgage Loans either directly or through Sub-servicers.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance handling, collections and liquidations.
United Companies centralizes all servicing activities at the home office
other than the disposal of foreclosed properties.
If payment is not received within the grace period as dictated by the
applicable state law in which the loan originated, a notice will be sent to the
customer. Most of the home equity loans allow a 10 day grace period. In
addition, follow-up correspondence is automatically generated on the 21st, 32nd
and 45th day of delinquency.
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Collection calls begin at or before the expiration of the grace period.
Calls at this stage are targeted towards loans with a history of slow payment.
In addition, newer loans are targeted for calls to help establish a satisfactory
payment record. Collection calls continue until corrective arrangements are
made, or foreclosure is initiated.
If an account becomes 30 days past due, a 30 day loan counselor analyzes
the account to determine the appropriate course of action. When an account
becomes 60 days past due, a property inspection and borrower interview may be
requested through a third party contractor. In addition the initial loan file is
reviewed and generally an up-to-date credit report is obtained. At 90 days past
due, if appropriate corrective arrangements have not been made with the
borrower, a recommendation for foreclosure, along with an accompanying package,
is submitted to the collection supervisor. This package generally includes the
original appraisal, loan approval memorandum, the note and the mortgage. If
approved by the collection supervisor, the package is forwarded to the vice
president of collections for review. If approved the package is forwarded to the
litigation department for the initiation of foreclosure proceedings.
Depending upon the circumstances surrounding the delinquent account, a
temporary suspension of payments, a repayment plan to return the account to an
up-to-date status, or (to the extent authorized by the related Agreement) an
extension/modification may be permitted.
The course of action followed for a delinquent account is dependent upon a
number of factors, including the borrower's payment history, the amount of
equity in the Mortgaged Property and the reason for the current inability to
make timely payments. If a borrower is experiencing difficulty in making
payments on time, the Master Servicer may modify the payment schedule (as
permitted by the related Agreement). In the event a loan is extended and thereby
removed from delinquency status, the Master Servicer may require the borrower to
pay an extension fee. Modifications to payment schedules are considered on a
case-by-case basis and are limited to revisions to the contract rate and/or term
only. A request for modification must be submitted by the borrower to the Master
Servicer. Prior to evaluating each modification request, the Master Servicer
obtains an updated credit report and, in some cases, a budget analysis worksheet
application. Provided that the review and analysis of the circumstances and
relevant documentation substantiates a favorable decision to modify the related
loan, the appropriate documentation is generated by the Master Servicer and
executed by the borrower to facilitate formal modification of the home equity
loan. Any extension fees collected by the Master Servicer are retained by the
Master Servicer as part of its servicing compensation.
Foreclosure regulations and practices and the rights of the owner in
default vary from state to state, but generally procedures may be initiated if:
(i) the loan is 90 days or more delinquent; (ii) a notice of default on a senior
lien is received; or (iii) United Companies discovers circumstances indicating
potential loss exposure.
During the foreclosure process, any expenses incurred by United Companies
are added to the amount owed by the borrower, as permitted by applicable law.
Upon completion of the foreclosure, the property is sold to an outside bidder,
or passes to the mortgagee, in which case United Companies proceeds to liquidate
the asset.
United Companies may not foreclose on the property securing a Second
Mortgage Loan unless it forecloses subject to each senior mortgage, in which
case United Companies generally will pay the amount due on the senior mortgage
to the senior mortgagee, if United Companies determines that doing so will
minimize the loss. In the event that foreclosure proceedings have been
instituted on a senior mortgage prior to the initiation of United Companies'
foreclosure action, United Companies may either satisfy such mortgage at the
time of the foreclosure sale or take other appropriate action.
Servicing and charge-off policies and collection practices may change over
time in accordance with United Companies' business judgment, changes in its
real-estate loan portfolio and applicable laws and regulations.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of the Mortgagor in default vary greatly from state
to state. Only if United Companies determines that a delinquency cannot
otherwise be cured will it decide that foreclosure is the appropriate course of
action. Many real estate properties owned by United Companies are ultimately
sold by United Companies to new borrowers to whom United Companies will provide
a mortgage. If, after determining that purchasing a property securing a home
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equity loan will minimize the loss associated with such defaulted loan, United
Companies may bid at the foreclosure sale for such property or accept a deed in
lieu of foreclosure.
Although the servicing practices and procedures of any Sub-servicer may
differ from those described above, such practices and procedures will be
required to be at least as stringent as those applied by United Companies. In
addition, United Companies, as Master Servicer, will remain responsible for the
servicing of the sub-serviced Mortgage Loans in accordance with the applicable
Agreement to the same extent as if it were servicing such Mortgage Loans
directly.
REFINANCING POLICY
When the Originators believe that borrowers with existing loans with the
Originators are likely to refinance such loans due to interest rate changes,
equity build-up or other reasons, the Originators actively attempt to retain
such borrowers through solicitations of such borrowers to refinance with the
Originators. Such refinancings generate fee income for the Originators and
servicing income for the Master Servicer. Solicitations by the Originators of
their borrowers is done universally in order to retain the borrowers and are not
targeted to affect loans which have been placed in securitized pools. Therefore,
since the solicited borrowers are not targeted and because they may refinance
their existing loans in any case, the Originators believe that this practice
will be unlikely to affect the prepayment experience of the home equity loans in
a material respect.
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DESCRIPTION OF THE SECURITIES
GENERAL
Each Series of Notes will be issued pursuant to an indenture (the
'Indenture') between the related Trust and the entity named in the related
Prospectus Supplement as trustee (the 'Trustee') with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a 'Pooling and Servicing
Agreement' or a 'Trust Agreement') among the Depositor, the Master Servicer, if
the Series relates to Mortgage Loans, and the Trustee. A form of Pooling and
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. A Series may consist of both Notes and
Certificates.
The following summaries describe the material provisions which may appear
in each Agreement. The Prospectus Supplement for a Series of Securities will
describe any material provision of the Agreements relating to such Series that
materially differs from the descriptions thereof contained in this Prospectus.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreement for each Series of Securities and the applicable Prospectus
Supplement. The Depositor will provide a copy of the Agreement (without
exhibits) relating to any Series without charge upon written request of a holder
of a Security of such Series addressed to UCFC Acceptance Corporation, 4041
Essen Lane, Baton Rouge, LA 70809, Attention: Secretary.
Unless otherwise specified in the Prospectus Supplement, the Securities of
each Series will be issued in fully registered form only in the denominations
specified in the related Prospectus Supplement, will represent obligations of,
or beneficial ownership interests in, a Trust created pursuant to the related
Agreement and will not be entitled to payments in respect of the Mortgage Assets
included in any other Trust. Definitive Securities will be transferable and
exchangeable at the corporate trust office of the Trustee or, at the election of
the Trustee, at the office of a Registrar appointed by the Trustee. No service
charge will be incurred for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. If provided in the related Agreement, a certificate
administrator may perform certain duties in connection with the administration
of the Certificates.
Distributions on Securities will be made only from the assets of the
related Trust, and the Securities will not represent obligations of the
Depositor, the Master Servicer, the Trustee or any affiliate thereof. The assets
of each Trust will consist of one or more of the following, as set forth in the
related Prospectus Supplement: (a) the Mortgage Assets that from time to time
are subject to the related Agreement; (b) amounts on deposit in the related
Pre-Funding Account and/or Capitalized Interest Account, if any; (c) the assets
for the Trust that from time to time are required by the Agreement to be
deposited in the Distribution Account, the Principal and Interest Account and
any other accounts established pursuant to the related Agreement (collectively,
the 'Accounts'), or to be invested in Eligible Investments (as defined in the
related Agreement); (d) property and any proceeds thereof acquired by
foreclosure, deed in lieu of foreclosure or a comparable conversion of the
Mortgage Loans in such Pool; and (e) all rights under any other insurance
policies, guarantees, surety bonds, letters of credit or other credit
enhancement covering any Securities, any Mortgage Loan in the related Pool or
any related Mortgaged Property which is required to be maintained pursuant to
the related Agreement.
Each Series of Securities will be issued in one or more Classes. A Series
of Securities may include one or more Classes of Senior Securities that receive
certain preferential treatment with respect to one or more Subordinated Classes
of Securities of such Series. Certain Series or Classes of Securities may be
covered by Enhancement as described in the related Prospectus Supplement.
Distributions on one or more Classes of a Series of Securities may be made prior
to one or more other Classes, after the occurrence of specified events, in
accordance with a schedule or formula, on the basis of collections from
designated portions of the Mortgage Assets in the related Trust or on a
different basis, in each case, as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among Classes
or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Securities will be made by the Trustee on each
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Distribution Date specified in the related Prospectus Supplement (each, a
'Distribution Date'), in the amounts specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the record dates specified
in the Prospectus Supplement. Distributions will be made by check mailed to the
persons entitled thereto at the address appearing in the register maintained for
holders of Securities (the 'Register') or, to the extent described in the
related Prospectus Supplement, by wire transfer or by such other means as are
described therein, except that the final distribution in retirement of the
Securities will be made only upon presentation and surrender of the Securities
at the office or agency of the Trustee or other person specified in the final
distribution notice to Holders.
Each Class of Securities within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Securities or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Securities of such Series
throughout the lives of the Securities or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Securities entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or an adjustable rate; and (vii)
include, as to Securities entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See 'Credit Enhancement.' Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Distribution Account, including any funds transferred from any Reserve Account
and funds received as a result of credit enhancement. As between Securities of
different Classes and as between distributions of interest and principal and, if
applicable, between distributions of prepayments of principal and scheduled
payments of principal, distributions made on any Distribution Date will be
applied as specified in the Prospectus Supplement. Unless otherwise specified in
the Prospectus Supplement, distributions to any Class of Securities will be made
pro rata to all Holders of that Class.
Available Funds. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, 'Available Funds' for
each Distribution Date will equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on account
of principal (including principal prepayments, if any, and prepayment
penalties, if so provided in the related Prospectus Supplement) and
interest on the Mortgage Loans in the related Trust received by the Master
Servicer after the Cut-off Date and on or prior to the day of the month of
the related Distribution Date specified in the Prospectus Supplement (the
'Determination Date') except:
(a) all payments which were due on or before the Cut-off Date;
(b) all cash amounts received in connection with the liquidation of
defaulted Mortgage Loans ('Liquidation Proceeds'), all proceeds (net of
unreimbursed Servicing Advances) of title insurance, hazard insurance
and primary mortgage insurance, if any ('Insurance Proceeds'), all
Principal Prepayments (defined herein), all proceeds received in
connection with the condemnation of a Mortgaged Property or the release
of part of a Mortgaged Property ('Released Mortgage Property
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Proceeds') and all proceeds of any Mortgage Loan purchased by the
Depositor or any other entity pursuant to the Agreement that were
received after the prepayment period specified in the Prospectus
Supplement and all related payments of interest representing interest
for any period after such prepayment period;
(c) all scheduled payments of principal and interest due on a date
or dates subsequent to the first day of the month of distribution;
(d) amounts received on particular Mortgage Loans as late payments
of principal or interest or other amounts required to be paid by the
mortgagors (the 'Mortgagors'), and, unless otherwise specified in the
related Prospectus Supplement, which are to be retained by the Master
Servicer (including any Sub-servicer) as additional compensation;
(e) amounts representing reimbursement, to the extent permitted by
the Agreement and as described under 'The Agreements--Delinquency
Advances and Compensating Interest' and '--Servicing and Other
Compensation and Payment of Expenses,' for advances made by the Master
Servicer and advances made by any Sub-servicers that were deposited into
the Distribution Account, and amounts representing reimbursement for
certain other losses and expenses incurred by the Master Servicer or the
Depositor and described below or in the related Agreement;
(f) that portion of each collection of interest on a particular
Mortgage Loan in such Trust which represents servicing compensation
payable to the Master Servicer which is to be retained from such
collection or is permitted to be retained from related Insurance
Proceeds, Liquidation Proceeds or proceeds of Mortgage Loans purchased
pursuant to the Agreement; and
(g) the Certificate Guaranty Insurance Policy premium and Trustee
Fees;
(ii) the amount of any Delinquency Advance or payment in respect of
Compensating Interest made by the Master Servicer (including any
Sub-servicer) as deposited by it in the Distribution Account; and
(iii) if applicable, amounts withdrawn from a Reserve Account or
received in connection with other credit enhancement.
Distributions of Interest. Interest will accrue on the aggregate Security
Principal Balance (defined below)(or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional principal balance)
of each Class of Securities entitled to interest from the date, at the
Pass-Through Rate or Note Rate, for the periods and to the extent specified in
the Prospectus Supplement. To the extent funds are available therefor, interest
accrued during each such specified period on each Class of Securities entitled
to interest (other than a Class of Securities that provides for interest that
accrues, but is not currently payable, referred to hereafter as 'Accrual
Securities') will be distributable on the Distribution Dates specified in the
Prospectus Supplement until the aggregate Security Principal Balance of the
Securities of such Class has been distributed in full or, in the case of
Securities entitled only to distributions allocable to interest, until the
aggregate notional principal balance of such Securities is reduced to zero or
for the period of time designated in the Prospectus Supplement.
The original Security Principal Balance of each Security will equal the
aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated on the basis
set forth in the related Prospectus Supplement. The notional principal balance
of a Security will not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in expressing the
calculation of interest and for certain other purposes.
With respect to any Class of Accrual Securities, if specified in the
Prospectus Supplement, any interest that has accrued but is not paid on a given
Distribution Date will be added to the aggregate Security Principal Balance of
such Class of Securities on that Distribution Date. Distributions of interest on
each Class of Accrual Securities will commence only after the occurrence of the
events specified in the Prospectus Supplement. Any such Class of Accrual
Securities will thereafter accrue interest on its outstanding Security Principal
Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the aggregate 'Security Principal Balance' of any Class of
Securities entitled to distributions of principal will be the aggregate original
Security Principal Balance of such Class of Securities specified in the
Prospectus Supplement, reduced
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by all distributions and losses reported to the holders of such Securities as
allocable to principal, and, in the case of Accrual Securities, increased by all
interest accrued but not then distributable on such Accrual Securities. The
Prospectus Supplement will specify the method by which the amount of principal
to be distributed on the Securities on each Distribution Date will be calculated
and the manner in which such amount will be allocated among the Classes of
Securities entitled to distributions of principal.
If so provided in the Prospectus Supplement, one or more Classes of Senior
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ('Principal Prepayments') in the
percentages and under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal Prepayments to such
Class or Classes of Securities will have the effect of accelerating the
amortization of such Senior Securities while increasing the interests evidenced
by the Subordinated Securities in the Trust. Increasing the interests of the
Subordinated Securities relative to that of the Senior Securities is intended to
preserve the availability of the subordination provided by the Subordinated
Securities. See 'Credit Enhancement--Subordination.' The timing and amounts of
distributions allocable to interest and principal and, if applicable, Principal
Prepayments and scheduled payments of principal, to be made on any Distribution
Date may vary among Classes, over time or otherwise as specified in the
Prospectus Supplement.
REPORTS TO HOLDERS
On or before each Distribution Date, the Master Servicer or the Trustee
will be required to forward to each Holder of record of the related Series a
statement setting forth the following to the extent applicable to such Series or
Class:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, prepayment penalties
included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Delinquency Advance by the Master Servicer (or
any Sub-servicer);
(iv) the aggregate amount (a) otherwise allocable to the Holders of
Subordinated Securities on such Distribution Date, and (b) withdrawn from a
Reserve Account, if any, that is included in the amounts distributed to the
Holders of Senior Securities;
(v) the total amount of any Insured Payments included in the amount
distributed on such Distribution Date;
(vi) the outstanding principal balance of such Class after giving
effect to the distribution of principal on such Distribution Date;
(vii) if applicable, the percentage of principal payments on the
Mortgage Loans, if any, which such Class will be entitled to receive on the
following Distribution Date;
(viii) unless the Pass-Through Rate or Note Rate is a fixed rate, the
Pass-Through Rate or Note Rate applicable to the distribution on the
Distribution Date;
(ix) the number and aggregate principal balance of Mortgage Loans in
the related Pool delinquent (a) one month and (b) two or more months;
(x) the number and aggregate principal balance of all Mortgage Loans
in foreclosure or other similar proceedings, and the book value of any real
estate acquired through foreclosure or grant of a deed in lieu of
foreclosure; and
(xi) if applicable, the amount remaining in any Reserve Account or the
amount remaining of any other credit support, after giving effect to the
distribution on the Distribution Date.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant Class having the denomination or
interest specified in the related Prospectus Supplement or the
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report to Holders. The report to Holders for any Class or Series of Securities
may include additional or other information of a similar nature to that
specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each person who
was a Holder of record at any time during such calendar year a report (a) as to
the aggregate of amounts reported pursuant to (i) and (ii) for such calendar
year or, in the event such person was a Holder of record during a portion of
such calendar year, for the applicable portion of such year and (b) such other
customary information as may be deemed necessary or desirable for Holders to
prepare their tax returns.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Securities will
be book-entry securities (the 'Book-Entry Securities'). Persons acquiring
beneficial ownership interests in such Securities ('Beneficial Owners') will
hold their Securities through DTC in the United States, or Cedel or Euroclear
(in Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry Securities
will be issued in one or more certificates which equal the aggregate principal
balance of the applicable Series of Securities and will initially be registered
in the name of Cede, the nominee of DTC. Cedel and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and Chase will act as depositary for Euroclear (in such capacities,
individually the 'Relevant Depositary' and collectively the 'European
Depositaries'). Except as described below, no person acquiring a Book-Entry
Security will be entitled to receive a physical certificate representing such
Security (a 'Definitive Security'). Unless and until Definitive Securities are
issued, the only 'Holder' of Book-Entry Securities will be Cede, as nominee of
DTC. Beneficial Owners will not be Holders as that term is used in the
applicable Agreement. Beneficial Owners are only permitted to exercise their
rights indirectly through participants in DTC ('DTC Participants').
The Beneficial Owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of DTC Participant that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel or Euroclear, as appropriate).
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received on Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant (as defined
below) or Euroclear Participant (as defined below) 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.
Transfers between DTC Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding securities directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC Rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European International clearing system will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or
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receiving payment in accordance with normal procedures for same day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants may
not deliver instructions directly to the European Depositaries.
DTC which is a New York-chartered limited purpose company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Securities whether held
for its own account or as a nominee for another person. In general, beneficial
ownership of Book-Entry Securities will be subject to the rules, regulations and
procedures governing DTC and DTC Participants as in effect from time to time.
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 its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
('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 be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'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 Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific 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.
Distributions on the Book-Entry Securities will be made on each
Distribution Date by the applicable Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC Participant
will be responsible for disbursing such payments to the Beneficial Owners of the
Book-Entry Securities that it represents and to each Financial Intermediary for
which it acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Owners of the Book-Entry Securities that it
represents.
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Under a book-entry format, Beneficial Owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Securities
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 the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a Beneficial Owner to pledge Book-Entry
Securities to persons or entities that do not participate in the depository
system, or otherwise take actions in respect of such Book-Entry Securities, may
be limited due to the lack of physical certificates for such Book-Entry
Securities. In addition, issuance of the Book-Entry Securities in book-entry
form may reduce the liquidity of such securities in the secondary market since
certain potential investors may be unwilling to purchase securities for which
they cannot obtain physical certificates.
DTC has advised the Depositor that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the Beneficial
Owners of the Book-Entry Securities under the applicable Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Securities are credited, to the extent that such actions are taken on
behalf of Financial Intermediaries whose holdings include such Book-Entry
Securities. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Holder under the applicable Agreement on
behalf of a Cedel Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
actions, at the direction of the related DTC Participants, with respect to some
Book-Entry Securities of a Series which conflict with actions taken with respect
to other Book-Entry Securities of such Series.
Definitive Securities will be issued to beneficial owners of the Book-Entry
Securities, or their nominees, rather than to DTC, only if (a) DTC or the
Depositor advises the applicable Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Securities and the Depositor or
such Trustee is unable to locate a qualified successor, (b) the Depositor, at
its sole option, elects to terminate the book-entry system through DTC or (c)
after the occurrence of an Event of Default (as defined herein), Beneficial
Owners having Percentage Interests aggregating not less than 51% advise the
Trustee and DTC through the Financial Intermediaries and the DTC Participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
affected Beneficial Owners of the occurrence of such event and the availability
through DTC of Definitive Securities. Upon surrender by DTC of the global
certificate or certificates representing the Book-Entry Securities and
instructions for re-registration, the applicable Trustee will issue Definitive
Securities, and thereafter such Trustee will recognize the holders of such
Definitive Securities as Holders under the applicable Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities 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.
Neither the Depositor, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to a Series or any Class of Securities will
be set forth in the related Prospectus Supplement. If and to the extent provided
in the related Prospectus Supplement, enhancement may be in the form of a
financial guaranty insurance policy, overcollateralization, a letter of credit,
cash reserve fund, insurance policies, one or more Classes of Subordinated
Securities, derivative products or other form of enhancement, or any combination
thereof, as may be described in the related Prospectus Supplement (collectively,
'Enhancement'). If specified in the applicable Prospectus Supplement,
Enhancement for any Series of Securities may cover one or more Classes of
Securities, and accordingly may be exhausted for the benefit of a particular
Class of Securities and thereafter may be unavailable to such other Classes of
Securities. Further information regarding any provider of credit enhancement
(the 'Enhancer'), including financial information when material, will be
included in the related Prospectus Supplement.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Holders of the full amount of principal and interest due them and
to decrease the likelihood that the Holders will experience losses, or may be
structured to provided protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. The Enhancement for a Class of Securities may not provide
protection against all risks of loss and may not guarantee repayment of the
entire principal and interest thereon. If losses occur which exceed the amount
covered by any Enhancement or which are not covered by any Enhancement, Holders
will bear their allocable share of deficiencies. In addition, if a form of
Enhancement covers more than one Class of Securities of a Series, Holders of any
such Class will be subject to the risk that such Enhancement will be exhausted
by the claims of Holders of other Classes.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Securities will be affected by the amount and
timing of principal payments on or in respect of the Mortgage Assets included in
the related Trust, the allocation of available funds to various Classes of
Securities, the Pass-Through Rate or Note Rate for various Classes of Securities
and the purchase price paid for the Certificates.
The original terms to maturity of the Mortgage Loans in a given Pool will
vary depending upon the type of Mortgage Loans included therein. Each Prospectus
Supplement will contain information with respect to the type and maturities of
the Mortgage Loans in the related Pool. Unless otherwise specified in the
related Prospectus Supplement, Single Family Loans may be prepaid without
penalty in full or in part at any time, although a prepayment fee or penalty may
be imposed in connection therewith. Multifamily Loans may prohibit prepayment
for a specified period after origination, may prohibit partial prepayments
entirely, and may require the payment of a prepayment fee or penalty upon
prepayment in full or in part.
The rate of prepayments with respect to non-conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
below the Mortgage Rates borne by the Mortgage Loans, such Mortgage Loans are
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Mortgage Rates. Conversely, if prevailing interest
rates rise appreciably above the Mortgage Rates borne by the Mortgage Loans,
such Mortgage Loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below such Mortgage Rates. However, there can be
no assurance that such will be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayments on Single Family
Loans may be affected by changes in a mortgagor's housing needs, job transfers,
unemployment, a borrower's net equity in the mortgaged properties, the
enforcement of due-on-sale clauses and other servicing decisions. Adjustable
rate mortgage loans, bi-weekly mortgage loans, graduated payment mortgage loans,
growing equity mortgage loans, reverse mortgage loans, buy-down mortgage loans
and mortgage loans with other characteristics may experience a rate of principal
prepayments which is different from that of fixed rate, monthly pay, fully
amortizing mortgage loans. The rate of prepayment on Multifamily Loans may be
affected by other factors, including Mortgage Loan terms (e.g., the existence of
lockout periods, due-on-sale and due-on-encumbrance clauses and prepayment
penalties), relative economic conditions in the area where
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the Mortgaged Properties are located, the quality of management of the Mortgaged
Properties and the relative tax benefits associated with the ownership of
income-producing real property.
Generally, second Mortgage Loans have smaller average principal balances
than senior or first mortgage loans and are not viewed by borrowers as permanent
financing. Accordingly, Mortgage Loans which are second Mortgage Loans may
experience a higher rate of prepayment than Mortgage Loans which represent first
liens. In addition, any future limitations on the right of borrowers to deduct
interest payments on second Mortgage Loans for Federal income tax purposes may
result in a higher rate of prepayment of such Mortgage Loans. The obligation of
the Master Servicer to enforce due-on-sale provisions (described below) of the
Mortgage Loans may also increase prepayments. The prepayment experience of the
Pools may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Depositor is unaware of any
reliable studies that would project the prepayment risks associated with the
Mortgage Loans based upon current interest rates and economic conditions or the
historical prepayment experience of United Companies and its affiliates'
portfolios of mortgage loans. However, the Originators' practice of soliciting
refinancings from existing borrowers may have the effect of increasing the rate
of prepayments, due to refinancings, on the Mortgage Loans. See 'The Home Equity
Loan Program--Refinancing Policy' herein.
Unless otherwise provided in the related Prospectus Supplement, all of the
Single Family Loans will contain due-on-sale provisions permitting the mortgagee
to accelerate the maturity of the Mortgage Loan upon sale or certain transfers
by the borrower of the underlying Mortgaged Property. Unless otherwise provided
in the related Prospectus Supplement, the Master Servicer generally will enforce
any due-on-sale or due-on-encumbrance clause, to the extent it has knowledge of
the conveyance or further encumbrance or the proposed conveyance or proposed
further encumbrance of the Mortgaged Property and reasonably believes that it is
entitled to do so under applicable law; provided, however, that the Master
Servicer will not take any enforcement action that would materially increase the
risk of default or delinquency on, or materially decrease the security for, such
Mortgage Loan or if the applicable Enhancer, if any, gives its consent to such
non-enforcement. See 'The Agreements--Enforcement of Due on Sale Clauses'
herein.
The weighted average lives of Securities will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Holders. However, this
effect will be offset to the extent that lump sum recoveries on defaulted
Mortgage Loans and foreclosed Mortgaged Properties result in principal payments
on the Mortgage Loans faster than otherwise scheduled.
When a full prepayment occurs on a Single Family Loan, the Mortgagor will
be charged interest on the principal amount of the Mortgage Loan so prepaid only
for the number of days in the month actually elapsed up to the date of the
prepayment rather than for a full month. Interest shortfalls also could result
from the application of the Relief Act, as described under 'Certain Legal
Aspects of the Mortgage Loans--Soldiers' and Sailors' Civil Relief Act' herein.
Unless otherwise specified in the related Prospectus Supplement, in the event
that less than 30 days' interest is collected on a Mortgage Loan during a
Remittance Period, the Master Servicer or a Sub-servicer will be obligated to
pay Compensating Interest with respect thereto, but only to the extent of the
aggregate Servicing Fee for the related Distribution Date. To the extent such
shortfalls exceed the amount of Compensating Interest that the Master Servicer
or such Sub-servicer is obligated to pay, the yield on the Securities could be
adversely affected. Partial prepayments in a given month may be applied to the
outstanding principal balances of the Mortgage Loans so prepaid on the first day
of the month of receipt or the month following receipt. In the latter case,
partial prepayments will not reduce the amount of interest passed through in
such month.
Under certain circumstances, the Depositor, the Master Servicer, the
holders of REMIC Residual Certificates or certain other entities specified in
the related Prospectus Supplement may have the option to purchase the Mortgage
Loans and other assets of a Trust, thereby effecting earlier retirement of the
related Series of Securities, subject to the principal balance of the related
Mortgage Assets being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
at the Cut-off Date for the related Series. See 'The Agreements--Termination;
Purchase of Mortgage Loans.'
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Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Holders will be slightly lower than the yield otherwise
produced by the applicable Pass-Through Rate or Note Rate and purchase price,
because while interest generally will accrue on the Securities from the first
day of each month, the distribution of such interest will not be made earlier
than a specified date in the month following the month of accrual.
The timing of payments on the Mortgage Assets may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Mortgage Assets, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Securities will not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
The Prospectus Supplement relating to a Series of Securities will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments) on the yield, weighted average lives and maturities of
such Securities, including the effect of prepayments and allocation of realized
losses on the Mortgage Loans as they relate to specific Classes of Securities.
Factors other than those identified herein and in the Prospectus Supplement
could significantly affect principal prepayments at any time and over the lives
of the Securities. The relative combination of the various factors affecting
prepayment may also vary from time to time. There can be no assurance as to the
rate of payment of principal of the Mortgage Assets at any time or over the
lives of the Securities.
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THE AGREEMENTS
Set forth below is a summary of the material provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to describe all provisions of each Agreement and is subject to, and
qualified in its entirety by reference to, the provisions of each Agreement.
Where particular provisions or terms used in the Agreements are referred to,
such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
Securities of a Series, the Depositor will cause the Mortgage Loans comprising
the related Trust to be sold and assigned to the Trustee, together with all
principal and interest received by or on behalf of the Depositor on or with
respect to such Mortgage Loans after the Cut-off Date, other than principal and
interest due on or before the Cut-off Date. The Trustee will, concurrently with
such assignment, deliver the Securities to the Depositor in exchange for the
Mortgage Loans. Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the related Agreement (a 'Mortgage Loan Schedule'). Such schedule
will include information as to the outstanding principal balance of each
Mortgage Loan after application of payments due on the Cut-off Date, as well as
information regarding the Mortgage Rate, the current scheduled monthly payment
of principal and interest, the maturity of the loan, the Loan-to-Value Ratio at
origination and certain other information.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will be required:
(a) on or prior to the date of issuance of the related Securities (the
'Closing Date'), to deliver or cause the applicable Originator to deliver
to the Trustee the original Mortgage Notes or copies thereof certified by
the Depositor where the original Mortgage Note has been lost, endorsed
without recourse to the order of the Trustee;
(b) within 30 days after the Closing Date, to deliver or cause the
applicable Originator to deliver to the Trustee:
(i) either: (1) the original Mortgage, with evidence of recording
thereon, (2) where the original Mortgage has been transmitted for
recording, a computerized list of such Mortgages until such time as the
original or certified copy is returned by the public recording office or
(3) a copy of the Mortgage certified by the public recording office in
those instances where the original recorded Mortgage has been retained
by the public recording office or has been lost;
(ii) a computerized list of each title insurance policy or, if such
policy has not yet been issued, a commitment or binder therefor;
(iii) a copy of an assignment of the Mortgage to the Trustee;
(iv) originals of each intervening assignment with evidence of
recording thereon showing a complete chain of title from origination to
such Originator, or if the original of any such intervening assignment
is unavailable, a computerized list until such time as the original or a
copy certified by the public recording office is returned; and
(iv) originals of all assumptions and modification agreements, if
any.
(c) to cause assignments of the Mortgages from the applicable
Originator to the Trustee, promptly to be submitted for recording in the
appropriate jurisdictions; provided, however, that the applicable
Originator is not required to submit an assignment for any Mortgage with
respect to which the original recording information is lacking; and
(d) to deliver the original or certified copies of the Mortgages, as
the case may be, and such recorded assignments or certified copies thereof,
together with originals or duly certified copies of any and all prior
recorded assignments, to the Trustee within 30 days of receipt thereof by
the applicable Originator (but in any event within one year after the
Closing Date).
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With respect to each Mortgage Loan for which (i) all or a portion of the
proceeds thereof were originally paid into an escrow account pending completion
of improvements to be made to the related property and (ii) the appraised value
of such property was specifically subject to the completion of such improvements
(an 'Escrow Loan'), the Depositor is required to deliver or cause the applicable
Originator to deliver to the Trustee by the thirteenth month after the Closing
Date, the third party inspector's certificate of final completion pursuant to
which the inspector confirms that, upon inspection of the completed improvements
to the Mortgaged Property, all items listed by the appraiser have been performed
or completed.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
Assignment of Private Mortgage-Backed Securities. The Depositor will cause
Private Mortgage-Backed Securities to be registered in the name of the Trustee.
The Trustee (or the custodian) will have possession of any certificated Private
Mortgage-Backed Securities. Unless otherwise specified in the related Prospectus
Supplement, the Trustee will not be in possession of or be assignee of record of
any underlying assets for a Private Mortgage-Backed Security. See 'The
Trusts--Private Mortgage-Backed Securities' herein. Each Private Mortgage-Backed
Security will be identified in a schedule appearing as an exhibit to the related
Agreement which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date, annual pass-through rate or interest
rate and maturity date for each Private Mortgage-Backed Security conveyed to the
Trustee.
Reviews; Repurchases. In the event that any required appraiser's
certification or any such item with respect to title has not been delivered to
the Trustee by the thirteenth month after the Closing Date, then the applicable
Originator is required, on the next succeeding Distribution Date, at its option,
to (i) substitute in lieu of the related Mortgage Loan a qualified replacement
mortgage (each, a 'Qualified Replacement Mortgage') and, if the outstanding
principal amount of such Qualified Replacement Mortgage as of the first day of
the calendar month in which such Qualified Replacement Mortgage is conveyed to
the Trustee (each, a 'Replacement Cut-off Date') is less than the Loan Balance
of the replaced Mortgage Loan as of such Replacement Cut-off Date, deliver an
amount equal to such difference (the 'Substitution Amount') to the Master
Servicer for deposit in the Principal and Interest Account or (ii) purchase such
Mortgage Loan from the Trustee at a purchase price equal to the Loan Purchase
Price thereof. The 'Loan Purchase Price' means, with respect to any Mortgage
Loan, an amount equal to the Loan Balance of such Mortgage Loan as of the date
of purchase, plus accrued interest on the outstanding Loan Balance thereof,
together with the aggregate amounts of (i) all Delinquency Advances and
Servicing Advances theretofore made with respect to such Mortgage Loan and (ii)
all Delinquency Advances which the Master Servicer has theretofore failed to
remit with respect to such Mortgage Loan. The 'Loan Balance' of a Mortgage Loan
is the outstanding principal balance thereof on the Cut-off Date, less any
principal amounts relating to such Mortgage Loan previously distributed to
Certificateholders.
The Trustee will agree to review the items delivered by or on behalf of the
Depositor within 45 days after the Closing Date (or, with respect to any
document delivered after the Closing Date, within 45 days of receipt and with
respect to any Qualified Replacement Mortgage, within 45 days after the
assignment thereof) and to deliver to the Depositor a certification to the
effect that, as to each Mortgage Loan (other than any Mortgage Loan paid in full
or any Mortgage Loan specifically identified in such certification as not
covered by such certification), (i) all documents required to be delivered to it
pursuant to the applicable Agreement are in its possession, (ii) such documents
have been reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such Mortgage Loan and (iii) based on its
examination and only as to the foregoing documents, the information set forth on
the applicable Mortgage Loan Schedule delivered by the Depositor as to loan
number and address, accurately reflects the information set forth in the
documents delivered to the Trustee (collectively referred to as the 'File'). The
Trustee is under no duty or obligation to inspect, review or examine any such
documents, instruments, certificates or other papers to determine that they are
genuine, enforceable, or appropriate for the represented purpose or that they
are other than what they purport to be on their face, nor is the Trustee under
any duty to determine independently whether there are any intervening
assignments or assumption or modification agreements with respect to any
Mortgage Loan.
If the Trustee during such 45-day period finds any document constituting a
part of a File which is not properly executed, has not been received, or is
unrelated to the Mortgage Loans identified in the related Mortgage
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Loan Schedule, or that any Mortgage Loan does not conform in a material respect
to the description thereof as set forth in the related Mortgage Loan Schedule,
the Trustee is required to promptly so notify the Depositor. The Depositor will
use or cause the applicable Originator to use reasonable efforts to remedy a
material defect in a document constituting part of a File of which it is so
notified by the Trustee. If, however, within 60 days after the Trustee's notice
to it respecting such defect the applicable Originator has not remedied the
defect and the defect materially and adversely affects the interest of the
Certificateholders in the related Mortgage Loan, such Originator is required, on
the next succeeding Distribution Date, to, at its option, (i) substitute in lieu
of such Mortgage Loan a Qualified Replacement Mortgage and deliver the
Substitution Amount applicable thereto to the Master Servicer for deposit in the
Principal and Interest Account, or (ii) purchase such Mortgage Loan at a
purchase price equal to the Loan Purchase Price thereof, provided a favorable
opinion of tax counsel is delivered in connection therewith.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will have assigned to the Trustee representations and warranties made
by the Originators in respect of the Mortgage Loans sold by the Depositor and
evidenced by a Series of Certificates. Such representations and warranties
generally include, among other things: (i) that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally not
available, an attorney's certificate of title) was in effect on the Closing
Date; (ii) that the Depositor had title to each such Mortgage Loan and such
Mortgage Loan was subject to no offsets, defenses or counterclaims; (iii) that
each Mortgage Loan constituted a valid first or second lien on the Mortgaged
Property (subject only to permissible title insurance exceptions, if applicable,
and certain other exceptions described in the Agreement) and that the Mortgaged
Property was free from damage and was in good repair; (iv) that there were no
delinquent tax or assessment liens against the Mortgaged Property; (v) that no
required payment on a Mortgage Loan was more than thirty days delinquent as of
the related Cut-off Date; and (vi) that each Mortgage Loan was made in
compliance with, and is enforceable under, all applicable state and federal laws
and regulations in all material respects.
Upon the discovery by the Depositor, the Master Servicer or the Trustee
that the representations in the applicable Agreement are untrue in any material
respect as of the dates specified therein, with the result that the interests of
the Certificateholders in the related Mortgage Loan are materially and adversely
affected, the party discovering such breach is required to give prompt written
notice to the other parties. Upon the earliest to occur of the Depositor's
discovery, its receipt of notice of breach from any of the other parties or such
time as a situation resulting from a representation which is untrue materially
and adversely affects the interests of the Certificateholders, the Depositor is
required promptly to cause the applicable Originator to cure such breach in all
material respects or the Depositor will cause the applicable Originator to on
the second Distribution Date next succeeding such discovery, receipt of notice
or such other time, at its option (i) substitute in lieu of such affected
Mortgage Loan, a Qualified Substitute Mortgage and deliver an amount equal to
the applicable Substitution Amount to the Master Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Mortgage Loan from the
Trustee at the Loan Purchase Price thereof. The obligation of the Originators so
to cure, substitute or purchase any Mortgage Loan as to which such a breach has
not been remedied constitutes the sole remedy available to the
Certificateholders or the Trustee respecting a discovery of any such statement
which is untrue in any material respect.
The purchase agreements pursuant to which the Depositor acquires the
Mortgage Assets to be deposited in a Trust will contain similar representations
and obligations pursuant to which the seller of such Mortgage Assets will be
obligated to take the actions required of the Depositor as described above. The
Trustee will have the ability to enforce such obligations directly against such
sellers in the event that the Depositor fails to do so.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require the Master Servicer to establish and maintain one or more
principal and interest accounts (each a 'Principal and Interest Account') at one
or more institutions meeting the requirements set forth in the related
Agreement. Pursuant to the related Agreement, the Master Servicer will be
required to deposit all collections (other than amounts escrowed for taxes and
insurance) related to the Mortgage Loans into the Principal and Interest Account
no later than the business day after receipt. All funds in the Principal and
Interest Accounts will be required to be invested
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in instruments designated as 'Eligible Investments' in the Agreement. Any
investment earnings on funds held in the Principal and Interest Accounts are for
the account of the Master Servicer.
The Master Servicer may make withdrawals from the Principal and Interest
Account only for the following purposes: (a) to effect the timely remittance to
the Trustee of the Monthly Remittance and the Excess Interest due on the
Remittance Date; (b) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account; (c) to withdraw amounts that have been
deposited to the Principal and Interest Account in error; and (d) to clear and
terminate the Principal and Interest Account.
At any time and in lieu of the requirement of depositing collections on the
Mortgage Loans into the Principal and Interest Account, the Master Servicer may
deliver to the Trustee a letter of credit (a 'Servicer LOC') meeting the
requirements set forth in the Agreement.
Not later than the day of each month specified in the Agreement (the
'Remittance Date'), the Master Servicer will be required to wire transfer to the
Trustee for deposit in the segregated trust accounts to be maintained with the
Trustee for such purpose (each a 'Distribution Account') the sum (without
duplication) of the following amounts:
(i) an amount equal to the sum of (x) the aggregate portions of the
interest payments (whether or not collected) becoming due on the Mortgage
Loans during the immediately preceding calendar month (the 'Remittance
Period'), calculated at a per annum rate set forth in the Agreement (the
'Adjusted Pass-Through Rate') and (y) any Compensating Interest (calculated
at the Adjusted Pass-Through Rate) due with respect to the Mortgage Loans
with respect to the immediately preceding Remittance Period (the amount
described in this clause (i) being the 'Interest Remittance Amount');
(ii) an amount equal to the sum of (x) all principal collected by the
Master Servicer on the Mortgage Loans during the immediately preceding
Remittance Period and (y) any prepayments and Liquidation Proceeds, net of
unreimbursed Servicing Advances and Delinquency Advances ('Net Liquidation
Proceeds') (but only to the extent that such Net Liquidation Proceeds do
not exceed the Loan Balance of the related Mortgage Loan) and Released
Mortgaged Property Proceeds, in each case and only to the extent collected
on the Mortgage Loans during the preceding Remittance Period (the amount
described in this clause (ii) being the 'Principal Remittance Amount');
(iii) all Loan Purchase Prices and Substitution Amounts with respect
to such Distribution Date; and
(iv) an amount equal to the Excess Interest.
Unless otherwise specified in the related Prospectus Supplement, the 'Excess
Interest' for any Distribution Date is the product of (x) one-twelfth of the
difference between (i) the weighted average annual Mortgage Rate on the Mortgage
Loans as of the last day of the related Remittance Period and (ii) the Adjusted
Pass-Through Rate and (y) the Pool Principal Balance as of the last day of the
related Remittance Period to the extent such amount is received or advanced.
PRE-FUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related Prospectus Supplement, a Trust will include one
or more segregated trust accounts (each, a 'Pre-Funding Account') established
and maintained with the Trustee for the related Series. If so specified, on the
closing date for such Series, a portion of the proceeds of the sale of the
Securities of such Series not to exceed fifty percent of the aggregate principal
amount of such Series (such amount, the 'Pre-Funded Amount') may be deposited in
the Pre-Funding Account and may be used to purchase additional Mortgage Assets
during the period of time not to exceed six months specified in the related
Prospectus Supplement (the 'Pre-Funding Period'). If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the end of the Pre-Funding
Period, such amount will be applied in the manner specified in the related
Prospectus Supplement to prepay the Securities of the applicable Series.
Each additional Mortgage Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Agreement. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or any Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Mortgage Assets were included as part
of the initial Mortgage Assets, the credit quality of such assets
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would be consistent with the initial rating of the Securities of such Series.
The Depositor will certify to the Trustee that all conditions precedent to the
transfer of the additional Mortgage Assets to the Trust, including the
satisfaction of the eligibility criteria, have been satisfied. Following the
transfer of additional Mortgage Assets to the Trust, the aggregate
characteristics of the Mortgage Assets then held in the Trust may vary from
those of the initial Mortgage Assets of such Trust. As a result, the additional
Mortgage Assets may adversely affect the performance of the related Securities.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a 'Capitalized Interest Account') may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Mortgage Assets in the Trust. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest Account
may be released to the person specified in the related Prospectus Supplement
prior to the end of the Pre-Funding Period subject to the satisfaction of
certain tests specified in the related Prospectus Supplement. Any amounts on
deposit in the Capitalized Interest Account at the end of the Pre-Funding Period
that are not necessary for such purposes will be distributed to the person
specified in the related Prospectus Supplement.
INVESTMENT OF ACCOUNTS
All or a portion of any Account, including the Principal and Interest
Account, may be invested and reinvested, in one or more Eligible Investments
bearing interest or sold at a discount. The bank serving as Trustee or any
affiliate thereof, may be the obligor on any investment in any Account which
otherwise qualifies as an Eligible Investment. No investment in any Account held
by the Trustee may mature later than the business day immediately preceding the
next succeeding Distribution Date; provided, however, that if the investment is
an investment of the bank serving as Trustee, then it may mature on the
Distribution Date.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
All income or other gain from investments in any Account will be required
to be deposited in such Account immediately upon receipt, and any loss resulting
from such investments will be required to be charged to such Account.
ELIGIBLE INVESTMENTS
Each Agreement generally will define the following as Eligible Investments:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment
or the guarantee of which constitutes a full faith and credit obligation of
the United States.
(b) Federal Housing Administration debentures but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption.
(c) FHLMC senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(d) Federal Home Loan Banks' consolidated senior debt obligations, but
excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption.
(e) FNMA senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(f) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365
days) of any domestic bank, the short-term debt obligations of
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which have been rated A-1 or better by Standard & Poor's Corporation
('S&P') and P1 by Moody's Investors Service ('Moody's').
(g) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $3,000,000
which deposits are not in excess of the applicable limits insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC,
provided that the long-term deposits of such bank or savings and loan
association are rated at least 'BBB' by S&P and 'Baa3' by Moody's.
(h) Commercial paper (having original maturities of not more than 270
days) rated A-1 or better by S&P and P1 or better by Moody's.
(i) Investments in money market funds rated AAAm or AAAm-G by S&P and
P-1 by Moody's.
No instrument described above is permitted to evidence either the right to
receive (a) only interest with respect to obligations underlying such instrument
or (b) both principal and interest payments derived from obligations underlying
such instrument and the interest and principal payments with respect to such
instrument provided a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations, and no instrument described above
may be purchased at a price greater than par if such instrument may be prepaid
or called at a price less than its purchase price prior to stated maturity.
DELINQUENCY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest and principal
payments to Holders (rather than to guarantee or insure against losses) unless
otherwise provided in the related Prospectus Supplement, each Agreement will
require that if, on any Distribution Date, the amount then on deposit in the
Principal and Interest Account from Mortgage Loan collections with respect to
the preceding Remittance Period is less than the sum of the Interest Remittance
Amount, the Principal Remittance Amount and the aggregate amount of Excess
Interest with respect to the immediately preceding Remittance Period, the Master
Servicer is required to deposit in the Principal and Interest Account a
sufficient amount of its own funds ('Delinquency Advances') to make such amount
equal to the sum of the Interest Remittance Amount, the Principal Remittance
Amount and the aggregate amount of Excess Interest (unless a Subordinate Class
of Certificates is outstanding).
The Master Servicer is permitted to fund its payment of Delinquency
Advances on any Distribution Date from collections on the Mortgage Loans
deposited into the Principal and Interest Account subsequent to the related
Remittance Period, but must reimburse the Principal and Interest Account for any
such amounts. In the event that the Master Servicer makes such Delinquency
Advances from its own funds, such Delinquency Advances will be reimbursable to
the Master Servicer from late collections of interest, Liquidation Proceeds,
Insurance Proceeds and Released Mortgaged Property Proceeds collected with
respect to the related Mortgage Loan as to which the Delinquency Advances were
made. Delinquency Advances by the Master Servicer also will be reimbursable to
the Master Servicer from cash otherwise distributable to Holders at such time as
the Master Servicer determines that any such Delinquency Advances previously
made are not ultimately recoverable from the proceeds of the related Mortgage
Loan or, if required by the applicable Rating Agency, at such time as a loss is
realized with respect to a related Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, a full
month's interest at the Adjusted Pass-Through Rate plus a full month's Excess
Interest with respect to such Mortgage Loan, is due to the Trustee on the
outstanding Loan Balance of each Mortgage Loan as of the beginning of each
Remittance Period. If a prepayment of a Mortgage Loan occurs during any calendar
month, any difference between the interest collected from the Mortgagor during
such calendar month and the full month's interest at the applicable Adjusted
Pass-Through Rate plus a full month's Excess Interest with respect to such
Mortgage Loan ('Compensating Interest') that is due is required to be deposited
by the Master Servicer in the Principal and Interest Account; provided, however,
that the Master Servicer's obligation in respect of the payment of Compensating
Interest is limited to the amount of the Servicing Fee for the related
Distribution Date.
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GENERAL SERVICING PROCEDURES
Acting directly or through one or more Sub-servicers, the Master Servicer,
as an independent contract servicer, is required to service and administer the
Mortgage Loans in accordance with the Sale and Servicing Agreement or the
Pooling and Servicing Agreement, as applicable.
The Master Servicer in its own name or in the name of any Sub-servicer is
authorized and empowered pursuant to the Agreement (i) to execute and deliver
any and all instruments of satisfaction or cancellation or of partial or full
release or discharge and all other comparable instruments with respect to the
Mortgage Loans and with respect to the Mortgaged Properties, (ii) to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Mortgaged Property in its own name on behalf of the Trustee,
and (iii) to hold title in its own name to any Mortgaged Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided,
however, that to the extent any instrument described in clause (i) would be
delivered by the Master Servicer outside of its ordinary procedures for mortgage
loans held for its own account, the Master Servicer may be required, prior to
executing and delivering such instrument, to obtain the prior written consent of
the Enhancer, if any.
The Master Servicer has the right to approve requests of Mortgagors for
consent to (i) partial releases of Mortgages, (ii) alterations, and (iii)
removal, demolition or division of Mortgaged Properties subject to Mortgages.
The Agreement generally will provide that no such request may be approved by the
Master Servicer unless: (i) (x) provisions of the related Note and Mortgage have
been complied with, (y) the Loan-to-Value Ratio after any release does not
exceed the Loan-to-Value Ratio set forth for such Mortgage Loan in the
applicable Mortgage Loan Schedule, and (z) the lien priority of the related
Mortgage is not affected; or (ii) if applicable, the Certificate Insurer has
approved the granting of such request.
The Master Servicer and any affiliate may make loans to and generally
engage in any kind of business with the Mortgagors and/or any other obligors
under the Mortgage Loans as though the Master Servicer were not a party to the
Agreement. The Master Servicer may have other existing loans and in the future
may make additional loans to any of the Mortgagors and/or to other obligors
under the Mortgage Loans, which other and/or additional loans may not be sold,
or a loan participation therein granted, to the Trustee. The Master Servicer has
no obligation to attempt to collect payment under the Mortgage Loans in
preference and priority over the collection and/or enforcement of any other
and/or additional loans by the Master Servicer or any other affiliate.
The Master Servicer is required generally to service the Mortgage Loans in
a Pool in a prudent manner consistent with its general servicing standards and
to make reasonable efforts to collect all payments called for under the terms
and provisions of such Mortgage Loans, and will agree, to the extent such
procedures are consistent with the provisions of the Agreement, to follow
collection procedures for all Mortgage Loans at least as rigorous as those the
Master Servicer would ordinarily take in servicing loans and in collecting
payments thereunder for its own account.
Consistent with the foregoing, the Master Servicer may (i) in its
discretion waive or permit to be waived any late payment charge, prepayment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Mortgage Loan or any other fee or charge which the Master Servicer would be
entitled to retain as servicing compensation, (ii) extend the due date for
payments due on a Mortgage Note for a period (with respect to each payment date
as to which the due date is extended) not greater than 125 days after the
initially scheduled due date for such payment, (iii) amend any Mortgage Note to
reduce the Mortgage Rate applicable thereto, subject to any applicable
limitations set forth in the related Agreement and (iv) amend any Mortgage Note
to extend the maturity thereof, subject to any applicable limitations set forth
in the related Agreement. In the event the Master Servicer consents to the
deferment of the due dates for payments due on a Mortgage Note, the Master
Servicer will be nonetheless required to make payment of any required
Delinquency Advance with respect to the payments so extended to the same extent
as if such installment were due, owing and delinquent and had not been deferred.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
As compensation for its servicing activities under an Agreement, the Master
Servicer will be entitled to retain the amount of the Servicing Fee (as defined
in the related Agreement) with respect to each Mortgage Loan. Additional
servicing compensation in the form of prepayment charges, release fees, bad
check charges, assumption fees, extension fees, late payment charges, and any
other servicing-related fees, Net Liquidation Proceeds not required to be
deposited in the Principal and Interest Account and similar items may, to the
extent collected from Mortgagors, be retained by the Master Servicer.
The Master Servicer will be required to pay all reasonable and customary
'out-of-pocket' costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property, (ii) any enforcement or
judicial proceedings, including foreclosures, and (iii) the management and
liquidation of Mortgaged Property acquired in satisfaction of the related
Mortgage. Such expenditures may include costs of collection efforts,
reappraisals, forced placement of hazard insurance if a borrower allows his
hazard policy to lapse, legal fees in connection with foreclosure actions,
advancing payments on the related senior mortgage, if any, advancing delinquent
property taxes, and upkeep and maintenance of the Mortgaged Property if it is
acquired through foreclosure and similar types of expenses. Each such
expenditure constitutes a 'Servicing Advance.' The Master Servicer will be
obligated to make the Servicing Advances incurred in the performance of its
servicing obligations. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be entitled to 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
Liquidation Proceeds, relating to the affected Mortgage Loan. Servicing Advances
will be reimbursable to the Master Servicer from the sources described above out
of the funds on deposit in the Principal and Interest Account.
MAINTENANCE OF HAZARD INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will be required to cause to be maintained fire and hazard insurance
with extended coverage customary in the area where the Mortgaged Property is
located, in an amount which is at least equal to the least of (i) the
outstanding principal balance owing on the Mortgage Loan and the related senior
mortgage, if any, (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. If the Mortgaged Property is in an area
identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available),
the Master 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 and the senior mortgage, if any, (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 Master Servicer will
also be required to maintain, to the extent such insurance is available, on REO
Property, 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, flood insurance in an amount equal to
that required above. Any amounts collected by the Master 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 or second mortgage servicing procedures) are required to be
deposited by the Master Servicer in the Principal and Interest Account.
In the event that the Master 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 Trustee as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of the preceding paragraph, the Master Servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage. If such blanket policy contains a deductible clause, the
Master Servicer will be required to pay to the Trustee the difference between
the amount that would have been payable under a policy described in the
preceding paragraph and the amount paid under the blanket policy.
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ENFORCEMENT OF DUE ON SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, when a
Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer, on behalf of the Trustee, will, to the extent it has knowledge
of such conveyance or prospective conveyance, be required to enforce the rights
of the Trustee as the mortgagee of record to 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 Master Servicer will not
be required to exercise any such right if the 'due-on-sale' clause, in the
reasonable belief of the Master Servicer, is not enforceable under applicable
law, if such enforcement would materially increase the risk of default or
delinquency on, or materially decrease the security for, such Mortgage Loan or
if the applicable Enhancer, if any, gives its consent to such non-enforcement.
In such event, the Master Servicer will attempt 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, to the extent permitted by applicable law or the mortgage
documents, the Mortgagor remains liable thereon. The Master Servicer also will
be authorized with the prior approval of the Enhancer, if any, 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. The Master Servicer will
not enter into an assumption agreement unless permitted by applicable law and
unless such assumption agreement would not materially increase the risk of
default or delinquency on, or materially decrease the security for, such
Mortgage Loan.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is required to foreclose upon or otherwise comparably effect the
ownership in the name of the Master Servicer on behalf of the Trustee of
Mortgaged Properties relating to defaulted Mortgage Loans as to which no
satisfactory arrangements can be made for collection of delinquent payments and
which the Master Servicer has not purchased pursuant to its purchase option
described below, unless the Master Servicer reasonably believes that Net
Liquidation Proceeds with respect to such Mortgage Loan would not be increased
as a result of such foreclosure or other action, in which case such Mortgage
Loan will be charged off and will become a Liquidated Mortgage Loan. In
connection with such foreclosure or other conversion, the Master Servicer is
required to exercise or use foreclosure procedures with the same degree of care
and skill as it would ordinarily exercise or use under the circumstances in the
conduct of its own affairs. Any amounts advanced in connection with such
foreclosure or other action will constitute Servicing Advances. In accordance
with the Agreement, if the Master Servicer has actual knowledge that a Mortgaged
Property which the Master Servicer is contemplating acquiring in foreclosure or
by deed in lieu of foreclosure contains environmental or hazardous waste risks
known to the Master Servicer, the Master Servicer will notify the Enhancer, if
any, and the Trustee prior to acquiring the Mortgaged Property. The Master
Servicer will not be permitted to take any action with respect to such a
Mortgaged Property without the prior written approval of the Enhancer, if any.
Unless otherwise specified in the related Prospectus Supplement, if a REMIC
election has been made, the Master Servicer will be required to sell any
Mortgaged Property acquired by foreclosure or deed in lieu of foreclosure ('REO
Property') within 23 months of its acquisition by the Trustee, unless the Master
Servicer obtains for the Trustee an opinion of counsel experienced in federal
income tax matters, addressed to the Trustee and the Master Servicer, to the
effect that the holding by the Trust of such REO Property for a greater
specified period will not result in the imposition of taxes on 'prohibited
transactions' of the Trust as defined in Section 860F of the Code or cause the
Trust to fail to qualify as a REMIC.
The Master Servicer is required to determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts, if any, it expects to recover from
or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan
shall become a 'Liquidated Mortgage Loan.'
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will have the right and the option under the related Agreement, but not
the obligation, to purchase for its own account any Mortgage Loan (i) which
becomes delinquent, in whole or in part, as to four consecutive monthly
installments or any
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Mortgage Loan as to which enforcement proceedings have been brought by the
Master Servicer or (ii) with respect to which the applicable Enhancer, if any,
has refused to consent to the Master Servicer's non-enforcement of the
'due-on-sale' clause and such Mortgage Loan is in default or such a default is
imminent. Any such Mortgage Loan so purchased will be purchased by the Master
Servicer on a Distribution Date at the Loan Purchase Price thereof.
SUBSERVICERS
The Master Servicer will be permitted under the Agreement to enter into
subservicing arrangements with sub-servicers meeting the requirements of the
Agreement (each, a 'Sub-servicer'). Any material subservicing arrangements, if
any, will be described in the related Prospectus Supplement, and in any case,
will not relieve the Master Servicer of any liability it might otherwise have,
had the subservicing arrangement not been entered into.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Sale and Servicing Agreement. Unless
otherwise specified in the related Prospectus Supplement the Trustee may remove
the Master Servicer upon the occurrence of any of the following events (each, an
'Event of Default'):
(i) The Master Servicer shall (a) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (b) admit in writing its
inability to pay its debts generally as they become due, (c) make a general
assignment for the benefit of creditors, (d) be adjudicated a bankrupt or
insolvent, (e) commence a voluntary case under the federal bankruptcy laws
of the United States of America or file a voluntary petition or answer
seeking reorganization, an arrangement with creditors or an order for
relief or seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding or (f) cause corporate
action to be taken by it for the purpose of effecting any of the foregoing;
or
(ii) If without the application, approval or consent of the Master
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Master
Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, of a readjustment of debts, the appointment of
a trustee, receiver, liquidator or custodian or similar entity with respect
to the Master Servicer or of all or any substantial part of its assets, or
other like relief in respect thereof under any bankruptcy or insolvency
law, and, if such proceeding is being contested by the Master Servicer in
good faith, the same shall (a) result in the entry of an order for relief
or any such adjudication or appointment or (b) continue undismissed or
pending and unstayed for any period of seventy-five (75) consecutive days;
or
(iii) The Master Servicer shall fail to perform any one or more of its
obligations under the related Agreement (other than its obligations
referenced in clauses (vi) and (vii) below) and shall continue in default
thereof for a period of thirty (30) days after the earlier to occur of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master
Servicer of a written notice from the Trustee, any Holder, the Depositor or
the Enhancer, if any, of said failure; provided, however, that if the
Master Servicer demonstrates to the reasonable satisfaction of the
Enhancer, if any, that it is diligently pursuing corrective action, the
cure period may be extended for up to an additional 60 days; or
(iv) The Master Servicer shall fail to cure any breach of any of its
representations and warranties set forth in the related Agreement which
materially and adversely affects the interests of the Holders or the
Enhancer, if any, for a period of thirty (30) days after the earlier of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such breach or (y) receipt by the Master Servicer
of a written notice from the Trustee, any Holder, the Depositor or the
Enhancer, if any, of such breach; provided, however, that if the Master
Servicer demonstrates to the reasonable satisfaction of the Enhancer, if
any, that it is diligently pursuing corrective action, the cure period
shall be extended for up to an additional 30 days; or
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(v) If the Enhancement consists of a certificate guaranty insurance
policy and the Enhancer pays out any money under such policy, or if the
Enhancer otherwise funds any shortfall with its own money, because the
amounts available to the Trustee (other than from the Enhancer) are
insufficient to make required distributions on the Securities; provided,
however, that the Master Servicer may not be removed under this clause (v)
if the Master Servicer can demonstrate to the reasonable satisfaction of
the Trustee and the Enhancer that such event was due to circumstances
beyond the control of the Master Servicer; or
(vi) The failure by the Master Servicer to make any required Servicing
Advance for a period of 30 days following the earlier of (x) the date on
which an authorized officer of the Master Servicer knows or reasonably
should know of such failure or (y) receipt by the Master Servicer of a
written notice from the Trustee, any Holder, the Depositor or the Enhancer,
if any, of such failure; or
(vii) The failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest or to pay over the
Monthly Remittance, Loan Purchase Prices and Substitution Amounts;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (i) through (vi) above, any applicable grace period granted by any
such clause shall have expired prior to the time such occurrence shall have been
remedied and (y) in the event of the refusal or inability of the Master Servicer
to comply with its obligations described in clause (vii) above, such removal
shall be effective (without the requirement of any action on the part of the
Depositor, the Trustee or the Enhancer, if any) at 4 p.m. on the second business
day following the day on which the Trustee notifies the Master Servicer that a
required amount described in clause (vii) above has not been received by the
Trustee, unless the required amount described in clause (vii) above is paid by
the Master Servicer prior to such time. Upon the Trustee's determination that a
required amount described in clause (vii) above has not been made by the Master
Servicer, the Trustee will so notify the Master Servicer, the Depositor and the
Enhancer, if any, as soon as is reasonably practical.
The Master Servicer may not resign from the obligations and duties imposed
on it under the related Agreement, except upon determination that its duties
thereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it,
the other activities of the Master Servicer so causing such a conflict being of
a type and nature carried on by the Master Servicer at the date of the related
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an opinion of counsel to such effect which shall
be delivered to the Trustee, the Depositor and the Enhancer, if any. The Master
Servicer may not assign its obligations under an Agreement, in whole or in part,
unless it shall have first obtained the written consent of the Trustee and the
Enhancer, if any; provided, however, that any assignee must meet the eligibility
requirements set forth in the Agreement for a successor servicer.
No removal or resignation of the Master Servicer will become effective
until the Trustee or a successor servicer has assumed the Master Servicer's
responsibilities and obligations in accordance with the related Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement,
provided that such person is qualified to sell mortgage loans to, and service
mortgage loans on behalf of, FNMA or FHLMC and further provided that such
merger, consolidation or succession does not adversely affect the then current
rating or ratings of the Class or Classes of Certificates of such Series that
have been rated.
Indenture. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for 30 days or more in the payment of any principal of or
interest on any Note of such Series; (ii) failure to perform any other covenant
of the Depositor or the Trust in the Indenture which continues for a period of
60 days after notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement; (iii) any representation or
warranty made by the Depositor or the Trust in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such Series having been incorrect in a
material respect as of the time made, and such breach is not cured within 60
days after notice thereof is given in accordance with the procedures described
in the
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related Prospectus Supplement; (iv) certain events of bankruptcy, insolvency,
receivership or liquidation of the Depositor or the Trust; or (v) any other
Event of Default provided with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
with, if specified in the related Prospectus Supplement, the consent of the
Enhancer, may declare the principal amount of all the Notes of such Series to be
due and payable immediately. Such declaration may, under certain circumstances,
be rescinded and annulled by the Holders of a majority in aggregate outstanding
amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, unless
otherwise specified in the related Prospectus Supplement, the Trustee may not
sell or otherwise liquidate the collateral securing the Notes of a Series
following an Event of Default other than a default in the payment of any
principal or interest on any Note of such Series for 30 days or more, unless (a)
the Holders of 100% of the then aggregate outstanding amount of the Notes of
such Series consent to such sale, (b) the proceeds of such sale or liquidation
are sufficient to pay in full the principal of and accrued interest due and
unpaid on the outstanding Notes of such Series at the date of such sale or (c)
the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for 30 days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders may be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the Holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the Holders of Notes of such Series, unless such Holders offer to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the Holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the Holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
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TRUSTEE TO ACT AS SUCCESSOR MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, upon
removal or resignation of the Master Servicer, the Trustee (x) may solicit bids
for a successor master servicer, and (y) pending the appointment of a successor
master servicer as a result of soliciting such bids, will be required to serve
as Master Servicer. The Trustee, if it is unable to obtain a qualifying bid and
is prevented by law from acting as Master Servicer, may appoint, or petition a
court of competent jurisdiction to appoint, any housing and home finance
institution, bank or mortgage servicing institution which has been designated as
an approved seller-servicer by FNMA or FHLMC for first and second mortgage loans
and has equity of not less than $15,000,000, as determined in accordance with
generally accepted accounting principles, and acceptable to the Certificate
Insurer, if any.
The Trustee or any other successor Master Servicer, upon assuming the
duties of the Master Servicer is required to immediately make payment of all
Compensating Interest and all Delinquency Advances which the Master Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
is only required to make Delinquency Advances (including the Delinquency
Advances described in this sentence) if, in the Trustee's reasonable good faith
judgment, such Delinquency Advances will ultimately be recoverable from the
related Mortgage Loans.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Guide for Audits of HUD Approved
Nonsupervised Mortgagees, the servicing by or on behalf of the Master Servicer
of mortgage loans or private mortgage-backed securities under pooling and
servicing agreements substantially similar to each other (including the related
Agreement) was conducted in compliance with such agreements except for any
significant exceptions or errors in records that, in the opinion of the firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Guide
for Audits of HUD Approved Nonsupervised Mortgagees requires it to report.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by an authorized
officer of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the officer's statement may
be obtained by Holders of the related Series without charge upon written request
to the Master Servicer at the address set forth in the related Prospectus
Supplement.
AMENDMENTS
The Trustee, the Depositor and the Master Servicer may at any time and from
time to time, with the consent of the Enhancer, if any, but without the consent
of the Holders, amend the related Agreement, for the purposes of (a) curing any
ambiguity, or correcting or supplementing any provision of such agreement which
may be inconsistent with any other provision of such agreement, (b) if a REMIC
election has been made and if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a Residual Certificate to a Disqualified Organization (as such term
is defined in the Code) or (c) complying with the requirements of the Code;
provided, however, that such action shall not, as evidenced by an opinion of
counsel delivered to the Trustee, materially and adversely affect the interests
of any Holder or materially and adversely affect (without its written consent)
the rights and interests of the Enhancer, if any.
The related Agreement may also be amended by the Trustee, the Depositor and
the Master Servicer at any time and from time to time, with the prior written
approval of the Enhancer, if any, and of not less than a majority of the
Percentage Interests (as defined in the Agreement) represented by each affected
Class of Securities then outstanding, for the purpose of adding any provisions
or changing in any manner or eliminating any of the provisions thereof or of
modifying in any manner the rights of the Holders thereunder; provided, however,
that no such amendment shall (a) change in any manner the amount of, or delay
the timing of, payments which are
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required to be distributed to any Holder without the consent of such Holder or
(b) change the aforesaid percentages of Percentage Interests which are required
to consent to any such amendments, without the consent of the Holders of all
Securities of the Class or Classes affected then outstanding. If a REMIC
election has been made with respect to the related Trust, any such amendment
must be accompanied by an opinion of tax counsel as to REMIC matters.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. The obligations created
by the Pooling and Servicing Agreement or the Trust Agreement for each Series
will terminate upon the payment to the related Holders of all amounts held in
any Accounts or by the Master Servicer and required to be paid to them pursuant
to such Agreement following the later of (i) the final payment or other
liquidation of the last of the Mortgage Assets subject thereto or the
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any such Mortgage Assets remaining in the Trust and (ii) the
purchase by the Master Servicer or other entity specified in the related
Prospectus Supplement including, if REMIC treatment has been elected, by the
holder of the residual interest in the REMIC from the related Trust of all of
the remaining Mortgage Assets and all property acquired in respect of such
Mortgage Assets.
Any such purchase of Mortgage Assets and property acquired in respect of
Mortgage Assets will be made at the option of the Master Servicer or other
entity at a price, and in accordance with the procedures, specified in the
Prospectus Supplement. The exercise of such right will effect early retirement
of the Securities of that Series, but the right of the Master Servicer or other
entity to so purchase is subject to the principal balance of the related
Mortgage Assets being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
at the Cut-off Date for the Series. The foregoing is subject to the provisions
that if a REMIC election is made with respect to a Trust, any repurchase
pursuant to clause (ii) above will be made only in connection with a 'qualified
liquidation' of the REMIC within the meaning of Section 860F(g)(4) of the Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust will be discharged from any and all obligations in respect of the
Notes of such Series (except for certain obligations relating to temporary Notes
and exchange of Notes, to register the transfer of or exchange Notes of such
Series, to replace stolen, lost or mutilated Notes of such Series, to maintain
paying agencies and to hold monies for payment in trust) upon the deposit with
the Trustee, in trust, of money and/or direct obligations of or obligations
guaranteed by the United States of America which, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, Holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related
Agreement. The Agreement will provide that the Trustee may resign at any time,
in which event the Depositor will be obligated to appoint a successor Trustee.
The Depositor may remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Agreement or if the Trustee becomes insolvent. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
Each Agreement will provide that the Trustee is under no obligation to
exercise any of the rights or powers vested in it by the Agreement at the
request or direction of any of the Holders, unless such Holders shall have
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offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction. The Trustee may execute any of the rights or powers
granted by the Agreement or perform any duties thereunder either directly or by
or through agents or attorneys, and the Trustee is responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to the Agreement, the Trustee is not liable for any action it
takes or omits to take in good faith which it reasonably believes to be
authorized by an authorized officer of any person or within its rights or powers
under the Agreement.
Each Agreement will provide that no Holder has any right to institute any
proceeding, judicial or otherwise, with respect to the Agreement or any credit
enhancement, unless:
(1) such Holder has previously given written notice to the Depositor
and the Trustee of such Holder's intention to institute such proceeding;
(2) the Holders of not less than 25% of the Percentage Interests
represented by any Class of Securities then outstanding shall have made
written request to the Trustee to institute such proceeding in its own name
as representative of the Holders;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity, has failed to institute such proceeding; and
(5) no direction inconsistent with such written consent has been given
to the Trustee during such 30-day period by the Holders of a majority of
the Percentage Interests represented by each Class of Securities then
outstanding.
Each Agreement will provide that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing themselves of, any
provision of the Agreement to affect, disturb or prejudice the rights of any
Holder or to obtain or to seek to obtain priority or preference over any other
Holder or to enforce any right under the Agreement, except in the manner herein
provided and for the equal and ratable benefit of all of the Holders.
In the event the Trustee receives conflicting or inconsistent requests and
indemnity from two or more groups of Holders, each representing less than a
majority of the applicable Class of Securities, the Trustee in its sole
discretion may determine what action, if any, shall be taken.
The Trustee, prior to the occurrence of an Event of Default and after the
curing of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in the Agreement.
If an Event of Default has occurred and has not been cured or waived, each
Agreement requires the Trustee to exercise such of the rights and powers vested
in it by the Agreement, and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. Prior to the occurrence of an Event of
Default, and after the curing of all such Events of Default which may have
occurred, the Trustee (i) undertakes to perform such duties and only such duties
as are specifically set forth in the Agreement, and no implied covenants or
obligations shall be read into the Agreement against the Trustee and (ii) in the
absence of bad faith on its part, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of the Agreement; provided, however, that such provisions do not
protect the Trustee or any such person against any liability which would
otherwise be imposed by reason of negligent actions, negligent failure to act or
willful misconduct in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder.
The Trustee and any director, officer, employee or agent of the Trustee may
rely and will be protected in acting or refraining from acting in good faith in
reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Agreement.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
GENERAL
The following discussion contains summaries, which are general in nature,
of material legal matters relating to the Mortgage Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state, or to encompass the laws of all states in which
the security for the Mortgage Loans is situated.
NATURE OF THE MORTGAGE LOANS
The Single Family Loans and Multifamily Loans will be secured by mortgages,
deeds of trust, security deeds or deeds to secure debt, depending upon the
prevailing practice in the state in which the property subject to the loan is
located. A mortgage creates a lien upon the real property encumbered by the
mortgage, which lien is generally not prior to the lien for real estate taxes
and assessments. Priority between mortgages depends on their terms and generally
on the order of recording with a state or county office. There are two parties
to a mortgage, the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. The mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid. The
mortgagee's authority under a mortgage, the trustee's authority under a deed of
trust and the grantee's authority under a security deed or deed to secure debt
are governed by law and, with respect to some deeds of trust, the directions of
the beneficiary.
Certain of the Mortgage Loans may be loans secured by condominium units.
The condominium building may be a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to condominium ownership. Condominium ownership is a form of ownership of a real
property wherein each owner is entitled to the exclusive ownership and
possession of his or her individual condominium unit and also owns a
proportionate undivided interest in all parts of the condominium building (other
than the individual condominium units) and all areas or facilities, if any, for
the common use of the condominium units. The condominium unit owners appoint or
elect the condominium association to govern the affairs of the condominium.
FORECLOSURE/REPOSSESSION
Foreclosure of a deed of trust is generally accomplished by a non-judicial
sale under a specific provision in the deed of trust which authorizes the
trustee to sell the property at public auction upon any default by the borrower
under the terms of the note or deed of trust. In some states, the trustee must
record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. Before
such non-judicial sale takes place, typically a notice of sale must be posted in
a public place and published during a specific period of time in one or more
newspapers, posted on the property, and sent to parties having an interest of
record in the property.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real-property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties. When the
mortgagee's right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary
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default by paying the entire amount in arrears plus other designated costs and
expenses incurred in enforcing the obligation. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's fees, which may
be recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the mortgage is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender may purchase the property from the trustee or
referee for an amount equal to the principal amount outstanding under the loan,
accrued and unpaid interest and the expenses of foreclosure. Thereafter, the
lender will assume the burden of ownership, including obtaining hazard insurance
and making such repairs at its own expense as are necessary to render the
property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the 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.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption would defeat the title
of any purchaser from the lender subsequent to foreclosure or sale under a deed
of trust. Consequently, the practical effect of the redemption right is to force
the lender to retain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have adopted statutory prohibitions restricting the right of
the beneficiary or mortgagee to obtain a deficiency judgment against borrowers
financing the purchase of their residence or following sale under a deed of
trust or certain other foreclosure proceedings. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property sold at the foreclosure sale. As a result of these prohibitions, it is
anticipated that in many instances the Master Servicer will not seek deficiency
judgments against defaulting Mortgagors.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on the mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly
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payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. The effect of any such proceedings under the
federal Bankruptcy Code, including but not limited to any automatic stay, could
result in delays in receiving payments on the Mortgage Loans underlying a Series
of Securities and possible reductions in the aggregate amount of such payments.
Some states also have homestead exemption laws which would protect a principal
residence from a liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
and manufactured housing lenders in connection with the origination, servicing
and enforcement of such loans. 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 and
regulations. These federal and state laws impose specific statutory liabilities
upon lenders who fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of the loans.
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that if the Mortgagor sells, transfers or conveys the
Mortgaged Property, the Mortgage Loan may be accelerated by the mortgagee. The
Garn-St Germain Depository Institutions Act of 1982 (the 'Garn-St Germain Act'),
subject to certain exceptions, preempts state constitutional, statutory and case
law prohibiting the enforcement of due-on-sale clauses. As to loans secured by
an owner-occupied residence (which could include a manufactured home), the
Garn-St Germain Act sets forth nine specific instances in which a mortgagee
covered by the Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the related
mortgaged property to an uncreditworthy person, which could increase the
likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following origination of the mortgage loans with respect
to prepayments on mortgage loans secured by liens encumbering owner-occupied
residential properties. Since many of the Mortgaged Properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the Mortgage Loans. The absence of such a restraint on
prepayment, particularly with respect to fixed rate Single Family Loans having
higher Mortgage Rates, may increase the likelihood of refinancing or other early
retirement of such Mortgage Loans. Legal restrictions, if any, on prepayment of
Multifamily Loans will be described in the related Prospectus Supplement.
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. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an 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.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Relief Act, a Mortgagor who enters
military service after the origination of the related Mortgage Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders
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otherwise upon application of the lender. It is possible that such interest rate
limitation could have an effect, for an indeterminate period of time, on the
ability of the Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Unless otherwise provided in the applicable Prospectus
Supplement, any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the holders of the Securities. In
addition, the Relief Act imposes limitations which would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan during the
Mortgagor's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Loans and
give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
radon and other materials which may affect the property securing the Mortgage
Loans. For example, under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and possibly under state law in
certain states, a secured party which takes a deed in lieu of foreclosure or
purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a 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. It is possible that such
costs could become a liability of a Trust and reduce the amounts otherwise
distributable to the Holders if a Mortgaged Property securing a Mortgage Loan
became the property of such Trust in certain circumstances and if such Cleanup
Costs were incurred. Moreover, certain states by statute impose a superpriority
lien for any Cleanup Costs incurred by such state on the property that is the
subject of such Cleanup Costs (a 'Superlien'). All subsequent liens on such
property are subordinated to such Superlien and, in some states, even prior
recorded liens are subordinated to such 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.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth (i) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Seller ('Federal Tax Counsel'),
and (ii) a summary, based on the advice of Federal Tax Counsel, of the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. The summary focuses primarily upon
investors who will hold Securities as 'capital assets' (generally, property held
for investment) within the meaning of Section 1221 of the of the Internal
Revenue Code of 1986, as amended (the 'Code'), but much of the discussion is
applicable to other investors as well. Because tax consequences may vary based
on the status or tax attributes of the owner of a Security, prospective
investors are advised to consult their own tax advisers concerning the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Securities. For purposes of this tax discussion (except
with respect to information reporting, or where the context indicates
otherwise), any reference to the 'Holder' means the beneficial owner of a
Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness for
federal income tax purposes; (ii) an election is made to treat the Trust (or
certain assets of the Trust) relating to a particular Series of Securities as a
real estate mortgage investment conduit ('REMIC') under the Code; (iii) the
Securities represent an ownership interest for federal income tax purposes in
some or all of the assets included in the Trust for a Series; or (iv) for
federal income tax purposes the Trust relating to a particular Series of
Certificates is classified as a partnership. The Prospectus Supplement for each
Series of Securities will specify how the Securities will be treated for federal
income tax purposes and will discuss whether a REMIC election, if any, will be
made with respect to such Series.
OPINIONS
Federal Tax Counsel is of the opinion that:
(i) If a Prospectus Supplement indicates that one or more Classes of
Securities of the related Series are to be treated as indebtedness for
federal income tax purposes, assuming that all of the provisions of the
applicable Agreement are complied with, the Securities so designated will
be considered indebtedness of the Trust for federal income tax purposes;
(ii) If a Prospectus Supplement indicates that one or more REMIC
elections will be made with respect to the related Trust, assuming that
such elections are timely made and all of the provisions of the applicable
Agreement are complied with (a) each segregated pool of assets specified in
such Agreement will constitute a REMIC for federal income tax purposes, (b)
the Class or Classes of Securities of the related Series which are
designated as 'regular interests' in such Prospectus Supplement will be
considered 'regular interests' in a REMIC for federal income tax purposes
and (c) the Class of Securities of the related Series which is designated
as the 'residual interest' in such Prospectus Supplement will be considered
the sole class of 'residual interests' in the applicable REMIC for federal
income tax purposes;
(iii) If a Prospectus Supplement indicates that a Trust will be
treated as a grantor trust for federal income tax purposes, assuming
compliance with all of the provisions of the applicable Agreement, (a) the
Trust will be considered to be a grantor trust under Subpart E, Part 1 of
Subchapter J of the Code and will not be considered to be an association
taxable as a corporation and (b) a Holder of the related Securities will be
treated for federal income tax purposes as the owner of an undivided
interest in the Mortgage Assets included in the Trust; and
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(iv) If a Prospectus Supplement indicates that a Trust is to be
treated as a partnership for federal income tax purposes, assuming that all
of the provisions of the applicable Agreements are complied with, such
Trust will be considered to be a partnership for federal income tax
purposes and will not be considered to be an association or publicly traded
partnership taxable as a corporation.
Each such opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the Internal Revenue Service or any
third-party.
TAXATION OF DEBT SECURITIES (INCLUDING REGULAR INTEREST SECURITIES)
Interest and Acquisition Discount. Securities representing regular
interest in a REMIC ('Regular Interest Securities') are generally taxable to
Holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by Holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes and
Regular Interest Securities will be referred to hereinafter collectively as
'Debt Securities.' For Certificates treated as debt for federal income tax
purposes, see 'Certain Certificates Treated as Indebtedness.'
Debt Securities that are Compound Interest Securities will, and certain of
the other Debt Securities may, be issued with 'original issue discount' ('OID').
The following discussion is based in part on the rules governing OID which are
set forth in Sections 1271-1275 of the Code and the Treasury regulations issued
thereunder on February 2, 1994 (the 'OID Regulations'). A Holder should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the excess of the stated redemption
price at maturity of a Debt Security over its issue price. A Holder of a Debt
Security must include such OID in gross income as ordinary interest income as it
accrues under a prescribed method which takes into account an economic accrual
of the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the Closing Date, the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The stated redemption
price at maturity of a Debt Security includes the original principal amount of
the Debt Security, but generally will not include distributions of interest if
such distributions constitute 'qualified stated interest.'
Under the OID Regulations, interest payments will not be qualified stated
interest unless the interest payments are 'unconditionally payable.' The OID
Regulations state that interest is unconditionally payable if late payment of
interest (other than late payment that occurs within a reasonable grace period)
or nonpayment of interest is expected to be penalized or reasonable remedies
exist to compel payment. The meaning of 'penalized' under the OID regulations is
unclear particularly in the case of obligations based on other debt obligations.
Interest payments on Debt Securities which do not have reasonable remedies to
compel timely payment of interest may not be qualified stated interest, and such
Debt Securities may have original issue discount.
Certain Debt Securities will provide for distributions of interest based on
a period that is the same length as the interval between Distribution Dates but
ends prior to each Distribution Date. Any interest that accrues prior to the
Closing Date may be treated under the OID Regulations either (i) as part of the
issue price and the stated redemption price at maturity of the Debt Securities
or (ii) as not included in the issue price or stated redemption price. The OID
Regulations provide a special application of the de minimis rule for debt
instruments with long first accrual periods where the interest payable for the
first period is at a rate which is effectively less than that which applies in
all other periods. In such cases, for the sole purpose of determining whether
original issue discount is de minimis, the OID Regulations provide that the
stated redemption price is equal to the instrument's
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issue price plus the greater of the amount of foregone interest or the excess
(if any) of the instrument's stated principal amount over its issue price.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method Holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
See '--Election to Treat All Interest as Original Issue Discount.'
The Holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the 'daily portions' of such original issue discount. The amount of OID
includible in income by a Holder will be computed by allocating to each day
during a taxable year a pro rata portion of the original issue discount that
accrued during the relevant accrual period. In the case of a Debt Security that
is not a Regular Interest Security and the principal payments on which are not
subject to acceleration resulting from prepayments on the Loans, the amount of
OID includible in income of a Holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the Debt Security and the adjusted issue price of the
Debt Security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a Holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a 'Pay-Through Security'), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
'Prepayment Assumption'). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a Holder to
take into account prepayments with respect to the Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of OID required to be included in income by a Holder of a
Pay-Through Security to take into account prepayments with respect to the Loans
at a rate that is slower than the Prepayment Assumption. Although OID will be
reported to Holders of Pay-Through Securities based on the Prepayment
Assumption, no representation is made to Holders that Loans will be prepaid at
that rate or at any other rate.
The Seller may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Loans, although the
OID Regulations do not provide for such adjustments. If the Internal Revenue
Service were to require that OID be accrued without such adjustments, the rate
of accrual of OID for a Class of Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID
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Regulations, to calculate OID on such Securities as if, solely for the purposes
of computing OID, the separate regular interests were a single debt instrument.
A subsequent Holder of a Debt Security will also be required to include OID
in gross income, but such a Holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial Holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to the related Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Mortgage Loans, except possibly to the extent that
it can be established that such amounts are uncollectible. As a result, the
amount of income (including OID) reported by a Holder of such a Security in any
period could significantly exceed the amount of cash distributed to such Holder
in that period. The Holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Mortgage Loan
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, Holders of Securities should consult
their own tax advisors on this point.
Interest-Only Debt Securities. The Trust intends to report income from
interest-only classes of Debt Securities to the Internal Revenue Service and to
Holders of interest-only Debt Securities based on the assumption that the stated
redemption price at maturity is equal to the sum of all payments determined
under the applicable prepayment assumption. As a result, such interest-only Debt
Securities Certificates will be treated as having original issue discount.
Variable Rate Debt Securities. Under the OID Regulations, Debt Securities
paying interest at a variable rate (a 'Variable Rate Debt Security') are subject
to special rules. A Variable Rate Debt Security will qualify as a 'variable rate
debt instrument' if (i) its issue price does not exceed the total noncontingent
principal payments due under the Variable Rate Debt Security by more than a
specified de minimis amount and (ii) it provides for stated interest, paid or
compounded at least annually, at (a) one or more qualified floating rates, (b) a
single fixed rate and one or more qualified floating rates, (c) a single
objective rate or (d) a single fixed rate and a single objective rate that is a
qualified inverse floating rate.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Security is denominated. A multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate for purposes
of the OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than zero but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Rate Debt Security will be
treated as a single qualified floating rate (a 'Presumed Single Qualified
Floating Rate'). Two or more qualified floating rates with values within 25
basis points of each other as determined on the Variable Rate Debt Security's
issue date will be conclusively presumed to be a Presumed Single Qualified
Floating Rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a cap or floor, will not be a qualified floating rate
for purposes of the OID Regulations unless the restriction is fixed throughout
the term of the Variable Rate Debt Security or the restriction will not
significantly affect the yield of the Variable Rate Debt Security.
An 'objective rate' is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon (i)
one or more qualified floating rates, (ii) one or more rates where each rate
would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Rate Debt Security is
denominated, (iii) either the yield or changes in the price of one or more items
of actively traded personal property or (iv) a combination of rates described in
(i), (ii) and (iii). The OID Regulations also provide that other variable rates
may be treated as objective rates if so designated by the Internal Revenue
Service in the future. Despite the foregoing, a variable rate of interest on a
Variable Rate Debt Security will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first
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half of the Variable Rate Debt Security's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate Debt Security's term. An objective rate will
qualify as a 'qualified inverse floating rate' if such rate is equal to a fixed
rate minus a qualified floating rate and variations in the rate can reasonably
be expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds. The OID Regulations also provide that if a Variable Rate Debt
Security provides for stated interest at a fixed rate for an initial period of
less than one year followed by a variable rate that is either a qualified
floating rate or an objective rate and if the variable rate on the Variable Rate
Debt Security's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a 'Presumed
Single Variable Rate'). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable Rate
Debt Security's issue date, the variable rate will be conclusively presumed to
approximate the fixed rate.
For Variable Rate Debt Securities that qualify as a 'variable rate debt
instrument' under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a 'Single Variable Rate Debt Security'), original issue discount is computed as
described above based on the following: (i) stated interest on the Single
Variable Rate Debt Security which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will constitute
qualified stated interest and (ii) by assuming that the variable rate on the
Single Variable Debt Security is a fixed rate equal to: (a) in the case of a
Single Variable Rate Debt Security with a qualified floating rate or a qualified
inverse floating rate, the value of, as of the issue date, of the qualified
floating rate or the qualified inverse floating rate or (b) in the case of a
Single Variable Rate Debt Security with an objective rate (other than a
qualified inverse floating rate), a fixed rate which reflects the reasonably
expected yield for such Single Variable Debt Security.
In general, any Variable Rate Debt Security other than a Single Variable
Rate Debt Security (a 'Multiple Variable Rate Debt Security') that qualifies as
a 'variable rate debt instrument' will be converted into an 'equivalent' fixed
rate debt instrument for purposes of determining the amount and accrual of
original issue discount and qualified stated interest on the Multiple Variable
Rate Debt Security. The OID Regulations generally require that such a Multiple
Variable Rate Debt Security be converted into an 'equivalent' fixed rate debt
instrument by substituting any qualified floating rate or qualified inverse
floating rate provided for under the terms of the Multiple Variable Rate Debt
Security with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Multiple Variable
Rate Debt Security's issue date. Any objective rate (other than a qualified
inverse floating rate) provided for under the terms of the Multiple Variable
Rate Debt Security is converted into a fixed rate that reflects the yield that
is reasonably expected for the Multiple Variable Rate Debt Security. In the case
of a Multiple Variable Rate Debt Security that qualifies as a 'variable rate
debt instrument' and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Multiple Variable Rate Debt Security
provides for a qualified inverse floating rate). Under such circumstances, the
qualified floating rate or qualified inverse floating rate that replaces the
fixed rate must be such that the fair market value of the Multiple Variable Rate
Debt Security as of the Multiple Variable Rate Debt Security's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse floating
rate, the Multiple Variable Rate Debt Security is then converted into an
'equivalent' fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate Debt Security is converted into an
'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the 'equivalent' fixed rate debt instrument by applying the
original issue discount rules to the 'equivalent' fixed rate debt instrument in
the manner described above. A Holder of the Multiple Variable Rate Debt Security
will account for such original issue discount and qualified stated interest as
if the Holder held the 'equivalent' fixed rate debt instrument. Each accrual
period appropriate adjustments will be made to the amount of qualified stated
interest or original issue discount assumed to have been accrued or paid with
respect to the
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'equivalent' fixed rate debt instrument in the event that such amounts differ
from the accrual amount of interest accrued or paid on the Multiple Variable
Rate Debt Security during the accrual period.
The OID Regulations do not clearly address the treatment of a Variable Rate
Debt Security that is based on a weighted average of the interest rates on
underlying Loans. Under the OID Regulations, interest payments on such a
Variable Rate Debt Security may be characterized as qualified stated interest
which is includible in income in a manner similar to that described in the
previous paragraph. However, it is also possible that interest payments on such
a Variable Rate Debt Security would be treated as contingent interest (possibly
includible in income when the payments become fixed) or in some other manner.
If a Variable Rate Debt Security does not qualify as a 'variable rate debt
instrument' under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law how a Variable Rate Debt Security would be taxed if such Debt
Security were treated as a contingent payment debt obligation.
The Internal Revenue Service (the 'IRS') recently issued final regulations
(the 'Contingent Regulations') governing the calculation of OID on instruments
having contingent interest payments. The Contingent Regulations specifically do
not apply for purposes of calculating OID on debt instruments to Code Section
1272(a)(6), such as the Debt Security. Additionally, the OID Regulations do not
contain provisions specifically interpreting Code Section 1272(a)(6). Until the
Treasury issues guidelines to the contrary, the Trustee intends to base its
computation on Code Section 1272(a)(6) and the OID Regulations as described in
this Prospectus. However, because no regulatory guidance exists under Code
Section 1272(a)(6), there can be no assurance that such methodology represents
the correct manner of calculating OID.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of 'market discount'
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security, as set forth below, the
Loans underlying such Security) not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Securities (or, in the case of a Pass-Through Security, as described below,
the Loans underlying such Security) originally issued at a discount, OID in the
relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Security, as described below, the underlying Loans)
with market discount over interest received on such Security is allowed as a
current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the Security (or in the case of a
Pass-Through Security, an underlying Loan). A Holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such Holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. A Holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a Class of Pay-Through Securities will be calculated using
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the prepayment assumption used in pricing such Class. If a Holder makes an
election to amortize premium on a Debt Security, such election will apply to all
taxable debt instruments (including all REMIC regular interests and all
pass-through certificates representing ownership interests in a trust holding
debt obligations) held by the Holder at the beginning of the taxable year in
which the election is made, and to all taxable debt instruments acquired
thereafter by such Holder, and will be irrevocable without the consent of the
IRS. Purchasers who pay a premium for the Securities should consult their tax
advisers regarding the election to amortize premium and the method to be
employed.
On June 27, 1996 the IRS issued proposed regulations (the 'Amortizable Bond
Premium Regulations') dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6) such as the Securities. Absent further guidance from the IRS, the
Trustee intends to account for amortizable bond premium in the manner described
above. Prospective purchasers of the Securities should consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Holder Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the Holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such Holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a Holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
Sale or Exchange. A Holder's tax basis in its Debt Security is the price
such Holder pays for a Debt Security, plus amounts of OID or market discount
included in income and reduced by any payments received (other than qualified
stated interest payments) and any amortized premium. Gain or loss recognized on
a sale, exchange, or redemption of a Debt Security, measured by the difference
between the amount realized and the Debt Security's basis as so adjusted, will
generally be capital gain or loss, assuming that the Debt Security is held as a
capital asset. In the case of a Debt Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Debt Security will be taxable as ordinary income or
loss. In addition, gain from the disposition of a Regular Interest Security that
might otherwise be capital gain will be treated as ordinary income to the extent
of the excess, if any, of (i) the amount that would have been includible in the
Holder's income if the yield on such Regular Interest Security had equaled 110%
of the applicable federal rate as of the beginning of such Holder' s holding
period, over the amount of ordinary income actually recognized by the Holder
with respect to such Regular Interest Security. Currently, the maximum tax rate
on ordinary income for individual taxpayers is 39.6% and the maximum tax rate on
long-term capital gains for such taxpayers is 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
TAXATION OF THE REMIC AND ITS HOLDERS
Status of Regular Interest Securities as Real Property Loans. Regular
Interest Securities and Securities representing a residual interest in a REMIC
(both types of securities collectively referred to as 'REMIC Securities') will
be 'real estate assets' for purposes of Section 856(c)(5)(A) of the Code and
assets described in Section 7701(a)(19)(C) of the Code (assets qualifying under
one or more of those sections, applying each section separately, 'qualifying
assets') to the extent that the REMIC's assets are qualifying assets. However,
if at least 95 percent of the REMIC's assets are qualifying assets, then 100
percent of the REMIC Securities will be qualifying assets. Similarly, income on
the REMIC Securities will be treated as 'interest on obligations secured by
mortgages on real property' within the meaning of Section 856(c)(3)(B) of the
Code, subject to the limitations of the preceding two sentences. In addition to
Mortgage Loans, the REMIC's assets will include payments on Mortgage Loans held
pending distribution to Holders of REMIC Securities, amounts in reserve accounts
(if any), other credit enhancements (if any) and possibly buydown funds
('Buydown Funds'). The
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Mortgage Loans generally will be qualifying assets under all three of the
foregoing sections of the Code. However, Mortgage Loans that are not secured by
residential real property or real property used primarily for church purposes
may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of the
Code. In addition, to the extent that the principal amount of a Mortgage Loan
exceeds the value of the property securing the Mortgage Loan, it is unclear and
Federal Tax Counsel is unable to opine whether the Mortgage Loans will be
qualifying assets. The regulations under Sections 860A through 860G of the Code
(the 'REMIC Regulations') treat credit enhancements as part of the mortgage or
pool of mortgages to which they relate, and therefore credit enhancements
generally should be qualifying assets. Regulations issued in conjunction with
the REMIC Regulations provide that amounts paid on Mortgage Loans and held
pending distribution to Holders of Regular Interest Securities ('cash flow
investments') will be treated as qualifying assets. It is unclear whether
reserve funds or Buydown Funds would also constitute qualifying assets under any
of those provisions.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Securities. In the case of a 'single
class REMIC,' however, the expenses will be allocated, under Treasury
regulations, among the Holders of the Regular Interest Securities and the
Holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each Holder on that day. In the case
of a Holder of a Regular Interest Security who is an individual or a
'pass-through interest Holder' (including certain pass-through entities but not
including real estate investment trusts), such expenses will be deductible only
to the extent that such expenses, plus other 'miscellaneous itemized deductions'
of the Holder, exceed 2% of such Holder's adjusted gross income and such Holder
may not be able to deduct such fees and expenses to any extent in computing such
Holder's alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. The reduction or disallowance of this deduction may have a
significant impact on the yield of the Regular Interest Security to such a
Holder. In general terms, a single class REMIC is one that either (i) would
qualify, under existing Treasury regulations, as a grantor trust if it were not
a REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or (ii) is similar to such a
trust and which is structured with the principal purpose of avoiding the single
class REMIC rules. Unless otherwise stated in the applicable Prospectus
Supplement, the expenses of the REMIC will be allocated to Holders of the
related Residual Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the Holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Securities, 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. Solely for purposes
of determining whether the REMIC Securities will be 'real estate assets' within
the meaning of Section 856(c)(5)(A) of the Code, and 'loans secured by an
interest in real property' under Section 7701(a)(19)(C) of the Code, and whether
the income on such Securities is interest described in Section 856(c)(3)(B) of
the Code, the Tiered REMICs will be treated as one REMIC.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue discount
or market discount on loans and other
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assets, and (ii) deductions, including stated interest and original issue
discount accrued on Regular Interest Securities, amortization of any premium
with respect to Mortgage Loans, and servicing fees and other expenses of the
REMIC. A Holder of a Residual Interest Security that is an individual or a
'pass-through interest Holder' (including certain pass-through entities, but not
including real estate investment trusts) will be unable to deduct servicing fees
payable on the Loans or other administrative expenses of the REMIC for a given
taxable year, to the extent that such expenses, when aggregated with such
Holder's other miscellaneous itemized deductions for that year, do not exceed
two percent of such Holder's adjusted gross income and such Holder may not be
able to deduct such fees and expenses to any extent in computing such holders
alternative minimum tax liability.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). Such aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans.
Subject to possible application of the de minimis rules, the method of accrual
by the REMIC of OID income on such loans will be equivalent to the method under
which Holders of Pay-Through Securities accrue original issue discount (i.e.,
under the constant yield method taking into account the Prepayment Assumption).
The REMIC will deduct OID on the Regular Interest Securities in the same manner
that the Holders of the Regular Interest Securities include such discount in
income, but without regard to the de minimis rules. See 'Taxation of Debt
Securities (Including Regular Interest Securities)' above. However, a REMIC that
acquires loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (presumably taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding recovery
of premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a 'prohibited transaction.' For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject to
a limited exception, the sale or other disposition of a cash flow investment;
(iii) the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or (iv) the receipt of any fees or other
compensation for services rendered by the REMIC. It is anticipated that a REMIC
will not engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of exceptions, a
tax is imposed at the rate of 100% on amounts contributed to a REMIC after the
Startup Day. The Holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be paid
out of the Trust and will be allocated pro rata to all outstanding Classes of
Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a residual interest (a 'Residual
Interest Security') will take into account the 'daily portion' of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such Holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the Holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The Holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the Mortgage Loans held by the REMIC were
issued or acquired at a discount, since mortgage
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prepayments cause recognition of discount income, while the corresponding
portion of the prepayment could be used in whole or in part to make principal
payments on REMIC Regular Interests issued without any discount or at an
insubstantial discount. (If this occurs, it is likely that cash distributions
will exceed taxable income in later years.) Taxable income may also be greater
in earlier years of certain REMIC issues as a result of the fact that interest
expense deductions, as a percentage of outstanding principal on REMIC Regular
Interest Securities, will typically increase over time as lower yielding
Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the Holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Security will initially equal such Holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the Holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
Holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
Holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such Holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a Holder of a Residual Interest
Security. If the amount of such payment exceeds a Holder's adjusted basis in the
Residual Interest Security, however, the Holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A Holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such Holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling Holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a Holder of
a Residual Interest Security consisting of 'excess inclusion' income may not be
offset by other deductions or losses, including net operating losses, on such
Holder's federal income tax return. Further, if the Holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Holder's excess inclusion income will
be treated as unrelated business taxable income of such Holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as 'portfolio
interest' and is subject to certain additional limitations. See 'Tax Treatment
of Foreign Investors.'
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ('thrift institutions') to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have 'significant value' within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates held by thrift
institutions since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income
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cannot be less than excess inclusions. Second, a residual holder's alternative
minimum income for a tax year cannot be less than excess inclusions for the
year. Third, the amount of any alternative minimum tax net operating loss
deductions must be computed without regard to any excess inclusions. These rules
are effective for tax years beginning after December 31, 1986, unless a residual
holder elects to have such rules apply only to tax years beginning after August
20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Date multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by the
amount of loss allocated to a Holder and the amount of distributions made on the
Residual Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See '--Restrictions on
Ownership and Transfer of Residual Interest Securities' and 'Tax Treatment of
Foreign Investors' below.
Restrictions on Ownership and Transfer of Residual Interest Securities. As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any 'Disqualified
Organization.' Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Agreement will prohibit Disqualified Organizations
from owning a Residual Interest Security. In addition, no transfer of a Residual
Interest Security will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acing on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Security at the
time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any person
holding as nominee an interest in a pass-through entity), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual tax
on its allocable share of the excess inclusion income of the REMIC.
The REMIC Regulations provide that a transfer of a 'noneconomic residual
interest' will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a 'noneconomic residual
interest' unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. 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. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds 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 (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest
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and (B) the transferee intends to pay the taxes associated with owning the
residual interest as they come due. A different formulation of this rule applies
to transfers of Residual Interest Security by or to foreign transferees. See
'Tax Treatment to Foreign Investors'.
Mark to Market Rules. On January 3, 1995, the IRS released proposed
regulations under Section 475 (the 'Proposed Mark-to-Market Regulations'). The
Proposed Mark-to-Market Regulations provide that any REMIC Residual Interest
acquired after January 3, 1995 cannot be marked to market, regardless of the
value of such REMIC residual interest.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be 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.
TAX STATUS AS A GRANTOR TRUST
General. As further described below, each Holder of a Security issued by a
grantor trust (a 'Pass-Through Security') must report on its federal income tax
return the gross income from the portion of the Mortgage Loans that is allocable
to such Pass-Through Security and may deduct the portion of the expenses
incurred or accrued by the Trust that is allocable to such Pass-Through
Security, at the same time and to the same extent as such items would be
reported by such Holder if it had purchased and held directly such interest in
the Mortgage Loans and received or accrued directly its share of the payments on
the Mortgage Loans and incurred or accrued directly its share of expenses
incurred or accrued by the Trust when those amounts are received, incurred or
accrued by the Trust.
A Holder of a Pass-Through Security that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the Holder's other miscellaneous itemized deductions exceeds
two percent of such Holder's adjusted gross income. Moreover, a Holder of a
Pass-Through Security that is not a corporation cannot deduct such expenses for
purposes of the alternative minimum tax (if applicable). Such deductions will
include servicing, guarantee and administrative fees paid to the servicer of the
Mortgage Loans. As a result, the Trust will report additional taxable income to
Holders of Pass-Through Securities in an amount equal to their allocable share
of such deductions, and individuals, estates, or trusts holding Pass-Through
Securities may have taxable income in excess of the cash received.
Status of the Pass-Through Securities as Real Property Loans. The
Pass-Through Securities will be 'real estate assets' for purposes of Section
856(c)(5)(A) of the Code and 'loans...............secured by an interest in real
property' within the meaning of Section 7701(a)(19)(C)(v) of the Code (assets
qualifying under one or more of those sections, applying each section
separately, 'qualifying assets') to the extent that the Trust's assets are
qualifying assets. The Pass-Through Securities may not be qualifying assets
under any of the foregoing sections of the Code to the extent that the Trust's
assets include Buydown Funds, reserve funds, or payments on Mortgage Loans held
pending distribution to Holders. Further, the Pass- Through Securities may not
be 'qualifying real property loans' to the extent loans held by the Trust are
not secured by improved real property or real property which is to be improved
using the loan proceeds, may not be 'real estate assets' to the extent loans
held by the trust are not secured by real property, and may not be 'loans
secured by an interest in real property' to the extent loans held by the trust
are not secured by residential real property or real property used primarily for
church purposes. In addition, to the extent that the principal amount of a loan
exceeds the value of the property securing the loan, it is unclear and Federal
Tax Counsel is unable to opine whether the loans will be qualifying assets.
Taxation of Pass-Through Securities Under Stripped Bond Rules. The federal
income tax treatment of the Pass-Through Securities will depend on whether they
are subject to the rules of Section 1286 of the Code (the 'stripped bond
rules'). The Pass-Through Securities will be subject to those rules if stripped
interest-only Securities are issued. In addition, whether or not stripped
interest-only Securities are issued, the IRS may contend that the stripped bond
rules apply on the ground that the Servicer's servicing fee, or other amounts,
if any, paid to (or retained by) the Servicer or its affiliates, as specified in
the applicable Prospectus Supplement, represent greater than an arm's length
consideration for servicing the Mortgage Loans and should be characterized for
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federal income tax purposes as an ownership interest in the Mortgage Loans. The
IRS has taken the position in Revenue Ruling 91-46 that a retained interest in
excess of reasonable compensation for servicing is treated as a 'stripped
coupon' under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a 'stripped coupon,' the Pass-Through Securities will either be
subject to the OID rules or the market discount rules. A Holder of a Pass-
Through Security will account for any discount on the Pass-Through Security as
market discount rather than OID if either (i) the amount of OID with respect to
the Pass-Through Security was treated as zero under the OID de minimis rule when
the Pass-Through Security was stripped or (ii) no more than 100 basis points
(including any amount of servicing in excess of reasonable servicing) is
stripped off from the Mortgage Loans. If neither of the above exceptions
applies, the OID rules will apply to the Pass-Through Securities.
If the OID rules apply, the Holder of a Pass-Through Security (whether a
cash or accrual method taxpayer) will be required to report interest income from
the Pass-Through Security in each taxable year equal to the income that accrues
on the Pass-Through Security in that year calculated under a constant yield
method based on the yield of the Pass-Through Security (or, possibly, the yield
of each Mortgage Loan underlying such Pass-Through Security) to such Holder.
Such yield would be computed at the rate (assuming monthly compounding) that, if
used in discounting the Holder's share of the payments on the Mortgage Loans,
would cause the present value of those payments to equal the price at which the
Holder purchased the Pass-Through Security. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that OID be accrued
based on a prepayment assumption determined in a manner prescribed by
forthcoming regulations. It is unclear whether such regulations would apply this
rule to the Pass-Through Securities, whether Section 1272(a)(6) might apply to
the Pass-Through Securities in the absence of such regulations, or whether the
Internal Revenue Service could require use of a reasonable prepayment assumption
based on other tax law principles and Federal Tax Counsel is unable to opine
with respect to this issue. If required to report interest income on the
Pass-Through Securities to the IRS under the stripped bond rules, it is
anticipated that the Trustee will calculate the yield of the Pass-Through
Securities based on a representative initial offering price of the Pass-Through
Securities and a reasonable assumed rate of prepayment of the Mortgage Loans
(although such yield may differ from the yield to any particular Holder that
would be used in calculating the interest income of such Holder). The Prospectus
Supplement for each series of Pass-Through Securities will describe the
prepayment assumption that will be used for this purpose, but no representation
is made that the Mortgage Loans will prepay at that rate or at any other rate.
Assume that Holders are not taxed as directly owning the Mortgage Loans, in
the case of a Pass-Through Security acquired at a price equal to the principal
amount of the Mortgages allocable to the Pass-Through Security, the use of a
reasonable prepayment assumption would not have any significant effect on the
yield used in calculating accruals of interest income. In the case, however, of
a Pass-Through Security acquired at a discount or premium (that is, at a price
less than or greater than such principal amount, respectively), the use of a
reasonable prepayment assumption would increase or decrease such yield, and thus
accelerate or decelerate the reporting of interest income, respectively.
If a Mortgage Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Pass-Through
Security and the portion of the adjusted basis of the Pass-Through Security (see
'Sales of Pass-Through Securities' below) that is allocable to the Mortgage
Loan. The method of allocating such basis among the Mortgage Loans may differ
depending on whether a reasonable prepayment assumption is used in calculating
the yield of the Pass-Through Securities for purposes of accruing OID. It is not
clear whether any other adjustments would be required to reflect differences
between the prepayment rate that was assumed in calculating yield and the actual
rate of prepayments.
Pass-Through Securities of certain series ('Variable Rate Pass-Through
Securities') may provide for a Pass-Through Rate based on the weighted average
of the interest rates of the Mortgage Loans held by the Trust, which interest
rates may be fixed or variable. In the case of a Variable Rate Pass-Through
Security that is subject to the OID rules, the daily portions of OID generally
will be calculated under the principles discussed in '--Taxation of Debt
Securities (Including Regular Interest Securities)-Variable Rate Debt
Securities.'
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Taxation of Pass-Through Securities If Stripped Bond Rules Do Not
Apply. If the stripped bond rules do not apply to a Pass-Through Security, then
the Holder will be required to include in income its share of the interest
payments on the Mortgage Loans in accordance with its tax accounting method. In
addition, if the Holder purchased the Pass-Through Security at a discount or
premium, the Holder will be required to account for such discount or premium in
the manner described below. The treatment of any discount will depend on whether
the discount is OID as defined in the Code and, in the case of discount other
than OID, whether such other discount exceeds a de minimis amount. In the case
of OID, the Holder (whether a cash or accrual method taxpayer) will be required
to report as additional interest income in each month the portion of such
discount that accrues in that month, calculated based on a constant yield
method. In general it is not anticipated that the amount of OID to be accrued in
each month, if any, will be significant relative to the interest paid currently
on the Mortgage Loans. However, OID could arise with respect to a Mortgage Loan
that provides for interest at a rate equal to the sum of an index of market
interest rates and a fixed number ('ARM'). The OID for ARMs generally will be
determined under the principles discussed in 'Taxation of Debt Securities
(Including Regular Interest Securities)--Variable Rate Debt Securities.'
If discount other than OID exceeds a de minimis amount (described below),
the Holder will also generally be required to include in income in each month
the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Mortgage Loan, to the amount of principal on such Mortgage Loan
received by the Trust in that month. Because the Mortgage Loans will provide for
monthly principal payments, such discount may be required to be included in
income at a rate that is not significantly slower than the rate at which such
discount accrues (and therefore at a rate not significantly slower than the rate
at which such discount would be included in income if it were OID). The Holder
may elect to accrue such discount under a constant yield method based on the
yield of the Pass-Through Security to such Holder (or possibly based on the
yields of each Mortgage Loan). In the absence of such an election, it may be
necessary to accrue such discount under a more rapid straight-line method. Under
the de minimis rule, market discount with respect to a Pass-Through Security
will be considered to be zero if it is less than the product of (i) 0.25% of the
principal amount of the Mortgage Loans allocable to the Pass-Through Security
and (ii) the weighted average life (in complete years) of the Mortgage Loans
remaining at the time of purchase of the Pass-Through Security.
If a Holder purchases a Pass-Through Security at a premium, such Holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Mortgage Loan under a constant yield method based on the yield
of the Mortgage Loan to such Holder, provided that such Mortgage Loan was
originated after September 27, 1985. Premium allocable to a Mortgage Loan
originated on or before that date should be allocated among the principal
payments on the Mortgage Loan and allowed as an ordinary deduction as principal
payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Mortgage Loans or taking
account of a reasonable prepayment assumption, and Federal Tax Counsel is unable
to opine on this issue.
If a Mortgage Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Pass-Through Security and the
portion of the adjusted basis of the Pass-Through Security (see 'Sales of
Pass-Through Securities' below) that is allocable to the Mortgage Loan. The
method of allocating such basis among the Mortgage Loans may differ depending on
whether a reasonable prepayment assumption is used in calculating the yield of
the Pass-Through Securities for purposes of accruing OID. Other adjustments
might be required to reflect differences between the prepayment rate that was
assumed in accounting for discount or premium and the actual rate of
prepayments.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Holder, other than a Holder of a Residual Interest
Security, may, under certain circumstances, be subject to 'backup withholding'
at a rate of 31% with respect to distributions or the proceeds of a sale of
certificates to or through brokers that represent interest or original issue
discount on the Securities. This withholding generally applies if the Holder of
a Security (i) fails to furnish the Trustee with its taxpayer
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identification number ('TIN'); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other 'reportable
payments' as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such Holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the Holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
Holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). Holders should
consult their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any 'reportable payments' during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trusts which are treated as
partnerships for federal income tax purposes and with respect to Securities
treated as debt for federal income tax purposes, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to be
'effectively connected' with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
('foreign investors'), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a Holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (ii) the recipient
is a controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. See '--Tax Consequences to Holders of
the Certificates Issued by a Partnership--Tax Consequences to Foreign
Certificateholders' and '--Certain Certificates Treated as Indebtedness--Foreign
Investors'. Upon receipt of appropriate ownership statements, the issuer
normally will be relieved of obligations to withhold tax from such interest
payments. These provisions supersede the generally applicable provisions of
United States law that would otherwise require the issuer to withhold at a 30%
rate (unless such rate were reduced or eliminated by an applicable tax treaty)
on, among other things, interest and other fixed or determinable, annual or
periodic income paid to Nonresidents. Holders of Pass-Through Securities
however, may be subject to withholding to the extent that the Mortgage Loans
were originated on or before July 18, 1984.
Interest and OID of Holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder and timely provide an IRS Form 4224. They will, however,
generally be subject to the regular United States income tax.
Payments to Holders of Residual Interest Securities who are foreign persons
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income does
not qualify for exemption from United States withholding tax as 'portfolio
interest.' It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a Holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Nonresident will be disregarded for all federal tax purposes. A Residual
Interest Security has tax avoidance potential unless, at the time of the
transfer the transferor reasonably expects that the REMIC will distribute to the
transferee residual interest Holder amounts that will equal at least 30% of each
excess inclusion, and that such amounts will be distributed at or after the time
at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Nonresident transfers a Residual
Interest Security to a United States 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 Interest Security for
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purposes of the withholding tax provisions of the Code. See 'Taxation of Holders
of Residual Interest Securities--Excess Inclusions.'
Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
If a Trust is intended to be a partnership for federal income tax purposes,
the applicable Agreements will provide that the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations or the issuance of the Certificates will be structured
as a private placement under an IRS safe harbor, so that the Trust will not be
characterized as a publicly traded partnership taxable as a corporation.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment of the Notes as Indebtedness. The Trust will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Seller that the Notes
will be classified as debt for federal income tax purposes. Consequently,
Holders of Notes will be subject to taxation as described in 'Taxation of Debt
Securities (Including Regular Interest Securities)' above for Debt Securities
which are not Regular Interest Securities.
Possible Alternative Treatment of the Notes. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust would likely
be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain Holders. For example, income to
foreign Holders generally would be subject to U.S. federal income tax and U.S.
federal income tax return filing and withholding requirements, and individual
Holders might be subject to certain limitations on their ability to deduct their
share of the Trust's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Trust as a Partnership. In the case of a Trust intended
to qualify as a partnership for federal income tax purposes, the Trust and the
Seller will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes, if any, being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Trust and the Servicer is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership. The following
discussion also assumes that all payments on the Certificates are denominated in
U.S. dollars, none of the Certificates have interest rates which would qualify
as contingent interest under the OID regulations, and that a Series of
Securities includes a single Class of Certificates. If these conditions are not
satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
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Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, eachn Certificateholder will be required to
separately take into account such Holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Loans. The Trust's deductions will consist
primarily of interest and OID accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Loans that corresponds to any excess of
the principal amount of the Certificates over their initial issue price; (iii)
prepayment premium payable to the Certificateholders for such month; and (iv)
any other amounts of income payable to the Certificateholders for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Loans that corresponds to any excess of the issue price of Certificates over
their principal amount. All remaining taxable income of the Trust will be
allocated to the Seller. Based on the economic arrangement of the parties, this
approach for allocating Trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders may
be allocated income equal to the entire Pass-Through Rate plus the other items
described above even though the Trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis Holders will in
effect be required to report income from the Certificates on the accrual basis
and Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
If Notes are also issued, all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute 'unrelated business taxable income' generally taxable to such a
Holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such Holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such Holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Mortgage Loans will not have
been issued with OID and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Loans may be greater or
less than the remaining principal balance of the Loans at the time of purchase.
If so, the Mortgage Loan will have been acquired at a premium or discount, as
the case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a Mortgage Loan by
Mortgage Loan basis.)
If the Trust acquires the Mortgage Loans at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
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Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
Holder's cost increased by the Holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the Holder's share of the
Notes and other liabilities of the Trust. A Holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's share of
unrecognized accrued market discount on the Loans would generally be treated as
ordinary income to the Holder and would give rise to special tax reporting
requirements. The Trust does not expect to have any other assets that would give
rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust will elect to include market discount in
income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Sellers and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a Holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust currently does not intend to make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to Holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
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Certificates. Generally, Holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
Holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign Holders that are taxable as corporations and 39.6% for all
other foreign Holders. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust to change
its withholding procedures.
Each foreign Holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign Holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign Holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust taking the position
that no taxes were due because the Trust was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a Certificateholder
who is a foreign person generally will be considered guaranteed payments to the
extent such payments are determined without regard to the income of the Trust.
If these interest payments are properly characterized as guaranteed payments,
then the interest probably will not be considered 'portfolio interest.' As a
result, Certificateholders will be subject to United States federal income tax
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable treaty. In such case, a foreign Holder would only be entitled to
claim a refund for that portion of the taxes, if any, in excess of the taxes
that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a 'backup' withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the Holder is an exempt recipient under
applicable provisions of the Code.
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ERISA CONSIDERATIONS
GENERAL
ERISA imposes certain requirements on employee benefit plans and collective
investment funds and separate accounts in which such plans or arrangements are
invested to which it applies and on those persons who are fiduciaries with
respect to such benefit plans. Certain employee benefit plans, such as
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA), are not subject to ERISA. In
accordance with ERISA's general fiduciary standards, before investing in a
Security a benefit plan fiduciary should determine whether such an investment is
permitted under the governing benefit plan instruments and is appropriate for
the benefit plan in view of its overall investment policy and the composition
and diversification of its portfolio and is prudent.
CERTIFICATES
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a 'Plan') are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ('parties in interest' and 'disqualified persons'). Such
transactions are treated as 'prohibited transactions' under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Depositor, the Originators, the Enhancer, the Underwriter and the
Trustee and certain of their affiliates might be considered 'parties in
interest' or 'disqualified persons' with respect to a Plan. If so, the
acquisition or holding or transfer of Certificates by or on behalf of such Plan
could be considered to give rise to a 'prohibited transaction' within the
meaning of ERISA and the Code unless an exemption is available. In addition, the
Department of Labor ('DOL') has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the 'Plan Asset Regulations'), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an 'equity' investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Mortgage Loans and any other assets of the Trust and not merely
an interest in the Certificates, transactions occurring between the Depositor,
the Trustee, the Master Servicer, Sub-servicers, if any, the Enhancer or any of
their affiliates might constitute prohibited transactions, and the assets of the
Trust would become subject to the fiduciary investment standards of ERISA,
unless an administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing of the Mortgage Loans are noted below.
The U.S. Department of Labor has issued an administrative exemption,
Prohibited Transaction Class Exemption 83-1 ('PTCE 83-1'), which, under certain
conditions, exempts from the application of the prohibited transaction rules of
ERISA and the excise tax provisions of Section 4975 of the Code transactions
involving a Plan in connection with the operation of a 'mortgage pool' and the
purchase, sale and holding of 'mortgage pool pass-through certificates.' A
'mortgage pool' is defined as an investment pool, consisting solely of interest
bearing obligations secured by first or second mortgages or deeds of trust on
single-family residential property, property acquired in foreclosure and
undistributed cash. A 'mortgage pool pass-through certificate' is defined as a
certificate which represents a beneficial undivided interest in a mortgage pool
which entitles the holder to pass-through payments of principal and interest
from the mortgage loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Depositor and
the Trustee maintain a system of insurance or other protection for the Mortgage
Loans and the property securing such Mortgage Loans, and for indemnifying
holders of Certificates against reductions in pass-through payments due to
defaults in loan payments or property damage in an amount at least equal to the
greater of 1% of the aggregate principal balance of the Mortgage Loans, or 1% of
the principal balance of the largest covered pooled Mortgage Loan; (ii) the
Trustee may not be an affiliate of the Depositor; and (iii) the payments made to
and retained by the Depositor in connection with the Trust, together with all
funds inuring to its benefit for administering the Trust, represent no more than
'adequate consideration' for selling the Mortgage Loans, plus reasonable
compensation for services provided to the Trust.
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In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Depositor, the Enhancer, the Master Servicer or the
Trustee is a party in interest if the Plan does not pay more than fair market
value for such Certificates and the rights and interests evidenced by such
Certificates are not subordinated to the rights and interests evidenced by other
Certificates of the same pool. PTCE 83-1 also exempts from the prohibited
transaction rules and transactions in connection with the servicing and
operation of the Pool, provided that any payments made to the Master Servicer in
connection with the servicing of the Trust are made in accordance with a binding
agreement, copies of which must be made available to prospective investors.
In the case of any Plan with respect to which the Depositor, the Master
Servicer, the Enhancer or the Trustee is a fiduciary, PTCE 83-1 will only apply
if, in addition to the other requirements: (i) the initial sale, exchange or
transfer of Certificates is expressly approved by an independent fiduciary who
has authority to manage and control those plan assets being invested in
Certificates; (ii) the Plan pays no more for the Certificates than would be paid
in an arm's length transaction; (iii) no investment management, advisory or
underwriting fee, sale commission, or similar compensation is paid to the
Depositor with regard to the sale, exchange or transfer of Certificates to the
Plan; (iv) the total value of the Certificates purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Certificates is acquired by persons independent of the Depositor, the Trustee,
the Master Servicer and the Certificate Insurer, if any.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust is a 'mortgage pool,' that the Certificates constitute 'mortgage pool
pass-through certificates,' and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire Certificates and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1 (regarding investments by insurance company pooled separate accounts),
PTCE 91-38 (regarding investments by bank collective investment funds) PTCE
95-60 (regarding investments by insurance company general accounts), PTCE 84-14
(regarding investments by qualified professional asset managers) or PTCE 96-23
(regarding investment by in-house asset managers). However, even if the
conditions specified in the Exemption or one or more of these other exemptions
are met, the scope of the relief provided might or might not cover all acts
which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution ought to be
exercised before a Plan purchases a Certificate in such circumstances.
NOTES
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Trust were deemed to be assets of a Plan. Under the Plan
Assets Regulation, the assets of the Trust would be treated as plan assets of a
Plan for the purposes of ERISA and the Code only if the Plan acquires an 'Equity
Interest' in the Trust and none of the exceptions contained in the Plan Assets
Regulation is applicable. An Equity Interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local
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law and which has no substantial equity features. It is believed that the Notes
should be treated as indebtedness without substantial equity features for
puposes of the Plan Assets Regulation. However, without regard to whether the
Notes are treated as an Equity Interest for such purposes, the acquisition or
holding of Notes by or on behalf of a Plan could be considered to give rise to a
prohibited transaction if the Trust, the Trustee or any of their respective
affiliates is or becomes a party in interest or a disqualified person with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable depending on the type and circumstances of
the plan fiduciary making the decision to acquire a Note. Included among these
exemptions are: Prohibited Transaction Class Exemption ('PTCE') 90-1, regarding
investments by insurance company pooled separate accounts: PTCE 91-38 regarding
investments by bank collective investment funds; and PTCE 84-14, regarding
transactions effected by 'qualified professional asset managers.'
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
LEGAL INVESTMENT
SMMEA
The related Prospectus Supplement will indicate whether the related
Securities will constitute 'mortgage related securities' for purposes of SMMEA.
If the Securities so qualify, absent state legislation described below, such
Securities will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that under
applicable law obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Under SMMEA, if a state enacted legislation prior
to October 4, 1991 specifically limiting the legal investment authority of any
such entities with respect to 'mortgage related securities,' the Securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain states adopted legislation which limits the
ability of insurance companies domiciled in these states to purchase
mortgage-related securities, such as the Securities.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with Securities
without limitation as to the percentage of their assets represented thereby,
federal credit unions may invest in Securities, and national banks may purchase
Securities for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. 24 (Seventh), subject
in each case to such regulations as the applicable federal regulatory authority
may prescribe.
FFIEC POLICY STATEMENT
The Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision have adopted the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on Securities Activities (the 'Policy
Statement'). Although the National Credit Union Administration has not yet
adopted the Policy Statement, it has adopted other regulations affecting
mortgage-backed securities and is expected to consider adoption of the Policy
Statement. The Policy Statement, among other things, places responsibility on a
depository institution to develop and monitor appropriate policies and
strategies regarding the investment, sale and trading of securities and
restricts an institution's ability to engage in certain types of transactions.
The Policy Statement and any applicable modifications or supplements
thereto should be reviewed prior to the purchase of any Securities by a
depository institution. The summary of the Policy Statement contained herein
does not purport to be complete and should not be relied upon for purposes of
making any regulatory determinations. In addition, any regulator may adopt
modifications or supplements to the Policy Statement or additional restrictions
on the purchase of mortgage-backed or other securities. Investors are urged to
consult their
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own legal advisors prior to making any determinations with respect to the Policy
Statement or other regulatory requirements.
The Policy Statement provides that a 'high-risk mortgage security' is not
suitable as an investment portfolio holding for a depository institution. A
high-risk mortgage security must be reported in the trading account at market
value or as an asset held for sale at the lower of cost or market value and
generally may only be acquired to reduce an institution's interest rate risk.
However, an institution with strong capital and earnings and adequate liquidity
that has a closely supervised trading department is not precluded from acquiring
high-risk mortgage securities for trading purposes.
A depository institution must ascertain and document prior to purchase and
no less frequently than annually thereafter that a nonhigh-risk mortgage
security held for investment remains outside the high-risk category. If an
institution is unable to make these determinations through internal analysis, it
must use information derived from a source that is independent of the party from
whom the product is being purchased. The institution is responsible for ensuring
that the assumptions underlying the analysis and resulting calculations are
reasonable. Reliance on analyses and documentation from a securities dealer or
other outside party without internal analyses by the institution is
unacceptable.
In general, a high-risk mortgage security is a mortgage derivative product
possessing greater price volatility than a benchmark fixed rate 30-year
mortgage-backed pass-through security. Mortgage derivative products include
CMOs, REMICs, CMO and REMIC residuals and stripped mortgage-backed securities. A
mortgage derivative product that, at the time of purchase or at a subsequent
testing date, meets any one of three tests will be considered a high-risk
mortgage security. When the characteristics of a mortgage derivative product are
such that the first two tests cannot be applied (such as interest-only strips),
the mortgage derivative product remains subject to the third test.
The three tests of a high-risk mortgage security are as follows: (i) the
mortgage derivative product has an expected weighted average life greater than
10.0 years; (ii) the expected weighted average life of the mortgage derivative
product: (a) extends by more than 4.0 years, assuming an immediate and sustained
parallel shift in the yield curve of plus 300 basis points, or (b) shortens by
more than 6.0 years, assuming an immediate and sustained parallel shift in the
yield curve of minus 300 basis points; and (iii) the estimated change in the
price of the mortgage derivative product is more than 17%, due to an immediate
and sustained parallel shift in the yield curve of plus or minus 300 basis
points.
When performing the price sensitivity test, the same prepayment assumptions
and same cash flows that were used to estimate average life sensitivity must be
used. The discount rate assumptions should be determined by (i) assuming that
the discount rate for the security equals the yield on a comparable average life
U.S. Treasury security plus a constant spread, (ii) calculating the spread over
Treasury rates from the bid side of the market for the mortgage derivative
product, and (iii) assuming the spread remains constant when the Treasury curve
shifts up or down 300 basis points. Discounting the cash flows by their
respective discount rates estimates a price in the plus or minus 300 basis point
environments. The initial price must be determined by the offer side of the
market and used as the base price from which the 17% price sensitivity test will
be measured.
Generally, a floating-rate debt class will not be subject to the average
life and average life sensitivity tests described above if it bears a rate that,
at the time of purchase or at a subsequent testing date, is below the
contractual cap on the instrument. An institution may purchase interest rate
contracts that effectively uncap the instrument. For purposes of the Policy
Statement, a CMO floating-rate debt class is a debt class whose rate adjusts at
least annually on a one-for-one basis with the debt class's index. The index
must be a conventional, widely-used market interest rate index such as the
London Interbank Offered Rate (LIBOR). Inverse floating rate debt classes are
not included in the definition of a floating rate debt class.
Securities and other products, whether carried on or off balance sheet
(such as CMO swaps but excluding servicing assets), having characteristics
similar to those of high-risk mortgage securities, will be subject to the same
supervisory treatment as high-risk mortgage securities. Long-maturity holdings
of zero coupon, stripped and deep discount OID products which are
disproportionately large in relation to the total investment portfolio or total
capital of a depository institution are considered an imprudent investment
practice. Long-maturity generally means a remaining maturity exceeding 10 years.
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GENERAL
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Securities, such as residual interests
or stripped mortgage-backed securities. Investors should consult their own legal
advisors in determining whether and to what extent the Securities constitute
legal investments for such investors and comply with any other applicable
requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the Depositor or through one or more
underwriters or underwriting syndicates ('Underwriters'). The Prospectus
Supplement for each Series will set forth the terms of the offering of such
Series and of each Class within such Series, including the name or names of the
Underwriters, the proceeds to and their use by the Depositor, and either the
initial public offering price, the discounts and commissions to the Underwriters
and any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell the Securities
will be determined.
The Securities in a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Securities described in the related Prospectus Supplement, if they are
purchased. If Securities of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Securities of such Series.
If any of the Securities are to be offered for the account of security
holders, the related Prospectus Supplement will specify the name of such holder,
the nature of any position, office or other material relationship which such
holder has had within the past three years with the Depositor or any of its
affiliates, and the amount and Percentage Interest of the applicable Class or
Series of Securities (i) held by such Holder prior to the offering, (ii) being
offered and (iii) to be held by such Holder following completion of the
offering.
The Depositor will indemnify any Underwriters against certain civil
liabilities, including liabilities under the 1933 Act, or will contribute to
payments any Underwriters may be required to make in respect thereof.
In the ordinary course of business, the Depositor, its affiliates and any
Underwriters may engage in various securities and financing transactions,
including repurchase agreements to provide interim financing of the Depositor's
Mortgage Assets pending the sale of such Mortgage Assets or interests therein,
including the Certificates.
The Depositor anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
'underwriters' within the meaning of the 1933 Act in connection with reoffers
and sales by them of Securities. Holders of Securities should consult with their
legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Securities of each
Series, including certain federal income tax consequences with respect thereto,
will be passed upon by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York,
New York 10038.
81
<PAGE>
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not material
to the offering made hereby.
A new Trust will be formed to own the Mortgage Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities other
than those described herein. Accordingly, no financial statements with respect
to such Trusts will be included in this Prospectus or any Prospectus Supplement.
RATING
Unless otherwise specified in the related Prospectus Supplement, it is a
condition to the issuance of the Securities of each Series offered hereby that
they shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related Prospectus Supplement (each, a 'Rating Agency').
Ratings on asset backed notes and asset backed certificates address the
likelihood of receipt by holders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans and
the credit quality of the guarantor, if any. Ratings on asset backed notes and
asset backed certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, holders might
suffer a lower than anticipated yield, and, in addition, holders of stripped
pass-through certificates in extreme cases might fail to recoup their underlying
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
organization. Each security rating should be evaluated independently of any
other security rating.
82
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have the
meanings set forth on the page indicated below:
<TABLE>
<S> <C>
Accounts.......................................... 30
Accrual Certificates.............................. 32
Agreement......................................... 7
Available Funds................................... 31
Balloon Loans..................................... 15
Bankruptcy Bond................................... 10
Cede.............................................. 13
Certificate Guaranty Insurance Policy............. 9
Certificate Insurer............................... 37
Certificate Principal Balance..................... 33
Certificate Register.............................. 31
Certificateholders................................ 30
Certificates...................................... 4
Class............................................. 30
Cleanup Costs..................................... 59
CMOs.............................................. 6
Code.............................................. 11
Commission........................................ 2
Cut-off Date...................................... 6
Definitive Certificates........................... 35
Delinquency Advances.............................. 47
Depositor......................................... 4
Detailed Description.............................. 20
Determination Date................................ 32
Distribution Date................................. 31
DTC............................................... 13
Eligible Investments.............................. 46
ERISA............................................. 13
Event of Default.................................. 51
Excess Interest................................... 46
Exchange Act...................................... 2
Garn-St Germain Act............................... 58
Home Equity Loans................................. 17
HUD............................................... 23
Indirect Participant.............................. 34
Insurance Proceeds................................ 32
Interest Weighted Class........................... 18
Liquidation Proceeds.............................. 32
Loan Balance...................................... 44
Loan Purchase Price............................... 44
Loan-to-Value Ratio............................... 21
Master Servicer................................... 4
Mortgage Assets................................... 4
Mortgage Loans.................................... 4
Mortgage Loan Schedule............................ 42
Mortgage Pool Insurance Policy.................... 10
Mortgage Rate..................................... 20
Mortgaged Properties.............................. 5
Mortgagors........................................ 32
Multifamily Loans................................. 4
</TABLE>
83
<PAGE>
<TABLE>
<S> <C>
1933 Act.......................................... 2
Non-REMIC Certificates............................ 12
Participants...................................... 34
Pass-Through Rate................................. 2
Plan.............................................. 78
Plan Asset Regulations............................ 78
PMBS.............................................. 4
PMBS Issuer....................................... 7
PMBS Servicer..................................... 7
PMBS Trustee...................................... 7
Pool.............................................. 4
Pool Insurer...................................... 37
Prepayment Assumption............................. 61
Primary Mortgage Insurance Policies............... 6
Principal Prepayment.............................. 11
Private Mortgage-Backed Securities................ 4
Proposed OID Regulations.......................... 61
PTCE 83-1......................................... 78
Rating Agency..................................... 11
REIT.............................................. 69
Relief Act........................................ 19
REMIC............................................. 11
REMIC Certificates................................ 60
REMIC Regular Certificates........................ 12
REMIC Residual Certificates....................... 12
Second Mortgage Loans............................. 14
Senior Certificates............................... 7
Single Family Loans............................... 4
SMMEA............................................. 13
Special Hazard Insurance Policy................... 10
Special Hazard Insurer............................ 38
Standard Hazard Insurance Policies................ 6
Subordinated Certificates......................... 7
Sub-servicer...................................... 11
Tiered REMICs..................................... 61
Title V........................................... 58
Trust............................................. 7
Trustee........................................... 4
UCC............................................... 34
United Companies.................................. 4
United States Person.............................. 72
Variable Rate Non-REMIC Certificates.............. 75
Variable Rate REMIC Regular Certificate........... 63
</TABLE>
84
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<PAGE>
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<PAGE>
[This page intentionally left blank]
<PAGE>
-------------------------------------------------------
-------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CERTIFICATES OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN
ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTING IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Summary of Terms........................ S-3
The Home Equity Loans................... S-14
Maturity, Prepayment and Yield
Considerations......................... S-28
Description of the Certificates......... S-35
The Originators......................... S-41
The Pooling and Servicing Agreement..... S-44
The Certificate Insurance Policy and the
Certificate Insurer.................... S-46
Certain Federal Income Tax
Consequences........................... S-47
Legal Investment........................ S-47
ERISA Considerations.................... S-47
Underwriting............................ S-50
Report of Experts....................... S-50
Certain Legal Matters................... S-50
Ratings................................. S-51
PROSPECTUS
Prospectus Supplement................... 2
Available Information................... 2
Reports to Holders...................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Summary of Terms........................ 3
Risk Factors............................ 12
The Trusts.............................. 18
Use of Proceeds......................... 23
The Depositor........................... 23
The Originators......................... 23
The Home Equity Loan Program............ 24
Description of the Securities........... 29
Credit Enhancement...................... 36
Maturity, Prepayment and Yield
Considerations......................... 36
The Agreements.......................... 39
Certain Legal Aspects of the Mortgage
Loans.................................. 54
Federal Income Tax
Consequences........................... 58
ERISA Considerations.................... 77
Legal Investment........................ 79
Method of Distribution.................. 81
Legal Matters........................... 81
Financial Information................... 82
Rating.................................. 82
Index of Principal Terms................ 83
</TABLE>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
ASSET BACKED CERTIFICATES
SERIES 199 -
UCFC ACCEPTANCE CORPORATION
(DEPOSITOR)
UNITED COMPANIES LENDING
CORPORATION(REGISTERED)
(SERVICER)
(REGISTERED)
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
[UNDERWRITERS]
, 199
-------------------------------------------------------
-------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities offered hereunder other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee......................... $1,180,000.00
Printing and Engraving....................... $ 25,000.00
Trustee's Fees............................... $ 20,000.00
Legal Fees and Expenses...................... $ 75,000.00
Accountant's Fees and Expenses............... $ 35,000.00
Rating Agency Fees........................... $ 100,000.00
Miscellaneous Fees and Expenses.............. $ 5,000.00
-------------
Total Expenses.......................... $1,440,000.00
-------------
-------------
</TABLE>
- ------------------
* All amounts, other than the SEC Registration Fee, are estimates of expenses
to be incurred in connection with the issuance and distribution of a Series
of Securities in an aggregate principal amount assumed for these purposes to
be $500,000,000 of Securities registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. Section 83 of the Louisiana Business Corporation Law
provides that a corporation such as UCFC Acceptance Corporation may indemnify
any director, officer, employee or agent against expenses and liabilities in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative involving the director, officer, employee or
agent by reason of such person acting in such capacity if such person acted in
good faith and in a manner that 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 reasonable cause to believe his conduct was
unlawful. Article VIII of UCFC Acceptance Corporation's By-Laws entitle
officers, directors, employees and agents to indemnification to the fullest
extent permitted by Section 83 of the Louisiana Business Corporation Law.
Article X of UCFC Acceptance Corporation's Articles of Incorporation
provides that no director or officer shall be personally liable to the
corporation or its shareholders for monetary damages for breach of a fiduciary
duty as a director or officer, except for liability (i) for breach of the
director's or officer's duty of loyalty to the corporation or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 92(D) of the
Louisiana Business Corporation Law, or (iv) for any transaction from which the
director or officer derived an improper personal benefit.
Insurance. UCFC Acceptance Corporation maintains director's and officer's
liability insurance on its directors and officers with a policy limit of
$20,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements.
None.
(b) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of Underwriting Agreement between UCFC Acceptance Corporation
and the Underwriter named therein, relating to the distribution of
certain Classes of Securities.
*3.1 -- Articles of Incorporation of UCFC Acceptance Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<S> <C>
*3.2 -- By-Laws of UCFC Acceptance Corporation.
*4.1 -- Form of Pooling and Servicing Agreement.
4.2 -- Form of Trust Agreement.
4.3 -- Form of Indenture.
5.1 -- Opinion of Stroock & Stroock & Lavan LLP as to legality of the
securities being registered, including consent.
8.1 -- Opinion of Stroock & Stroock & Lavan LLP with respect to certain tax
matters, including consent (included in Exhibit 5.1).
10.1 -- Form of Sale and Servicing Agreement.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included in Exhibit 5.1).
**24.1 -- Powers of Attorney.
</TABLE>
- ------------------
* Filed as exhibit to Registration Statement (No. 33-61362) on Form S-11 and
incorporated herein by reference.
** Previously filed.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(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 l0(a)(3) of the
Securities Act of 1933, as amended (the 'Act');
(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. 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; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE>
The undersigned Registrant undertakes that, for the purposes of determining
any liability under the Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baton Rouge, State of Louisiana on November 26,
1997.
UCFC ACCEPTANCE CORPORATION
By /s/ H. C. McCALL, III
-----------------------------------
H. C. McCall, III
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on November 26, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------------------------
<S> <C>
*
- ------------------------------ Director and Chief Executive Officer
(J. Terrell Brown) (Principal Executive Officer)
*
- ------------------------------ Director, Vice Chairman and Assistant Secretary
(Dale E. Redman) (Principal Financial Officer and Principal
Accounting Officer)
* Director and President
- ------------------------------
(H. C. McCall, III)
*By: /s/ H.C. McCALL, III
--------------------------
(H. C. McCall, III)
(Attorney-in-fact)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------------ ----------
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement between UCFC Acceptance Corporation
and the Underwriter named therein, relating to the distribution of
certain Classes of Securities.
*3.1 -- Articles of Incorporation of UCFC Acceptance Corporation.
*3.2 -- By-Laws of UCFC Acceptance Corporation.
*4.1 -- Form of Pooling and Servicing Agreement.
4.2 -- Form of Trust Agreement.
4.3 -- Form of Indenture.
5.1 -- Opinion of Stroock & Stroock & Lavan LLP as to legality of the
securities being registered, including consent.
8.1 -- Opinion of Stroock & Stroock & Lavan LLP with respect to certain tax
matters, including consent (included in Exhibit 5.1).
10.1 -- Form of Sale and Servicing Agreement.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included in Exhibit 5.1).
**24.1 -- Powers of Attorney.
</TABLE>
- ------------------
* Filed as exhibit to Registration Statement (No. 33-61362) on Form S-11 and
incorporated herein by reference.
** Previously filed.
<PAGE>
Exhibit 4.2
================================================================================
FORM OF
TRUST AGREEMENT
between
UCFC ACCEPTANCE CORPORATION,
as Depositor
and
WILMINGTON TRUST COMPANY,
as Owner Trustee
Dated as of December _, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Definitions.....................................................................................1
SECTION 1.02. Rules of Construction...........................................................................1
ARTICLE II
ORGANIZATION
SECTION 2.01. Name............................................................................................2
SECTION 2.02. Office..........................................................................................2
SECTION 2.03. Purposes and Powers.............................................................................2
SECTION 2.04. Appointment of Owner Trustee....................................................................3
SECTION 2.05. Initial Capital Contribution of Owner Trust Estate..............................................3
SECTION 2.06. Declaration of Trust............................................................................3
SECTION 2.07. Liability of the Owners.........................................................................3
SECTION 2.08. Title to Trust Property.........................................................................4
SECTION 2.09. Situs of Trust..................................................................................4
SECTION 2.10. Representations and Warranties of the Depositor.................................................4
SECTION 2.11. Federal Income Tax Allocations..................................................................5
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.01. Initial Ownership...............................................................................5
SECTION 3.02. The Trust Certificates..........................................................................5
SECTION 3.03. Authentication of Trust Certificates............................................................6
SECTION 3.04. Registration of Transfer and Exchange of Trust Certificates.....................................6
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates.........................................7
SECTION 3.06. Persons Deemed Owners...........................................................................7
SECTION 3.07. Access to List of Certificateholders' Names and Addresses.......................................7
SECTION 3.08. Maintenance of Office or Agency.................................................................7
SECTION 3.09. Appointment of Paying Agent.....................................................................8
SECTION 3.10. Trust Certificate Transfer Restrictions.........................................................8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
<S> <C>
SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters..........................................9
SECTION 4.02. Action by Owners with Respect to Certain Matters...............................................10
SECTION 4.03. Action by Owners with Respect to Bankruptcy....................................................10
SECTION 4.04. Restrictions on Owners' Power..................................................................10
SECTION 4.05. Majority Control...............................................................................10
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.01. Establishment of Trust Account.................................................................11
SECTION 5.02. Application of Trust Funds.....................................................................11
SECTION 5.03. Method of Payment..............................................................................11
SECTION 5.04. No Segregation of Moneys; No Interest..........................................................12
SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the Internal Revenue Service and Others.....12
SECTION 5.06. Signature on Returns; Tax Matters Partner......................................................12
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.01. General Authority..............................................................................13
SECTION 6.02. General Duties.................................................................................13
SECTION 6.03. Action upon Instruction........................................................................13
SECTION 6.04. No Duties Except as Specified in this Agreement or in Instructions.............................14
SECTION 6.05. No Action Except Under Specified Documents or Instructions.....................................14
SECTION 6.06. Restrictions...................................................................................14
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.01. Acceptance of Trusts and Duties................................................................15
SECTION 7.02. Furnishing of Documents........................................................................16
SECTION 7.03. Representations and Warranties.................................................................16
SECTION 7.04. Reliance; Advice of Counsel....................................................................16
SECTION 7.05. Not Acting in Individual Capacity..............................................................17
SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or Home Equity Loans...........................17
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes.............................................17
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.01. Owner Trustee's Fees and Expenses..............................................................18
SECTION 8.02. Indemnification................................................................................18
SECTION 8.03. Payments to the Owner Trustee..................................................................18
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.01. Termination of Trust Agreement................................................................18
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.01. Eligibility Requirements for Owner Trustee....................................................19
SECTION 10.02. Resignation or Removal of Owner Trustee.......................................................20
SECTION 10.03. Successor Owner Trustee.......................................................................20
SECTION 10.04. Merger or Consolidation of Owner Trustee......................................................21
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee.................................................21
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Supplements and Amendments....................................................................22
SECTION 11.02. No Legal Title to Owner Trust Estate in Owners................................................23
SECTION 11.03. Limitations on Rights of Others...............................................................23
SECTION 11.04. Notices.......................................................................................24
SECTION 11.05. Severability..................................................................................24
SECTION 11.06. Separate Counterparts.........................................................................24
SECTION 11.07. Successors and Assigns........................................................................24
SECTION 11.08. No Petition...................................................................................24
SECTION 11.09. No Recourse...................................................................................24
SECTION 11.10. Headings......................................................................................25
SECTION 11.11. Governing Law.................................................................................25
SECTION 11.12. Depositor Payment Obligation..................................................................25
</TABLE>
-iii-
<PAGE>
APPENDIX A Definitions
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Certificate of Trust
-iv-
<PAGE>
TRUST AGREEMENT (the "Trust Agreement") dated as of December
_, 1997, among UCFC ACCEPTANCE CORPORATION, a Louisiana corporation, as
depositor (the "Depositor"), and WILMINGTON TRUST COMPANY, a Delaware
bank and trust company, as owner trustee (the "Owner Trustee").
In consideration of the premises and the mutual agreements
herein contained, the Depositor and the Owner Trustee hereby agree as
follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. For all purposes of this Agreement, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in Appendix A hereto which are incorporated by reference
herein. All other capitalized terms used herein shall have the meanings
specified herein.
SECTION 1.02. Rules of Construction. Unless the context otherwise
requires:
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or
<PAGE>
statute as from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments thereto and
instruments incorporated therein; references to a Person are also to its
permitted successors and assigns.
ARTICLE II
Organization
SECTION 2.01. Name. The Trust created hereby shall be known as "UFCF
Home Equity Loan Owner Trust 1997-_," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.02. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners and the
Depositor.
SECTION 2.03. Purposes and Powers. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the Trust
Certificates pursuant to this Agreement and to sell the Notes and to
transfer the Trust Certificates to the Depositor pursuant to the Sale
and Servicing Agreement;
(ii) with the proceeds of the sale of the Notes to purchase
the Home Equity Loans, to pay the organizational, start-up,
transactional expenses of the Trust, to fund the Pre-Funding Account
and to pay the balance to the Depositor pursuant to the Sale and
Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Owners pursuant to the terms of the Sale and
Servicing Agreement any portion of the Trust Estate released from the
Lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Owners, the Noteholders and others specified in the Sale and
Servicing Agreement.
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The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.04. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.05. Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $[1.00]. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Depositor
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
SECTION 2.06. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Agreement constitute the governing instrument of
such business trust. It is the intention of the parties hereto that, solely for
federal income tax purposes, the Trust shall be disregarded as an entity apart
from its owner, the Depositor, in the event that Depositor is the sole
Certificateholder for federal income tax purposes, or treated as a partnership
if there is more than one Certificateholder for federal income tax purposes. The
parties agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary returns,
reports and other forms consistent with the characterization of the Trust as a
division of the Depositor or as a partnership, as the case may be, as a
partnership for such tax purposes. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein and in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
SECTION 2.07. Liability of the Owners. (a) The Depositor shall be
liable directly to and will indemnify any injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Depositor
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Depositor were a general partner;
provided, however, that the Depositor shall not be liable for any losses
incurred by a Certificateholder in the capacity of an investor in the Trust
Certificates, or a Noteholder in the capacity of an investor in the Notes. In
addition, any third party creditors of the Trust (other than in connection with
the obligations described in the preceding sentence for which the Depositor
shall not be liable) shall be deemed third party beneficiaries of this
paragraph.
(b) No Owner, other than to the extent set forth in paragraph (a),
shall have any personal liability for any liability or obligation of the Trust.
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SECTION 2.08. Title to Trust Property. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
SECTION 2.09. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of California. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or California, and
payments will be made by the Trust only from Delaware or California. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owner Trustee that:
(a) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Louisiana,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(b) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications.
(c) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance
of this Agreement have been duly authorized by the Depositor by all
necessary corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or bylaws of the Depositor, or any
material indenture, agreement or other instrument to which the
Depositor is a party or by which it is bound; nor result in the
creation or imposition of any Lien upon any of its properties pursuant
to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or,
to the best of the Depositor's knowledge, any order, rule or regulation
applicable to the Depositor of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties.
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(e) To the Depositor's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties: (A) asserting the invalidity of this Agreement, (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Agreement or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Depositor of its
obligations under, or the validity or enforceability of, this
Agreement.
SECTION 2.11. Federal Income Tax Allocations. Net income of the Trust
for any month as determined for federal income tax purposes (and each item of
income, gain, loss, credit and deduction entering into the computation thereof)
shall be allocated:
(a) for so long as (i) all of the Trust Certificates are owned
by the Depositor, the Trust shall be disregarded as an entity separate from the
Depositor such that net income of the Trust for any month as determined solely
for federal income tax purposes (and each item of income, gain, loss, credit and
deduction entering into the computation thereof) shall be allocated to the
Depositor and treated in the same manner as if the Trust were a division or
branch of the Depositor;
(b) in the event that the Depositor transfers (as such term is
defined for federal income tax purposes) any Trust Certificates and there is
more than one owner of Trust Certificates for federal income tax purposes, net
income of the Trust for any month as determined solely for federal income tax
purposes (and each item of income, gain, loss, credit and deduction entering
into the computation thereof) shall be allocated pro rata to the
Certificateholders based on their Percentage Interest.
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the issuance of
the Trust Certificates, the Depositor shall be the sole beneficiary of the
Trust.
SECTION 3.02. The Trust Certificates. The Trust Certificates shall be
issued in minimum denominations of 5% Percentage Interest. The Trust
Certificates shall be initially issued to the Depositor in a Percentage Interest
of 100%. The Trust Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of an authorized officer of the Owner Trustee.
Trust Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures shall have been affixed, authorized to
sign on behalf of the Trust, shall be validly issued and entitled to the benefit
of this Agreement, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the authentication and delivery of such
Trust Certificates or did not hold such offices at the date of authentication
and delivery of such Trust Certificates.
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A transferee of a Trust Certificate shall become a Certificateholder
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Trust
Certificate duly registered in such transferee's name pursuant to Section 3.04.
SECTION 3.03. Authentication of Trust Certificates. Concurrently with
the initial sale of the Home Equity Loans to the Trust pursuant to the Sale and
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate Percentage Interest equal to 100% to be executed on behalf of the
Trust, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president, any vice
president, secretary or any assistant treasurer, without further corporate
action by the Depositor, in authorized denominations. No Trust Certificate shall
entitle its Holder to any benefit under this Agreement or be valid for any
purpose unless there shall appear on such Trust Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee, by manual signature; such authentication shall constitute
conclusive evidence that such Trust Certificate shall have been duly
authenticated and delivered hereunder. All Trust Certificates shall be dated the
date of their authentication.
SECTION 3.04. Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.08, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. The Owner
Trustee shall be the initial Certificate Registrar. Wilmington Trust Company
shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.08, the Owner Trustee
shall execute, authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Trust Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of authorized
denominations of a like aggregate amount upon surrender of the Trust
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.08.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Trust Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Owner Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
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The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of, Trust Certificates for a period of 15 days preceding
any Distribution Date with respect to the Trust Certificates.
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates.
If (a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate, and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate has been acquired by a
bona fide purchaser, the Owner Trustee on behalf of the Trust shall execute and
the Owner Trustee shall authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like tenor and denomination. In connection with the issuance of
any new Trust Certificate under this Section, the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Certificate issued pursuant to this Section shall constitute
conclusive evidence of ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Trust Certificate shall be found at any
time.
SECTION 3.06. Persons Deemed Owners. Prior to due presentation of a
Trust Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Paying Agent may treat the Person in whose name any
Trust Certificate is registered in the Certificate Register as the owner of such
Trust Certificate for the purpose of receiving distributions pursuant to Section
5.02 and for all other purposes whatsoever, and none of the Owner Trustee, the
Certificate Registrar or any Paying Agent shall be bound by any notice to the
contrary.
SECTION 3.07. Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Servicer and the Depositor, within 15 days after receipt by the Owner Trustee of
a written request therefor from the Servicer or the Depositor, a list, in such
form as the Servicer or the Depositor may reasonably require, of the names and
addresses of the Certificateholders as of the most recent Record Date. If three
or more Certificateholders or one or more Holders of Trust Certificates
evidencing not less than 25% of the Certificate Balance apply in writing to the
Owner Trustee, and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Trust Certificates and such application is
accompanied by a copy of the communication that such applicants propose to
transmit, then the Owner Trustee shall, within five Business Days after the
receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Trust Certificate, shall be deemed to have agreed not to
hold any of the Depositor, the Certificate Registrar or the Owner Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.08. Maintenance of Office or Agency. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and
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demands to or upon the Owner Trustee in respect of the Trust Certificates and
the Basic Documents may be served. The Owner Trustee initially designates
[_______________________________] as its office for such purposes. The Owner
Trustee shall give prompt written notice to the Depositor and to the
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
SECTION 3.09. Appointment of Paying Agent. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.02 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the Owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent initially shall be Bankers
Trust Company of California, N.A., and any co-paying agent chosen by Bankers
Trust Company of California, N.A., and acceptable to the Administrator. Bankers
Trust Company of California, N.A., shall be permitted to resign as Paying Agent
upon 30 days' written notice to the Owner Trustee and the Administrator. In the
event that Bankers Trust Company of California, N.A., shall no longer be the
Paying Agent, the Owner Trustee shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company). The Owner Trustee shall cause such
successor Paying Agent or any additional Paying Agent appointed by the Owner
Trustee to execute and deliver to the Owner Trustee an instrument in which such
successor Paying Agent or additional Paying Agent shall agree with the Owner
Trustee that, as Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the
Certificateholders in trust for the benefit of the Certificateholders entitled
thereto until such sums shall be paid to such Certificateholders. The Paying
Agent shall return all unclaimed funds to the Owner Trustee and upon removal of
a Paying Agent such Paying Agent shall also return all funds in its possession
to the Owner Trustee. The provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall
apply to Bankers Trust Company of California, N.A. or the Owner Trustee also in
its role as Paying Agent, for so long as Bankers Trust Company of California,
N.A. or the Owner Trustee shall act as Paying Agent and, to the extent
applicable, to any other paying agent appointed hereunder. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
SECTION 3.10. The Trust Certificates may not be offered or sold except
to institutional "accredited investors" (as defined in Rule 501(a)(1)-(3) under
the Securities Act who are United States persons (as defined in Section
7701(a)(30) of the Code) in reliance on an exemption from the registration
requirements of the Securities Act. No offer, sale, transfer or other
disposition (including pledge) of Trust Certificates shall be made to any Person
unless such Person certifies the foregoing in an investment letter satisfactory
to the Owner Trustee.
(b) No offer, sale, transfer or other disposition (including
pledge) of the Trust Certificates shall be effective to any Person to which is,
or is purchasing for, or on behalf of, (1) an employee benefit plan, retirement
arrangement, individual retirement account or Keogh plan subject to either Title
I of the Employee Retirement Income Security Act of 1974, as amended, or Section
4975 of the Code, or (2) an entity (including an insurance company general
account) whose
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underlying assets include plan assets by reason of any such plan's arrangements
or account's investment in any such entity.
(c) Each Certificateholder must be a United States person as
defined in Section 7701(a)(30) of the Code.
(d) Each Trust Certificate will bear a legend substantially
to the following effect.
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE HOLDER HEREOF, BY PURCHASING THIS TRUST CERTIFICATE,
AGREES THAT THIS TRUST CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1)
TO A PERSON WHO (A) HAS FURNISHED TO THE OWNER TRUSTEE AN INVESTMENT LETTER
SATISFACTORY TO THE OWNER TRUSTEE TO THE EFFECT THAT SUCH PURCHASER IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1)-(3) UNDER
THE ACT OR (B) AN OPINION OF COUNSEL SATISFACTORY TO THE OWNER TRUSTEE OR (2)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1)
EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS
OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL
ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH
PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER, THIS
TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN THE
MEANING OF SECTION 7701(a)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
ARTICLE IV
Actions by Owner Trustee
SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Owners shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that such Owners have withheld consent or
provided alternative direction:
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(a) the initiation of any material claim or lawsuit by the Trust
(except claims or lawsuits brought in connection with the collection of the Home
Equity Loans) and the compromise of any material action, claim or lawsuit
brought by or against the Trust (except with respect to the aforementioned
claims or lawsuits for collection of the Home Equity Loans;
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Owners;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Owners; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable.
SECTION 4.02. Action by Owners with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the direction of the Owners,
to remove the Administrator under the Administration Agreement pursuant to
Section [ ] thereof, appoint a successor Administrator pursuant to Section [] of
the Administration Agreement, remove the Servicer under the Sale and Servicing
Agreement pursuant to Section [_] thereof or, except as expressly provided in
the Basic Documents, sell the Home Equity Loans after the termination of the
Indenture. The Owner Trustee shall take the actions referred to in the preceding
sentence only upon written instructions signed by the Owners.
SECTION 4.03. Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Owners and the delivery to the Owner Trustee by each such Owner of a certificate
certifying that such Owner reasonably believes that the Trust is insolvent.
SECTION 4.04. Restrictions on Owners' Power. The Owners shall not
direct the Owner Trustee to take or to refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the Owner
Trustee under this Agreement or any of the Basic Documents or would be contrary
to Section 2.03, nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 4.05. Majority Control. Except as expressly provided herein,
any action that may be taken by the Owners under this Agreement may be taken by
the Holders of Trust
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Certificates evidencing not less than a majority of the Percentage Interest.
Except as expressly provided herein, any written notice of the Owners delivered
pursuant to this Agreement shall be effective if signed by Holders of Trust
Certificates evidencing not less than a majority of the Percentage Interest at
the time of the delivery of such notice.
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.01. Establishment of Trust Account. The Owner Trustee, for
the benefit of the Certificateholders, shall establish and maintain in the name
of the Trust an Eligible Deposit Account (the "Certificate Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders.
SECTION 5.02. Application of Trust Funds. (a) On each Distribution
Date, the Owner Trustee will distribute to Certificateholders, on a pro rata
basis, based on Percentage Interest amounts deposited in the Certificate
Distribution Account received from the Indenture trustee pursuant to Section ___
of the Sale and Servicing Agreement.
(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement or statements provided to the Owner Trustee by
the Indenture Trustee pursuant to Section [____] of the Sale and Servicing
Agreement with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to an Owner
shall be treated as cash distributed to such Owner at the time it is withheld by
the Trust and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that an Owner wishes to apply for a refund of any such withholding tax,
the Owner Trustee shall reasonably cooperate with such Owner in making such
claim so long as such Owner agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred.
SECTION 5.03. Method of Payment. Subject to Section 9.01(c),
distributions required to be made to Certificateholders on any Distribution Date
shall be made to each Certificateholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if (i)
such Certificateholder shall have provided to the Certificate Registrar
appropriate written instructions at least five Business Days prior to such
Distribution Date or (ii) such Certificateholder is the
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Depositor, or an Affiliate thereof, or, if not, by check mailed to such
Certificateholder at the address of such holder appearing in the Certificate
Register.
SECTION 5.04. No Segregation of Moneys; No Interest. Subject to
Sections 5.01 and 5.02, moneys received by the Owner Trustee hereunder need not
be segregated in any manner except to the extent required by law or the Sale and
Servicing Agreement and may be deposited under such general conditions as may be
prescribed by law, and the Owner Trustee shall not be liable for any interest
thereon.
SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others. The Depositor shall (a) maintain (or cause
to be maintained) the books of the Trust on a calendar year basis on the accrual
method of accounting, (b) deliver (or cause to be delivered) to each Owner, as
may be required by the Code and applicable Treasury Regulations, such
information as may be required (including, if applicable, Schedule K-1) to
enable each Owner to prepare its federal and state income tax returns, (c)
prepare or cause to be prepared, and file, or cause to be filed, all tax
returns, if any, relating to the Trust (including, if applicable, a partnership
information return, IRS Form 1065) and direct the Owner Trustee to make such
elections as from time to time may be required or appropriate under any
applicable state or federal statute or any rule or regulation thereunder so as
to maintain the Trust's characterization as a division or branch of its 100%
owner, or as a partnership, as the case may be, for federal income tax purposes,
and (d) collect or cause to be collected any withholding tax as described in and
in accordance with Section 5.02(c) with respect to income or distributions to
Owners. The Owner Trustee shall make all elections pursuant to this Section 5.05
as directed by the Depositor. The Owner Trustee shall sign all tax information
returns furnished to it in execution form by the Depositor, and filed pursuant
to this Section 5.05 and any other returns as may be required by law and so
furnished to it by the Depositor, and in doing so shall rely entirely upon, and
shall have no liability for information provided by, or calculations provided
by, the Depositor. In the event the Trust is characterized as a partnership for
federal income tax purposes, the Depositor shall cause the Trust to elect under
Section 1278 of the Code to include in income currently any market discount that
accrues with respect to the Receivables, and the Trust shall not make the
election provided under Section 754 of the Code.
SECTION 5.06. Signature on Returns; Tax Matters Partner. (a) The Owner
Trustee shall sign on behalf of the Trust the tax returns of the Trust, if any,
furnished to it in execution form by the Depositor, unless applicable law
requires an Owner to sign such documents, in which case such documents shall be
signed by the Depositor so long as it is an Owner, in its capacity as "tax
matters partner."
(b) In the event the Trust is characterized as a partnership for
federal income tax purposes, and the Depositor is a Certificateholder, the
Depositor shall be the "tax matters partner" of the Trust pursuant to the Code.
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ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument, in each case, in such form as the
Depositor shall approve, as evidenced conclusively by the Owner Trustee's
execution thereof. In addition to the foregoing, the Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Documents. The Owner Trustee is further authorized
from time to time to take such action as the Administrator recommends with
respect to the Basic Documents.
SECTION 6.02. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Basic Documents to which the Trust is a
party and to administer the Trust in the interest of the Owners, subject to the
Basic Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Depositor has agreed hereunder or in the Sale and
Servicing Agreement or the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the Owner Trustee
hereunder or of the Trust under any Basic Document, and the Owner Trustee shall
not be held liable for the default or failure of the Depositor or the
Administrator to carry out its obligations under the Sale and Servicing
Agreement, Administration Agreement or this Agreement, as applicable.
SECTION 6.03. Action upon Instruction. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Owners may by written
instruction direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the Owners
pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Owners requesting
instruction as to the course of action to be adopted, and to the extent the
Owner Trustee acts in good faith in accordance with any written instruction of
the Owners received, the Owner Trustee shall not be liable on account of such
action to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of time
as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking
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such action not inconsistent with this Agreement or the Basic Documents, as it
shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Basic Document or any such provision
is ambiguous as to its application, or is, or appears to be, in conflict with
any other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Owners requesting
instruction and, to the extent that the Owner Trustee acts or refrains from
acting in good faith in accordance with any such instruction received, the Owner
Trustee shall not be liable, on account of such action or inaction, to any
Person. If the Owner Trustee shall not have received appropriate instruction
within 10 days of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
SECTION 6.04. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.03; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
SECTION 6.05. No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.03.
SECTION 6.06. Restrictions. The Owner Trustee shall not take any action
that (a) is inconsistent with the purposes of the Trust set forth in Section
2.03 or (b) that, to the actual knowledge of the Owner Trustee, would result in
the Trust's becoming taxable as a corporation for
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federal income tax purposes. The Owners shall not direct the Owner Trustee to
take action that would violate the provisions of this Section.
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.01. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable for any error of judgment
made by a Trust Officer of the Owner Trustee;
(b) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or any Owner;
(c) No provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or under
any Basic Document if the Owner Trustee shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
(d) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or for the due execution hereof by the
Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate, or for or in respect of the validity
or sufficiency of the Basic Documents, other than the certificate of
authentication on the Trust Certificates, and the Owner Trustee shall in no
event assume or incur any liability, duty, or obligation to any Noteholder or to
any Owner, other than as expressly provided for herein or expressly agreed to in
the Basic Documents;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Depositor, the Indenture Trustee or the Servicer under
any of the Basic Documents or otherwise and the Owner Trustee shall have no
obligation or liability to perform the obligations of the Trust under this
Agreement or the Basic Documents that are required to be
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performed by the Administrator under the Administration Agreement, the Indenture
Trustee under the Indenture or the Servicer or the Depositor under the Sale and
Servicing Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Owners, unless such Owners have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Basic Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its willful misconduct, bad
faith or negligence in the performance of any such act.
SECTION 7.02. Furnishing of Documents. The Owner Trustee shall furnish
to the Owners promptly upon receipt of a written request therefor, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner Trustee under the
Basic Documents.
SECTION 7.03. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the Owners, that:
(a) It is a bank and trust company duly organized and validly existing
in good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement, nor
the consummation by it of the transactions contemplated hereby nor compliance by
it with any of the terms or provisions hereof will contravene any federal or
Delaware law, governmental rule or regulation governing the banking or trust
powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.
SECTION 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the
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relevant party, as to such fact or matter and such certificate shall constitute
full protection to the Owner Trustee for any action taken or omitted to be taken
by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee may act directly or through its agents or attorneys
pursuant to agreements entered into with any of them, and the Owner Trustee
shall not be liable for the conduct or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Owner Trustee with
reasonable care, and may consult with counsel, accountants and other skilled
Persons to be selected with reasonable care and employed by it. The Owner
Trustee shall not be liable for anything done, suffered or omitted in good faith
by it in accordance with the written opinion or advice of any such counsel,
accountants or other such Persons and not contrary to this Agreement or any
Basic Document.
SECTION 7.05. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity, and all Persons having any claim against the Owner Trustee by reason
of the transactions contemplated by this Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or Home
Equity Loans. The recitals contained herein and in the Certificates (other than
the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Depositor and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Owner Trustee on the Trust Certificates) or the Notes,
or of any Home Equity Loan or related documents. The Owner Trustee shall at no
time have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Home Equity Loan, or for or with respect to
the sufficiency of the Owner Trust Estate or its ability to generate the
payments to be distributed to Certificateholders under this Agreement or the
Noteholders under the Indenture, including, without limitation: the existence,
condition and ownership of any property securing a Home Equity Loan; the
existence and enforceability of any insurance thereon; the validity of the
assignment of any Home Equity Loan to the Trust or of any intervening
assignment; the performance or enforcement of any Home Equity Loan; the
compliance by the Depositor or the Servicer with any warranty or representation
made under any Basic Document or in any related document or the accuracy of any
such warranty or representation, or any action of the Administrator, the
Indenture Trustee or the Servicer or any subservicer taken in the name of the
Owner Trustee.
SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Administrator, the Indenture Trustee and the Servicer in banking transactions
with the same rights as it would have if it were not Owner Trustee.
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ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Depositor and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Depositor for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
SECTION 8.02. Indemnification. The Depositor shall be liable as primary
obligor for, and shall indemnify the Owner Trustee and its successors, assigns,
agents and servants (collectively, the "Indemnified Parties") from and against,
any and all liabilities, obligations, losses, damages, taxes, claims, actions
and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Depositor shall not be
liable for or required to indemnify an Indemnified Party from and against
Expenses arising or resulting from any of the matters described in the third
sentence of Section 7.01. The indemnities contained in this Section shall
survive the resignation or termination of the Owner Trustee or the termination
of this Agreement. In any event of any claim, action or proceeding for which
indemnity will be sought pursuant to this Section, the Owner Trustee's choice of
legal counsel shall be subject to the approval of the Depositor, which approval
shall not be unreasonably withheld.
SECTION 8.03. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement. (a) This Agreement (other
than Article VIII) and the Trust shall terminate and be of no further force or
effect upon the final distribution by the Owner Trustee of all moneys or other
property or proceeds of the Owner Trust Estate in accordance with the terms of
the Indenture, the Sale and Servicing Agreement and Article V. The bankruptcy,
liquidation, dissolution, death or incapacity of any Owner shall not (x) operate
to terminate this Agreement or the Trust or (y) entitle such Owner's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate or (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
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(b) Except as provided in Section 9.01(a), neither the Depositor nor
any Owner shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Distribution
Date upon which the Certificateholders shall surrender their Trust Certificates
to the Paying Agent for payment of the final distribution and cancellation,
shall be given by the Owner Trustee by letter to Certificateholders mailed
within five Business Days of receipt of notice of such termination from the
Servicer stating (i) the Distribution Date upon or with respect to which final
payment of the Trust Certificates shall be made upon presentation and surrender
of the Trust Certificates at the office of the Paying Agent therein designated,
(ii) the amount of any such final payment and (iii) that the Record Date
otherwise applicable to such Distribution Date is not applicable, payments being
made only upon presentation and surrender of the Trust Certificates at the
office of the Paying Agent therein specified. The Owner Trustee shall give such
notice to the Certificate Registrar (if other than the Owner Trustee) and the
Paying Agent at the time such notice is given to Certificateholders. Upon
presentation and surrender of the Trust Certificates, the Paying Agent shall
cause to be distributed to Certificateholders amounts distributable on such
Distribution Date pursuant to Section 5.02.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Trust Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed by the Owner
Trustee to the Depositor. Certificateholders shall thereafter look solely to the
Depositor as general unsecured creditors.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.01. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least [____] by
[__________]. If such corporation shall publish reports of condition at least
annually pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section, the combined capital
and
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surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.02.
SECTION 10.02. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Owner Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and one copy to the successor
Owner Trustee. If no successor Owner Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrator and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Agreement, with like effect as if originally named as Owner Trustee.
The predecessor Owner Trustee shall upon payment of its fees and expenses
deliver to the successor Owner Trustee all documents and statements and monies
held by it under this Agreement; and the Administrator and the predecessor Owner
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
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No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
SECTION 10.04. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, without the execution or filing of any instrument or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, that such corporation shall be eligible pursuant to
Section 10.01 and, provided, further, that the Owner Trustee shall mail notice
of such merger or consolidation to the Rating Agencies.
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate may at the time be located, the Administrator and the
Owner Trustee acting jointly shall have the power and shall execute and deliver
all instruments to appoint one or more Persons approved by the Administrator and
Owner Trustee to act as co-trustee, jointly with the Owner Trustee, or as
separate trustee or separate trustees, of all or any part of the Owner Trust
Estate, and to vest in such Person, in such capacity, such title to the Trust or
any part thereof and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor Owner Trustee pursuant
to Section 10.01 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such
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rights, powers, duties and obligations (including the holding of title to the
Owner Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Owner Trustee;
(b) No trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor co-trustee or separate trustee.
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments. This Agreement may be
amended by the Depositor and the Owner Trustee, with prior written notice to the
Rating Agencies [and the Credit Enhancer], without the consent of any of the
Noteholders or the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions in
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect the
interests of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Depositor
and the Owner Trustee, with prior written notice to the Rating Agencies [and the
Credit Enhancer], with the consent of the Holders of Notes evidencing not less
than a majority of the Principal Balance of the Notes and, to the extent
effected thereby, the consent of the Holders of Certificates evidencing not
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less than a majority of the Percentage Interest, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Home Equity Loans or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Principal
Balance of the Notes and the Percentage Interest required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes and
Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders,
Noteholders or the Indenture Trustee pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment that affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.02. No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title or interest
of the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.03. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, [the Credit Enhancer] the Owners, the Administrator and,
to the extent expressly provided herein, the Indenture Trustee and the
Noteholders, and nothing in this Agreement (other than Section 2.07), whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in the Owner Trust Estate or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
-23-
<PAGE>
SECTION 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), if to the Owner Trustee, addressed to the Corporate Trust Office; if
to the Depositor, addressed to UCFC Acceptance Corporation, 4041 Essen Lane,
Baton Rouge, Louisiana, 70804 Attention: H.C. McCall, III, President or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.06. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of the
Depositor, the Company, the Owner Trustee and its successors and each Owner and
its successors and permitted assigns, all as herein provided. Any request,
notice, direction, consent, waiver or other instrument or action by an Owner
shall bind the successors and assigns of such Owner.
SECTION 11.08. No Petition. The Owner Trustee, by entering into this
Agreement, each Certificateholder, by accepting a Trust Certificate, and the
Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Depositor or the Trust, or join in any institution against the
Depositor or the Trust of, any bankruptcy proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Trust Certificates, the Notes, this Agreement or any of the
Basic Documents.
SECTION 11.09. No Recourse. Each Certificateholder by accepting a Trust
Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Depositor, the Servicer, the Administrator, the Owner
Trustee, the Indenture Trustee or any Affiliate thereof and no recourse may be
had against such parties or their assets, except as may be expressly set forth
or contemplated in this Agreement, the Trust Certificates or the Basic
Documents.
-24-
<PAGE>
SECTION 11.10. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.12. Depositor Payment Obligation. The Depositor shall be
responsible for payment of the Administrator's fees under the Administration
Agreement and shall reimburse the Administrator for all expenses and liabilities
of the Administrator incurred thereunder.
* * * * * *
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
UCFC ACCEPTANCE CORPORATION,
as Depositor,
By:
-----------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Trustee and as Certificate Registrar
By:
-----------------------------------
Name:
Title:
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A. hereby accepts the
appointment as Certificate Paying
Agent pursuant to Section 3.09 hereof.
By:
-------------------------------
Name:
Title:
-26-
<PAGE>
Appendix A
Definitions
See Appendix A of the Sale and Servicing Agreement.
<PAGE>
EXHIBIT A
FORM OF TRUST CERTIFICATE
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE HOLDER HEREOF, BY PURCHASING THIS TRUST CERTIFICATE,
AGREES THAT THIS TRUST CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1)
TO A PERSON WHO (A) HAS FURNISHED TO THE OWNER TRUSTEE AN INVESTMENT LETTER
SATISFACTORY TO THE OWNER TRUSTEE TO THE EFFECT THAT SUCH PURCHASER IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1)-(3) UNDER
THE ACT OR (B) AN OPINION OF COUNSEL SATISFACTORY TO THE OWNER TRUSTEE OR (2)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1)
EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS
OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL
ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH
PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER, THIS
TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN THE
MEANING OF SECTION 7701(a)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
NUMBER __% Percentage Interest
R-___________ CUSIP NO. _________
UCFC HOME EQUITY LOAN OWNER TRUST 1997-__
ASSET BACKED CERTIFICATES
evidencing a beneficial ownership interest in the Trust, as defined below, the
property of which includes a pool of adjustable rate home equity loans caused to
be sold to the Trust by UCFC Acceptance Corporation.
(This Trust Certificate does not represent an interest in or obligation of UCFC
Acceptance Corporation or any of its respective affiliates, except to the extent
described below.)
THIS CERTIFIES THAT UCFC Acceptance Corporation is the registered owner
of 100% Percentage Interest nonassessable, fully paid, beneficial ownership
interest in UCFC HOME
A-1
<PAGE>
EQUITY LOAN OWNER TRUST 1997-__ (the "Trust") formed by UCFC Acceptance
Corporation, a Louisiana corporation (the "Depositor").
A-2
<PAGE>
The Trust was created pursuant to a Trust Agreement, dated as of December
__, 1997 (the "Trust Agreement"), between the Depositor and Wilmington Trust
Company, as owner trustee (the "Owner Trustee"), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Trust Agreement.
This Certificate is one of a duly authorized issue of UCFC Home Equity
Loan Asset-Backed Certificates, Series 1997-__ (herein called the "Trust
Certificates"). Also issued under the Indenture dated as of December 1, 1997
between the Trust and Bankers Trust Company of California, N.A., as indenture
trustee, is one class of Notes designated as UCFC Home Equity Loan Asset-Backed
Notes, Series 1997-__ (the "Notes"). This Trust Certificate is issued under and
is subject to the terms, provisions and conditions of the Trust Agreement, to
which Trust Agreement the Holder of this Trust Certificate by virtue of its
acceptance hereof assents and by which such Holder is bound. The property of the
Trust consists of a pool of adjustable rate home equity and home improvement
loans made or to be made in the future and secured primarily by first liens on
residential properties that are primarily one- to four-family properties (the
"Mortgaged Properties"); the collections in respect of the Home Equity Loans
received after the Cut-off Date; property that secured a Mortgage Loan which has
been acquired by foreclosure or deed in lieu of foreclosure and any REO
Proceeds; a surety bond; an assignment of the Depositor's rights under the Sale
and Servicing Agreement; rights under certain Insurance Policies relating to the
Home Equity Loans; [the Reserve Account]; and certain other property.
Under the Trust Agreement, there will be distributed on the 15th day of
each month or, if such 15th day is not a Business Day, the next Business Day
(each, a "Distribution Date"), commencing in January 1998, to the Person in
whose name this Trust Certificates is registered at the close of business on the
last day of the calendar month immediately preceding the Distribution Date (the
"Record Date"), such Certificateholder's Percentage Interest in the amount to be
distributed to Certificateholders on such Distribution Date. No distributions of
principal will be made on any Certificate until all of the Notes have been paid
in full.
The Holder of this Trust Certificate acknowledges and agrees that its
rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement.
It is the intent of the Depositor, the Servicer, and the
Certificateholders that, for purposes of federal income taxes, the Trust will be
disregarded as an entity apart from its owner if there is only one owner for
federal income tax purposes, or, if there is more than one owner for federal
income tax purposes, will be treated as a partnership the partners of which are
the Certificateholders. The Certificateholders by acceptance of a Trust
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Trust and the Trust Certificates for such tax purposes as just
described.
Each Certificateholder or Certificate Owner, by its acceptance of a
Trust Certificate or, in the case of a Certificate Owner, a beneficial interest
in a Trust Certificate, covenants and agrees that such Certificateholder or
Certificate Owner, as the case may be, will not at any time institute
A-3
<PAGE>
against the Trust or the Depositor, or join in any institution against the Trust
or the Depositor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Trust Certificates, the Notes, the Trust Agreement or any of the Basic
Documents.
Distributions on this Trust Certificate will be made as provided in the
Trust Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Trust Certificate or the making of any notation hereon.
Except as otherwise provided in the Trust Agreement and notwithstanding the
above, the final distribution on this Trust Certificate will be made after due
notice by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for that purpose by the Owner Trustee in the Borough of Manhattan,
The City of New York.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Trust Certificate shall not entitle the Holder hereof to any benefit under
the Trust Agreement or the Sale and Servicing Agreement or be valid for any
purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-4
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Trust Certificate to be duly
executed.
Date:
UCFC HOME EQUITY LOAN OWNER TRUST 1997-__
By: WILMINGTON TRUST COMPANY,
solely as Owner Trustee and not in its
individual capacity
By:_______________________________________________
Authorized Signatory
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates of UCFC Home Equity Loan
Owner Trust 1997-__ referred to in the within-mentioned Trust Agreement.
Date:
WILMINGTON TRUST COMPANY,
solely as Owner Trustee and not in its
individual capacity
By:_______________________________________________
Authorized Signatory
A-5
<PAGE>
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an
interest in, the Depositor, the Servicer, the Owner Trustee or any affiliates of
any of them and no recourse may be had against such parties or their assets,
except as expressly set forth or contemplated herein or in the Trust Agreement,
the Indenture or the Basic Documents. In addition, this Trust Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections and recoveries with respect to the Home Equity
Loans (and certain other amounts), all as more specifically set forth herein and
in the Sale and Servicing Agreement. A copy of each of the Sale and Servicing
Agreement and the Trust Agreement may be examined by any Certificateholder upon
written request during normal business hours at the principal office of the
Depositor and at such other places, if any, designated by the Depositor.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Owner Trustee with the consent of the Holders
of the Trust Certificates and the Notes, each voting as a class, evidencing not
less than a majority of the Percentage Interest and the outstanding principal
balance of the Notes. Any such consent by the Holder of this Trust Certificate
shall be conclusive and binding on such Holder and on all future Holders of this
Trust Certificate and of any Trust Certificate issued upon the transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent is made upon this Trust Certificate. The Trust Agreement also permits
the amendment thereof, in certain limited circumstances, without the consent of
the Holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Certificate Registrar duly executed by the Holder hereof
or such Holder's attorney duly authorized in writing, and thereupon one or more
new Trust Certificates of authorized denominations evidencing the same aggregate
interest in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Trust Agreement is the Owner Trustee.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, Trust Certificates are exchangeable for new Trust
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
A-6
<PAGE>
The Owner Trustee, the Certificate Registrar and any agent of the Owner
Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Owner Trust Estate. The Servicer of the Home Equity Loans may at its
option purchase the Owner Trust Estate at a price specified in the Sale and
Servicing Agreement, and such purchase of the Home Equity Loans and other
property of the Trust will effect early retirement of the Trust Certificates;
however, such right of purchase is exercisable only as of the last day of any
Collection Period as of which the Pool Balance is less than or equal to [____]%
of the Original Pool Balance.
A-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- --------------------------------------------------------------------------------
to transfer said Trust Certificate on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated:
___________________________________________*
Signature Guaranteed:
____________________________*
- -----------------
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-8
<PAGE>
EXHIBIT B
[FORM OF]
CERTIFICATE OF TRUST OF
UCFC HOME EQUITY LOAN OWNER TRUST 1997-___
This Certificate of Trust of UCFC HOME EQUITY LOAN OWNER TRUST 1997-__
(the "Trust"), is being duly executed and filed by Wilmington Trust Company, a
Delaware bank and trust company, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is UCFC HOME
EQUITY LOAN OWNER TRUST 1997-__.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is [______________], Delaware [____],
Attention: [__________________________].
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
--------------------------------,
not in its individual capacity but solely as
owner trustee under a Trust Agreement
dated __________________, 199___
B-1
<PAGE>
Exhibit 4.3
UCFC HOME EQUITY LOAN OWNER TRUST 1997-_,
as Issuer
AND
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Indenture Trustee
-----------------------------------------
FORM OF INDENTURE
Dated as of December _, 1997
------------------------------------------
HOME EQUITY LOAN ASSET BACKED NOTES
SERIES 1997-_
<PAGE>
Cross-reference sheet showing the location in the indenture of
the provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.
<TABLE>
<CAPTION>
TIA Indenture Section
<S> <C> <C>
Section 310
(a) (1) ...................................................... 6.11
(a) (2) ...................................................... 6.11
(a) (3) ...................................................... 6.10(b)(i)
(a) (4) ...................................................... Not Applicable
(a) (5) ...................................................... 6.11
(b) ...................................................... 6.11
...................................................... 6.08
...................................................... 11.05
(c) ...................................................... Not Applicable
Section 311
(a) ...................................................... 6.12
(b) ...................................................... 6.12
Section 312
(a) ...................................................... 7.01(a)
...................................................... 7.02(a)
(b) ...................................................... 7.02(b)
(c) ...................................................... 7.02(c)
Section 313
(a) ...................................................... 7.04
(b) ...................................................... 7.04
(c) ...................................................... 7.04
...................................................... 11.05
(d) ...................................................... 7.04
Section 314
(a) ...................................................... 7.03
...................................................... 11.05
...................................................... 3.11
(b) (1) ...................................................... 2.03
(b) (2) ...................................................... 3.07
(c) (1) ...................................................... 2.03
...................................................... 4.10
...................................................... 11.01
(c) (2) ...................................................... 2.03
...................................................... 4.10
...................................................... 11.01
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(c) (3) ...................................................... 1.01
...................................................... 2.02
(d) (1) ...................................................... 1.01
...................................................... 8.05
(d) (2) ...................................................... 1.01
...................................................... Not Applicable
(d) (3) ...................................................... 1.01
...................................................... 2.02
(e) ...................................................... 11.01
Section 315
(a) ...................................................... 6.01(b)
...................................................... 6.01(c)(i)
(b) ...................................................... 6.05
...................................................... 11.05
(c) ...................................................... 6.01(a)
(d) ...................................................... 6.01(c)
(d) (1) ...................................................... 6.01(b)
(d) (2) ...................................................... 6.01(c)(ii)
(d) (3) ...................................................... 6.01(c)(iii)
(e) ...................................................... 5.16
Section 316
(a) (1) (A)................................................... 5.11
...................................................... 8.01
(a) (1) (B)................................................... 5.02
...................................................... 5.12
(a) (2) ...................................................... Not Applicable
(b) ...................................................... 5.07
(c) ...................................................... Not Applicable
Section 317
(a) (1) ...................................................... 5.03
(a) (2) ...................................................... 5.03(d)(iv)
(b) ...................................................... 3.03
Section 318
(a) ...................................................... 11.07
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
ARTICLE I
Definitions
<S> <C>
1.01. Definitions................................................................................................3
1.02. Incorporation by Reference of Trust Indenture Act..........................................................3
1.03. Rules of Construction......................................................................................3
ARTICLE II
Original Issuance of Notes
2.01. Form 5
2.02. Execution, Authentication and Delivery.....................................................................5
2.03. Opinions of Counsel........................................................................................5
ARTICLE III
Covenants
3.01. Collection of Payments on Home Equity Loan Accounts........................................................7
3.02. Maintenance of Office or Agency............................................................................7
3.03. Money for Payments To Be Held in Trust; Paying Agent.......................................................7
3.04. Existence..................................................................................................8
3.05. Payment of Principal and Interest; Defaulted Interest......................................................9
3.06. Protection of Trust Estate.................................................................................9
3.07. Opinions as to Trust Estate................................................................................9
3.08. [Reserved]................................................................................................10
3.09. Performance of Obligations; Sale and Servicing Agreement..................................................10
3.10. Negative Covenants........................................................................................12
3.11. Annual Statement as to Compliance.........................................................................12
3.12. Recording of Assignments..................................................................................12
3.13. Representations and Warranties Concerning the Home Equity Loans...........................................13
3.14. Indenture Trustee's Review of Related Documents...........................................................13
3.15. Trust Estate; Related Documents...........................................................................14
3.16. Amendments to Sale and Servicing Agreement................................................................15
3.17. Servicer as Agent and Bailee of Indenture Trustee.........................................................15
3.18. Investment Company Act....................................................................................15
3.19. Issuer May Consolidate, etc., Only on Certain Terms.......................................................15
3.20. Successor or Transferee...................................................................................17
3.21. No Other Business.........................................................................................17
</TABLE>
<TABLE>
<S> <C>
3.22. No Borrowing..............................................................................................17
3.23. Guarantees, Loans, Advances and Other Liabilities.........................................................17
3.24. Capital Expenditures......................................................................................18
3.25. [Reserved]................................................................................................18
3.26. Restricted Payments.......................................................................................18
3.27. Notice of Events of Default...............................................................................18
3.28. Further Instruments and Acts..............................................................................18
3.29. Statements to Noteholders.................................................................................18
3.30. Grant of the Additional Loans.............................................................................18
3.31. Determination of Note Rate................................................................................19
3.32. Payments under the Credit Enhancement Instrument..........................................................19
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes.................................................................................................21
4.02 Registration of and Limitations on Transfer and Exchange of Notes; Appointment of Note Registrar...........21
4.03. Mutilated, Destroyed, Lost or Stolen Notes................................................................22
4.04. Persons Deemed Owners.....................................................................................23
4.05. Cancellation..............................................................................................23
4.06. Book-Entry Notes..........................................................................................23
4.07. Notices to Depository.....................................................................................24
4.08. Definitive Notes..........................................................................................24
4.09. Temporary Notes...........................................................................................25
4.11. Payment of Principal and Interest; Defaulted Interest.....................................................25
4.10. Tax Treatment.............................................................................................26
4.12. Satisfaction and Discharge of Indenture...................................................................26
4.13. Application of Trust Money................................................................................27
4.14. Subrogation and Cooperation...............................................................................27
4.15. Repayment of Moneys Held by Paying Agent..................................................................28
ARTICLE V
Remedies
5.01. Events of Default.........................................................................................29
5.02. Acceleration of Maturity, Rescission and Annulment........................................................29
5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.................................30
5.04. Remedies; Priorities......................................................................................32
5.05. Optional Preservation of the Trust Estate.................................................................33
5.06. Limitation of Suits.......................................................................................34
5.07. Unconditional Rights of Noteholders To Receive Principal and Interest.....................................34
5.08. Restoration of Rights and Remedies........................................................................34
5.09. Rights and Remedies Cumulative............................................................................35
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
5.10. Delay or Omission Not a Waiver............................................................................35
5.11. Control by Noteholders....................................................................................35
5.12. Waiver of Past Defaults...................................................................................35
5.13. Undertaking for Costs.....................................................................................36
5.14. Waiver of Stay or Extension Laws..........................................................................36
5.15. Sale of Trust Estate......................................................................................36
5.16. Action on Notes...........................................................................................38
5.17. Performance and Enforcement of Certain Obligations........................................................38
ARTICLE VI
The Indenture Trustee
6.01. Duties of Indenture Trustee...............................................................................40
6.02. Rights of Indenture Trustee...............................................................................41
6.03. Individual Rights of Indenture Trustee....................................................................41
6.04. Indenture Trustee's Disclaimer............................................................................42
6.05. Notice of Event of Default................................................................................42
6.06. Reports by Indenture Trustee to Holders...................................................................42
6.07. Compensation and Indemnity................................................................................42
6.08. Replacement of Indenture Trustee..........................................................................43
6.09. Successor Indenture Trustee by Merger.....................................................................43
6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee.........................................44
6.11. Eligibility; Disqualification.............................................................................45
6.12. Preferential Collection of Claims Against Issuer..........................................................45
6.13. Representation and Warranty...............................................................................45
6.14. Directions to Indenture Trustee...........................................................................45
ARTICLE VII
Noteholders' Lists and Reports
7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders....................................47
7.02. Preservation of Information; Communications to Noteholders................................................47
7.03. Reports by Issuer.........................................................................................47
7.04. Reports by Indenture Trustee..............................................................................48
ARTICLE VIII
Accounts, Disbursements and Releases
8.01. Collection of Money.......................................................................................49
8.02. Trust Accounts............................................................................................49
8.03. Opinion of Counsel........................................................................................50
8.04. Termination Upon Distribution to Noteholders..............................................................51
8.05. Release of Trust Estate...................................................................................51
</TABLE>
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8.06. Surrender of Notes Upon Final Payment.....................................................................51
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent of Noteholders....................................................52
9.02. Supplemental Indentures With Consent of Noteholders.......................................................53
9.03. Execution of Supplemental Indentures......................................................................54
9.04. Effect of Supplemental Indenture..........................................................................55
9.05. Conformity with Trust Indenture Act.......................................................................55
9.06. Reference in Notes to Supplemental Indentures.............................................................55
ARTICLE X
10.01. Redemption...............................................................................................56
10.02. Form of Redemption Notice................................................................................56
10.03. Notes Payable on Redemption Date.........................................................................57
ARTICLE XI
Miscellaneous
11.01. Compliance Certificates and Opinions, etc................................................................58
11.02 Form of Documents Delivered to Indenture Trustee..........................................................59
11.03. Acts of Noteholders......................................................................................60
11.04. Notices, etc., to Indenture Trustee, Issuer, Credit Enhancer and Rating Agencies.........................61
11.05. Notices to Noteholders; Waiver...........................................................................61
11.06. Alternate Payment and Notice Provisions..................................................................62
11.07. Conflict with Trust Indenture Act........................................................................62
11.08. Effect of Headings.......................................................................................62
11.09. Successors and Assigns...................................................................................62
11.10. Separability.............................................................................................63
11.11. Benefits of Indenture....................................................................................63
11.12. Legal Holidays...........................................................................................63
11.13. GOVERNING LAW............................................................................................63
11.14. Counterparts.............................................................................................63
11.15. Recording of Indenture...................................................................................63
11.16. Issuer Obligation........................................................................................63
11.17. No Petition..............................................................................................64
11.18. Inspection...............................................................................................64
11.19. Authority of the Administrator...........................................................................64
Signatures ......................................................................................................64
Acknowledgments ..............................................................................................65-66
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Appendix A - Definitions
Exhibit A- Form of Note
Exhibit B- Home Equity Loan Schedule
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This Indenture, dated as of December _, 1997, between UCFC
HOME EQUITY LOAN OWNER TRUST 1997-_, a Delaware business trust, as Issuer (the
"Issuer"), and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Indenture Trustee
(the "Indenture Trustee").
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Home Equity Loan Asset Backed Notes, Series 1997-__ (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as Indenture Trustee for the benefit of the Holders of the Notes,
all of the Issuer's right, title and interest in and to whether now existing or
hereafter created (a) the Home Equity Loans and all monies and proceeds due
thereon on or and after the Cut-off Date (exclusive of payments in respect of
principal (including Prepayments) collected and accrued interest due prior to
the Cut-off Date), (b) an assignment of the Issuer's rights under the Loan
Purchase Agreement, the Loan Sale Agreement and the Sale and Servicing
Agreement, (c) all funds on deposit in the Funding Account, including all income
from the investment and reinvestment of funds therein, (d) all funds on deposit
from time to time in the Collection Account allocable to the Home Equity Loans;
(e) all funds on deposit from time to time in the Payment Account and in all
proceeds thereof; (f) the Reserve Account; (g) the Policy; (h) all Additional
Balances; (i) all REO properties; and (j) all present and future claims,
demands, causes and choses in action in respect of any or all of the foregoing
and all payments on or under, and all proceeds of every kind and nature
whatsoever in respect of, any or all of the foregoing and all payments on or
under, and all proceeds of every kind and nature whatsoever in the conversion
thereof, voluntary or involuntary, into cash or other liquid property, all cash
proceeds, accounts, accounts receivable, notes, drafts, acceptances, checks,
deposit accounts, rights to payment of any and every kind (including but not
limited to all proceeds of any Insurance Policies relating to any Home Equity
Loan), and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Trust Estate" or the
"Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
Holders of the Notes, acknowledges such Grant, accepts the trust under this
Indenture in accordance with the provisions hereof and agrees to perform its
duties as Indenture Trustee as required herein.
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ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in Appendix A hereto which are incorporated by reference
herein. All other capitalized terms used herein shall have the meanings
specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in
the plural include the singular;
(vi) any pronouns shall be deemed to cover all genders; and
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(vii) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to
time amended, modified or supplemented and includes (in the case of
agreements or instruments) references to all attachments thereto and
instruments incorporated therein; references to a Person are also to
its permitted successors and assigns.
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ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the forms set forth in
Exhibit A with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$[______________]. The aggregate principal amount of Notes outstanding at any
time may not exceed $[_____________].
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum initial Security Balances
of $25,000 and in integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Opinions of Counsel. On the Closing Date, the Indenture
Trustee shall have received: (i) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel, with respect
to securities law matters; (ii) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel,
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with respect to the tax status of the arrangement created by the Indenture; and
(iii) an Opinion of Counsel to the Issuer, in form and substance reasonably
satisfactory to the Indenture Trustee and its counsel, with respect to the due
authorization, valid execution and delivery of this Indenture and with respect
to its binding effect on the Issuer.
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ARTICLE III
Covenants
Section 3.01. Collection of Payments on Home Equity Loan Accounts. The
Indenture Trustee shall establish and maintain with itself a trust account (the
"Payment Account") in which the Indenture Trustee shall, subject to the terms of
this paragraph, deposit, on the same day as it is received from the Servicer,
each remittance received by the Indenture Trustee with respect to the Home
Equity Loans. The Indenture Trustee shall make all payments of principal of and
interest on the Notes, subject to Section 3.03 as provided in Section 3.05
herein from moneys on deposit in the Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by another Paying Agent, and no amounts so withdrawn from
the Payment Account for payments of Notes shall be paid over to the Issuer
except as provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
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(iv) immediately resign as Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met
by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee shall also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Home Equity Loans and each
other instrument or agreement included in the Trust Estate.
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Section 3.05. Payment of Principal and Interest. The Issuer will duly
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing,
subject to Section 8.02(b), the Issuer will cause to be distributed all amounts
on deposit in the Payment Account on a Payment Date deposited therein pursuant
to the Sale and Servicing Agreement for the benefit of the Notes, to the
Noteholders. Amounts properly withheld under the Code by any Person from a
payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
Section 3.06. Protection of Trust Estate. (a) The Issuer will from time
to time prepare (or shall cause to be prepared), execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
(iii) enforce any of the Home Equity Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in the Sale and Servicing Agreement or
this Indenture, the Indenture Trustee shall not remove any portion of the Trust
Estate that consists of money or is evidenced by an instrument, certificate or
other writing from the jurisdiction in which it was held at the date of the most
recent Opinion of Counsel delivered pursuant to Section 3.06 (or from the
jurisdiction in which it was held as described in the Opinion of Counsel
delivered at the Closing Date pursuant to Section 3.07(a), if no Opinion of
Counsel has yet been delivered pursuant to Section 3.07(b) unless the Trustee
shall have first received an Opinion of Counsel to the effect that the lien and
security interest created by this Indenture with respect to such property will
continue to be maintained after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate. On the Closing Date, the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the delivery of the Mortgage Notes, the recording of the Assignments
of Mortgage, the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of any financing statements and continuation statements, as
are necessary to perfect and
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make effective the lien and security interest of this Indenture and reciting the
details of such action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien and security interest effective.
(b) On or before December 31 in each calendar year, beginning in 1998,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording of the Assignments of
Mortgage, the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest of this
Indenture until December 31 in the following calendar year.
Section 3.08. [Reserved]
Section 3.09. Performance of Obligations; Sale and Servicing Agreement.
The Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate. Except as otherwise
expressly provided therein, the Issuer shall not waive, amend, modify,
supplement or terminate any Basic Document, including without limitation the
Sale and Servicing Agreement or any provision thereof without the consent of the
Indenture Trustee or the Holders of at least a majority of the Security Balances
of the Notes, the Servicer and the Credit Enhancer. Upon the taking of any such
action with respect to any Basic Document the Issuer shall give written notice
thereof to the Rating Agencies.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Home Equity
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Home Equity Loans or any such instrument, except such actions as the
Servicer is expressly permitted to take in the Sale and Servicing Agreement.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination, the Issuer shall promptly notify the Indenture Trustee
thereof, and shall specify in
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such notice the action, if any, the Issuer is taking in respect of such Event of
Servicing Termination. If such Event of Servicing Termination arises from the
failure of the Servicer to perform any of its duties or obligations under the
Sale and Servicing Agreement with respect to the Home Equity Loans, the Issuer
may remedy such failure, provided that if such Event of Servicing Termination
arises from the failure by the Servicer to comply with requirements imposed upon
it under Section ___the Sale and Servicing Agreement with respect to hazard
insurance for the Mortgaged Properties securing the Home Equity Loans, the
Issuer shall promptly, as the case may be, pay such premiums or obtain
substitute insurance coverage meeting the requirements set forth in the Sale and
Servicing Agreement. So long as any such Event of Servicing Termination shall be
continuing, the Indenture Trustee may exercise its remedies set forth in Section
___ of the Sale and Servicing Agreement. Unless granted or permitted by the
Credit Enhancer or the Holders of Securities to the extent provided above, the
Issuer may not waive any such Event of Servicing Termination or terminate the
rights and powers of the Servicer under the Sale and Servicing Agreement.
(e) Upon any termination of the Servicer's rights and powers pursuant
to Section ___ of the Sale and Servicing Agreement, the Indenture Trustee shall
appoint a successor servicer, and such successor servicer shall accept its
appointment by a written assumption in a form acceptable to the Indenture
Trustee and the Credit Enhancer. In the event that a successor servicer has not
been appointed and accepted its appointment at the time when the Servicer ceases
to act as servicer, the Indenture Trustee without further action shall
automatically be appointed the successor servicer in accordance with Section __
of the Sale and Servicing Agreement. The Indenture Trustee may resign as the
Servicer by giving written notice of such resignation to the Issuer and the
Credit Enhancer and in such event will be released from such duties and
obligations, such release to be effective on the date a successor servicer
enters into a servicing agreement with the Issuer as provided below. Upon
delivery of any such notice to the Issuer, the Issuer shall obtain a successor
servicer, satisfactory in all respects to the Indenture Trustee and the Credit
Enhancer, which shall enter into a servicing agreement with the Issuer and the
Indenture Trustee, such agreement to be not less favorable to the Credit
Enhancer in its reasonable judgment, or the Noteholders if a Credit Enhancer
Default shall have occurred and be continuing, than the Sale and Servicing
Agreement in any material respect. If, within 30 days after the delivery of the
notice referred to above, the Issuer shall not have obtained such successor
servicer, the Indenture Trustee may appoint, or may petition a court of
competent jurisdiction to appoint, a successor servicer acceptable to the Credit
Enhancer to service the Home Equity Loans. In connection with any such
appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, and the
Issuer shall enter into an agreement with such successor for the servicing of
the Home Equity Loans, such agreement to be substantially similar to the Sale
and Servicing Agreement or otherwise acceptable to the Credit Enhancer; provided
that any such compensation of the successor servicer unless otherwise agreed to
by the Credit Enhancer, shall not be in excess of the Servicing Fee payable to
the Servicer under the Sale and Servicing Agreement. If the Indenture Trustee
shall succeed to the Servicer's duties as servicer of the Home Equity Loans as
provided herein, it shall do so in its individual capacity and not in its
capacity as Indenture Trustee.
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(f) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.10. Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, sell,
transfer, exchange or otherwise dispose of the Trust Estate, unless
directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) permit the validity or effectiveness of this Indenture
to be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Indenture except as may be expressly permitted
hereby, permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture)
to be created on or extend to or otherwise arise upon or burden the
Trust Estate or any part thereof or any interest therein or the
proceeds thereof or permit the lien of this Indenture not to constitute
a valid first priority security interest in the Trust Estate.
Section 3.11. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 1998), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.12. Recording of Assignments. The Issuer shall exercise its
right under the Sale and Servicing Agreement with respect to the obligations of
the Originators to submit or cause to be submitted for recording all Assignments
of Mortgages within one year after the Closing Date with respect to the Initial
Loans (and with respect to any Additional Loans).
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Section 3.13. Representations and Warranties Concerning the Home Equity
Loans. The Issuer has pledged to the Indenture Trustee all of its rights under
the Loan Purchase Agreement, the Loan Sale Agreement and the Sale and Servicing
Agreement and the Indenture Trustee has the benefit of the representations and
warranties made by the Originators, the Seller and the Depositor in such
documents concerning the Home Equity Loans and the right to enforce any remedy
against the appropriate Originator, the Seller or the Depositor, as applicable,
provided in the Loan Purchase Agreement, the Loan Sale Agreement, and the Sale
and Servicing Agreement, as applicable, to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.14. Indenture Trustee's Review of Related Documents. (a) The
Indenture Trustee agrees, for the benefit of the holders of the Notes, to
review, unless the Indenture Trustee made such review prior to the Closing Date,
on or prior to ________, 199_ the Related Documents delivered to it on or prior
to the Closing Date and within 90 days of the related Deposit Date, the Related
Documents delivered to it in connection with any Additional Loan, in each case
in connection with the Grant of the Home Equity Loan listed on the Schedule of
Home Equity Loans as security for the Notes. Such review shall be limited to a
determination that all documents referred to in the definition of the term
Related Documents have been executed and are appropriately endorsed in the
manner called for in the Home Equity Loan Agreement and that the Related
Documents have been delivered with respect to each such Home Equity Loan (other
than the documents related to (i) any Home Equity Loan so listed which has been
subject to a Prepayment in full and termination of related Home Equity Loan, the
proceeds of which have been deposited in the Collection Account in lieu of
delivery of the applicable Related Documents, (ii) any Home Equity Loan with
respect to which the related Mortgaged Property was foreclosed, repossessed or
otherwise converted subsequent to the Cut-off Date and prior to the Closing Date
or with respect to which foreclosure proceedings have been commenced and for
which the related Related Documents are required in connection with the
prosecution of such foreclosure proceedings and for which the Issuer has
delivered a trust receipt called for by Section 3.15(c) and (iii) any Home
Equity Loan as to which the original Assignment of Mortgage has been submitted
for recording), that all such documents have been executed, and that all such
documents relate to the Home Equity Loans listed on the Schedule of Home Equity
Loans. In performing such review, the Indenture Trustee may rely upon the
purported genuineness and due execution of any such document and on the
purported genuineness of any signature thereon.
(b) If any Related Document is defective in any material respect which
may materially and adversely affect the value of the related Home Equity Loan,
the interest of the Indenture Trustee or the Noteholders in such Home Equity
Loan, or if any document required to be delivered to the Indenture Trustee has
not been delivered, the Indenture Trustee on behalf of the Indenture Trustee
shall notify the Issuer, the Credit Enhancer and the Servicer immediately after
obtaining knowledge thereof and the Indenture Trustee, as assignee of the
Issuer's rights under the Loan Purchase Agreement, the Loan Sale Agreement and
the Sale and Servicing Agreement, shall exercise its remedies in respect of any
such defect against the appropriate Originator, the Seller or the Depositor, as
applicable, as provided in the Sale and Servicing Agreement.
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Section 3.15. Trust Estate; Related Documents. (a) When required by the
provisions of this Indenture, the Indenture Trustee shall execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article III
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) In order to facilitate the servicing of the Home Equity Loans, the
Servicer is hereby authorized in the name and on behalf of the Indenture Trustee
and the Issuer, to execute assumption agreements, substitution agreements, and
instruments of satisfaction or cancellation or of partial or full release or
discharge, or any other document contemplated by the Sale and Servicing
Agreement and other comparable instruments with respect to the Home Equity Loans
and with respect to the Mortgaged Properties subject to the Mortgages (and the
Indenture Trustee and the Owner Trustee shall promptly execute any such
documents on request of the Servicer), subject to the obligations of the
Servicer under the Sale and Servicing Agreement. If from time to time the
Servicer shall deliver to the Indenture Trustee copies of any written assurance,
assumption agreement or substitution agreement or other similar agreement
pursuant to Section ___ of the Sale and Servicing Agreement, the Indenture
Trustee shall check that each of such documents purports to be an original
executed copy (or a copy of the original executed document if the original
executed copy has been submitted for recording and has not yet been returned)
and, if so, shall file such documents, and upon receipt of the original executed
copy from the applicable recording office or receipt of a copy thereof certified
by the applicable recording office shall file such originals or certified copies
with the Related Documents. If any such documents submitted by the Servicer do
not meet the above qualifications, such documents shall promptly be returned by
the Indenture Trustee to the Servicer, with a direction to the Servicer to
forward the correct documentation.
(c) Upon Issuer Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section ___ of the Sale and Servicing Agreement to the
effect that a Home Equity Loan has been the subject of a final payment or a
prepayment in full and the related Home Equity Loan has been terminated or that
substantially all Liquidation Proceeds which have been determined by the
Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Home Equity Loan or, if applicable,
Liquidation Proceeds, the Indenture Trustee and the Issuer shall promptly
release the Related Documents to the Servicer upon the order of the Issuer,
along with such documents as the Servicer or the Mortgagor may request as
contemplated by the Sale and Servicing Agreement to evidence satisfaction and
discharge of such Home Equity Loan. If from time to time and as appropriate for
the servicing or foreclosure of any Home Equity Loan, the Servicer requests the
Indenture Trustee to release the Related Documents and delivers to the Indenture
Trustee a trust receipt reasonably satisfactory to the Indenture Trustee and
signed by a Responsible Officer of the Servicer, the Issuer and the Indenture
Trustee shall release the Related Documents to the Servicer. If such Home Equity
Loans shall be liquidated and the Indenture Trustee receives a certificate from
the Servicer as provided above,
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then, upon request of the Issuer, the Indenture Trustee shall release the trust
receipt to the Servicer upon the order of the Issuer.
(d) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and no amounts due to the Credit Enhancer, release all of the Trust
Estate to the Issuer (other than any cash held for the payment of the Notes
pursuant to Section 3.03 or 4.11), subject, however, to the rights of the
Indenture Trustee under Section 6.07.
Section 3.16. Amendments to Sale and Servicing Agreement. The Indenture
Trustee may enter into any amendment or supplement to the Sale and Servicing
Agreement only in accordance with Section ___ of the Sale and Servicing
Agreement. The Indenture Trustee may, in its discretion, decline to enter into
or consent to any such supplement or amendment if its own rights, duties or
immunities shall be adversely affected.
Section 3.17. Servicer as Agent and Bailee of Indenture Trustee. Solely
for purposes of perfection under Section 9-305 of the Uniform Commercial Code or
other similar applicable law, rule or regulation of the state in which such
property is held by the Servicer, the Indenture Trustee hereby acknowledges that
the Servicer is acting as agent and bailee of the Indenture Trustee in holding
amounts on deposit in the Collection Account pursuant to Section ____ of the
Sale and Servicing Agreement, as well as its agent and bailee in holding any
Related Documents released to the Servicer pursuant to Section 3.15(c), and any
other items constituting a part of the Trust Estate which from time to time come
into the possession of the Servicer. It is intended that, by the Servicer's
acceptance of such agency pursuant to Section ____ of the Sale and Servicing
Agreement, the Indenture Trustee, as a secured party, will be deemed to have
possession of such Related Documents, such moneys and such other items for
purposes of Section 9-305 of the Uniform Commercial Code of the state in which
such property is held by the Servicer.
Section 3.18. Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.18
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.19. Issuer May Consolidate, etc., Only on Certain Terms. (a)
The Issuer shall not consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and
Certificates and the performance
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or observance of every agreement and covenant of this Indenture on the
part of the Issuer to be performed or observed, all as provided
herein;
(ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such consolidation or merger and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall be a United States citizen or a Person
organized and existing under the laws of the United States of America
or any state, expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory
to the Indenture Trustee, the due and punctual payment of the principal
of and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein, expressly agrees by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the
rights of Holders of the Notes, unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and
expressly agrees by means of such supplemental indenture that such
Person (or if a group of Persons, then one specified Person) shall make
all filings with the Commission (and any other appropriate Person)
required by the Exchange Act in connection with the Notes;
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(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such conveyance or transfer and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.20. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.19(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.19(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee that the Issuer is to be so released.
Section 3.21. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Home Equity Loans in the manner contemplated by this Indenture and the Basic
Documents and all activities incidental thereto.
Section 3.22. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.23. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture, the Issuer shall not make any loan or advance
or credit to, or guarantee (directly or indirectly or by an instrument having
the effect of assuring another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so)
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any stock, obligations, assets or securities of, or any other interest in, or
make any capital contribution to, any other Person.
Section 3.24. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.25. [Reserved]
Section 3.26. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; provided, however, that
the Issuer may make, or cause to be made, (w) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (x) payment to the
Servicer pursuant to the terms of the Sale and Servicing Agreement and (y)
payments to the Indenture Trustee pursuant to Section [1(a)(ii)] of the
Administration Agreement. The Issuer will not, directly or indirectly, make
payments to or distributions from the Collection Account except in accordance
with this Indenture and the Basic Documents.
Section 3.27. Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.28. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.29. Statements to Noteholders. The Indenture Trustee shall
forward by mail to each Noteholder the Statement delivered to it pursuant to
Section ____ of the Sale and Servicing Agreement.
Section 3.30. Grant of the Additional Loans. (a) In consideration of
the delivery on each Deposit Date to or upon the order of the Issuer of all or a
portion of the amount in respect of Security Principal Collections on deposit in
the Funding Account, the Issuer shall, to the extent of the availability
thereof, on such Deposit Date during the Funding Period Grant to the Indenture
Trustee all of its right, title and interest in the Additional Loans and
simultaneously with the Grant of the Additional Loans the Issuer will deliver
the related Related Documents to the Indenture Trustee.
(b) The obligation of the Indenture Trustee to accept the Grant of the
Additional Loans and the other property and rights related thereto described in
paragraph (a) above is subject to the satisfaction of each of the following
conditions on or prior to each Deposit Date:
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(i) the Originators shall have provided the Indenture Trustee
and the Credit Enhancer with a timely Addition Notice and shall have
provided any information reasonably requested by either of the
foregoing with respect to the Additional Loans;
(ii) the Depositor shall have executed and delivered a
Transfer Agreement with all required schedules and exhibits;
(iii) the Originators shall have delivered to the Servicer for
deposit in the applicable accounts all collections in respect of the
Additional Loans received on or after the related Deposit Cut-off Date;
(iv) the Additional Loans shall satisfy the conditions set
forth in Exhibit _ to the Sale and Servicing Agreement;
(v) as of each Deposit Date, none of the related Originator,
the Seller or the Depositor is insolvent nor will any of them have been
made insolvent by such transfer nor is any of them aware of any pending
insolvency;
(vi) such purchase and sale of Additional Loans will not
result in a material adverse tax consequence to the Trust or the
Owners of the Notes or Certificates;
(vii) the applicable Funding Period shall not have terminated;
and
(viii) unless otherwise covered by the opinions delivered on
the Closing Date, the Depositor shall have delivered to the Credit
Enhancer, the Rating Agencies and the Indenture Trustee opinions of
counsel with respect to the transfer of the Additional Loans
substantially in the form of the opinions of counsel delivered to the
Credit Enhancer, the Rating Agencies and the Indenture Trustee on the
Closing Date.
Section 3.31. Determination of Note Rate. (a) On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Rate for such Interest
Period and shall inform the Issuer, the Servicer and the Depositor at their
respective facsimile numbers given to the Indenture Trustee in writing thereof.
Section 3.32. Payments under the Credit Enhancement Instrument. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders shall make a draw on the Credit Enhancement
Instrument in an amount if any equal to the amount by which the interest accrued
at the Note Rate on the Security Balance of the Notes exceeds the amount on
deposit in the Payment Account available to be distributed therefor on such
Payment Date (the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Indenture
Trustee pursuant to Section ___ of the Sale and Servicing Agreement, the Notice
for Payment (as defined in the Credit Enhancement Instrument) in the amount of
the Credit
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Enhancement Draw Amount to the Credit Enhancer and the Depositor no later than
12:00 noon, California time, on the Business Day prior to the applicable Payment
Date. Upon receipt of such Credit Enhancement Draw Amount in accordance with the
terms of the Credit Enhancement Instrument, the Indenture Trustee shall deposit
such Credit Enhancement Draw Amount in the Payment Account for distribution to
Holders pursuant to the Sale and Servicing Agreement.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes. (a) The Notes shall be registered in the name
of a nominee designated by the Depository. Beneficial Owners will hold interests
in the Notes through the book-entry facilities of the Depository in minimum
initial Principal Balances of $25,000 and integral multiples of $1,000 in excess
thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02 Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of Note Registrar. The Issuer shall cause to be
kept a register (the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Issuer shall provide for the registration
of Notes and the registration of transfers of Notes. The Indenture Trustee shall
be "Note Registrar" for the purpose of registering Notes and transfers of Notes
as herein provided. Upon any resignation of any Note Registrar, the Issuer shall
promptly appoint a successor or, if it elects not to make such an appointment,
assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by
the Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and
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to obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Noteholders and the
principal amounts and number of such Notes.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing. Notes delivered upon any such transfer or exchange will
evidence the same obligations, and will be entitled to the same rights and
privileges, as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note; provided, however, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable without surrender thereof. If, after the delivery of such
replacement Note or payment of a destroyed, lost or stolen Note pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be
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entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, that such Issuer
Request is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 4.06. Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially
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be registered on the Note Register in the name of Cede & Co., the nominee of the
initial Depository, and no Beneficial Owner will receive a Definitive Note (as
defined below) representing such Beneficial Owner's interest in such Note,
except as provided in Section 4.08. Unless and until definitive, fully
registered Notes (the "Definitive Notes") have been issued to Beneficial Owners
pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full
force and effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Depository for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and
the giving of instructions or directions hereunder) as the sole holder
of the Notes, and shall have no obligation to the Owners of Notes;
(iii) to the extent that the provisions of this Section 4.06
conflict with any other provisions of this Indenture, the provisions of
this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised only
through the Depository and shall be limited to those established by law
and agreements between such Owners of Notes and the Depository and/or
the Depository Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Notes are issued pursuant to Section 4.08,
the initial Depository will make book-entry transfers among the
Depository Participants and receive and transmit payments of principal
of and interest on the Notes to such Depository Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Owners of Notes representing beneficial
interests aggregating at least a majority of the Security Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then
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the Depository shall notify all Beneficial Owners and the Indenture Trustee of
the occurrence of any such event and of the availability of Definitive Notes to
Beneficial Owners requesting the same. Upon surrender to the Indenture Trustee
of the typewritten Notes representing the Book-Entry Notes by the Depository,
accompanied by registration instructions, the Issuer shall execute and the
Indenture Trustee shall authenticate the Definitive Notes in accordance with the
instructions of the Depository. None of the Issuer, the Note Registrar or the
Indenture Trustee shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Notes, the Indenture Trustee shall
recognize the Holders of the Definitive Notes as Noteholders.
Section 4.09. Temporary Notes. Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Request the
Indenture Trustee shall authenticate and deliver, temporary Notes which are
printed, lithographed, typewritten, mimeographed or otherwise produced, of the
tenor of the Definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.02, without charge to the Noteholder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes.
Section 4.10. Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest during an Interest Period on the basis of
the actual number of days in such Interest Period and a year assumed to consist
of 360 days. Any installment of interest or principal, if any, payable on any
Note which is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall be paid to the Person in whose name such Note is
registered on the Record Date, by check mailed first-class, postage prepaid, to
such Person's address as it appears on the Note Register on such Record Date,
except that, unless Definitive Notes have been issued pursuant to Section 4.08,
with respect to Notes registered on the Record Date in the name of the nominee
of the Depository (initially, such nominee to be Cede & Co.), payment will be
made by wire transfer in immediately available funds to the account designated
by such nominee and except for the final installment of principal payable with
respect to such Note on a Payment Date or on the Final Scheduled Payment Date
(and except for the Redemption Price for any Note called for redemption pursuant
to Section 10.1(a)) which shall be payable as provided below. The funds
represented by any such checks returned undelivered shall be held in accordance
with Section 3.03.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the form of the Notes, set forth in Exhibit A.
Notwithstanding the foregoing, the
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entire unpaid principal amount of the Notes shall be due and payable, if not
previously paid, on the date on which an Event of Default shall have occurred
and be continuing, if the Trustee or the Holders of the Notes representing not
less than a majority of the Security Balances of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02.
All principal payments on the Notes shall be made pro rata to the Noteholders.
The Indenture Trustee shall notify the Person in whose name a Note is registered
at the close of business on the Record Date preceding the Payment Date on which
the Issuer expects that the final installment of principal of and interest on
such Note will be paid. Such notice shall be mailed or transmitted by facsimile
prior to such final Payment Date and shall specify that such final installment
will be payable only upon presentation and surrender of such Note and shall
specify the place where such Note may be presented and surrendered for payment
of such installment. Notices in connection with redemptions of Notes shall be
mailed to Noteholders as provided in Section 10.2.
Section 4.11. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.12. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.10,
3.19, 3.21 and 3.22, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.13) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 4.03 and (ii) Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust by
the Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Indenture Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable, or
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b. will become due and payable at the Final Scheduled
Payment Date within one year,
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent
Certificate from a firm of certified public accountants, each meeting
the applicable requirements of Section 11.01 and, subject to Section
11.01 each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture have been
complied with and, if the Opinion of Counsel relates to a deposit made
in connection with Section 4.10(A)(2)b. above, such opinion shall
further be to the effect that such deposit will not have any material
adverse tax consequences to the Issuer, any Noteholders or any
Certificateholders.
Section 4.13. Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.12 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Sale and Servicing Agreement or required by
law.
Section 4.14. Subrogation and Cooperation. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
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continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all amounts
then payable on the Notes, or under this Indenture in respect to Notes
and all amounts payable under the Insurance Agreement enforce any
judgment obtained and collect from the Issuer moneys adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(iii) file or record all Assignments that have not previously
been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights and
remedies of the Credit Enhancer hereunder.
Section 4.15. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
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ARTICLE V
Remedies
Section 5.01. Events of Default. "Event of Default," wherever used
herein, shall have the meaning provided in Appendix A; provided, however, that
no Event of Default will occur under clause (i) or clause (ii) of the definition
of "Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after the occurrence of an Event of Default, written
notice in the form of an Officer's Certificate of any event which with the
giving of notice and the lapse of time would become an Event of Default under
clause (iii) of the definition of "Event of Default", its status and what action
the Issuer is taking or proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee or the Holders of Notes representing not less than a majority
of the Security Balances of all Notes may declare the Notes to be immediately
due and payable, by a notice in writing to the Issuer (and to the Indenture
Trustee if given by Noteholders), and upon any such declaration the unpaid
principal amount of the Notes, together with accrued and unpaid interest thereon
through the date of acceleration, shall become immediately due and payable.
Unless the prior written consent of the Credit Enhancer shall have been obtained
by the Indenture Trustee, the Payment Date upon which such accelerated payment
is due and payable shall not be a Payment Date under the Credit Enhancement
Instrument and the Indenture Trustee shall not be authorized under Section 3.32
to make a draw therefor.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Security Balances of all Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(A) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(i) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to
such acceleration had not occurred; and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
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(B) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issuer will, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 11.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 11.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any
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demand pursuant to the provisions of this Section, shall be entitled and
empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable
in order to have the claims of the Indenture Trustee (including any
claim for reasonable compensation to the Indenture Trustee and each
predecessor Indenture Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad
faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
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disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 11.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, and all amounts payable under the Insurance
Agreement, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust
Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights
and remedies of the Indenture Trustee, the Holders of the Notes and
the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, other than a default
in the payment of any principal or interest on the Notes for thirty (30) days or
more, unless (A) the Holders of 100% of the Security Balances of the Notes and
the Credit Enhancer, which consent will not be unreasonably withheld, consent
thereto, (B) the proceeds of such sale or liquidation distributable to
Noteholders are sufficient to discharge in full all amounts then due and unpaid
upon the Notes for principal and interest and to reimburse the Credit Enhancer
for any amounts drawn under the Credit Enhancement Instrument and any other
amounts due the Credit Enhancer under the Insurance Agreement or (C) the
Indenture Trustee determines that the Home Equity Loans will not continue to
provide sufficient funds for the payment of principal of and interest on the
Notes, as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of not less
than 66-2/3% of the Security Balances of the Notes. In determining such
sufficiency or insufficiency with respect to clause (B) and (C), the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose. Notwithstanding the foregoing, so long as an Event of
Servicer
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Termination has not occurred, any Sale of the Trust Estate shall be made subject
to the continued servicing of the Home Equity Loans by the Servicer as provided
in the Sale and Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the of Notes
for interest;
THIRD: to Noteholders for amounts due and unpaid on the Notes for
principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for
principal;
FOURTH: to the payment of all amounts due and owing to the Credit
Enhancer;
FIFTH: to the Issuer for amounts due under Article VIII of the
Trust Agreement; and
SIXTH: to the Issuer for amounts required to be distributed to
the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Issuer shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount to
be paid.
Section 5.05. Optional Preservation of the Trust Estate. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Trust Estate. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Securities and other obligations of the Issuer including payment
to the Credit Enhancer, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the Trust
Estate. In determining whether to maintain possession of the Trust Estate, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
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Section 5.06. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 11.17 hereof:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security Balances of
the Notes have made written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the
Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding,
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be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction
to the Indenture Trustee to sell or liquidate the Trust Estate shall
be by Holders of Notes representing not less than 100% of the Security
Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee
by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a
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majority of the Security Balances of the Notes may waive any past Event of
Default and its consequences except an Event of Default with respect to payment
of principal of or interest on any of the Notes or in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Note or the waiver of which would materially and adversely affect
the interests of the Credit Enhancer or modify its obligation under the Credit
Enhancement Instrument. In the case of any such waiver, the Issuer, the
Indenture Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. Sale of Trust Estate. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public
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announcement made at the time and place of such Sale. The Indenture Trustee
hereby expressly waives its right to any amount fixed by law as compensation for
any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(i) the Holders of all Notes and the Credit Enhancer consent to or
direct the Indenture Trustee to make, such Sale, or
(ii) the proceeds of such Sale would be not less than the entire
amount which would be payable to the Noteholders under the Notes,
Certificateholders under the Certificates and the Credit Enhancer in respect of
amounts drawn under the Credit Enhancement Instrument and any other amounts due
the Credit Enhancer under the Insurance Agreement, in full payment thereof in
accordance with Section 5.02, on the Payment Date next succeeding the date of
such Sale, or
(iii) The Indenture Trustee determines, in its sole discretion, that
the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05, and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld, and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (ii) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(i) any Holder or Holders of Notes may bid for and with the consent
of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(ii) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent
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permitted by, applicable law in connection therewith, may purchase all or any
portion of the Trust Estate in a private sale, and, in lieu of paying cash
therefor, may make settlement for the purchase price by crediting the gross Sale
price against the sum of (A) the amount which would be distributable to the
Holders of the Notes and Holders of Certificates and amounts owing to the Credit
Enhancer as a result of such Sale in accordance with Section 5.04(b) on the
Payment Date next succeeding the date of such Sale and (B) the expenses of the
Sale and of any Proceedings in connection therewith which are reimbursable to
it, without being required to produce the Notes in order to complete any such
Sale or in order for the net Sale price to be credited against such Notes, and
any property so acquired by the Indenture Trustee shall be held and dealt with
by it in accordance with the provisions of this Indenture;
(iii) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the Trust
Estate in connection with a Sale thereof;
(iv) the Indenture Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Issuer to transfer and convey its interest in any
portion of the Trust Estate in connection with a Sale thereof, and to take all
action necessary to effect such Sale; and
(v) no purchaser or transferee at such a Sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance
by the Depositor, the Seller and the Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement, and to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Sale and
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee, including the transmission of notices of default on the part of the
Depositor, the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Depositor, the Seller or the Servicer of each of their obligations under the
Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee subject to the rights of the Credit Enhancer under the Sale
and Servicing Agreement may, and at
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the direction (which direction shall be in writing or by telephone (confirmed in
writing promptly thereafter)) of the Holders of 66-2/3% of the Security Balances
of the Notes shall, exercise all rights, remedies, powers, privileges and claims
of the Issuer against the Depositor, the Seller or the Servicer under or in
connection with the Sale and Servicing Agreement, including the right or power
to take any action to compel or secure performance or observance by the
Depositor, the Seller or the Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Sale and Servicing Agreement,
and any right of the Issuer to take such action shall not be suspended.
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ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set
forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against
the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the
truth of the statements and the correctness of the
opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture;
however, the Indenture Trustee shall examine the
certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it (A) pursuant to Section 5.11 or (B)
from the Credit Enhancer, which it is entitled to give under any of the
Basic Documents.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section
6.01.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
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(f) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
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Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Credit Enhancer.
The Indenture Trustee shall mail to each Noteholder and the Owner Trustee notice
of the Event of Default within 90 days after it occurs. Except in the case of an
Event of Default in payment of principal of or interest on any Note, the
Indenture Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder or under the Administration Agreement. The Issuer shall or
shall cause the Administrator to defend any such claim, and the Indenture
Trustee may have separate counsel and the Issuer shall or shall cause the
Administrator to pay the fees and expenses of such counsel. Neither the Issuer
nor the Administrator need reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section [5.01(iv) or (v)] with respect to the
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Issuer, the expenses are intended to constitute expenses of administration under
Title 11 of the United States Code or any other applicable federal or state
bankruptcy, insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the Indenture
Trustee by so notifying the Indenture Trustee and the Credit Enhancer and may
appoint a successor Indenture Trustee. The Issuer shall remove the Indenture
Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust
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business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation without any further act shall be
the successor Indenture Trustee; provided, that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11. The
Indenture Trustee shall provide the Rating Agencies prior written notice of any
such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed the Indenture Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
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(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [____] or better by [______]. The
Indenture Trustee shall comply with TIA Section 310(b), including the optional
provision permitted by the second sentence of TIA Section 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA Section
310(b)(1) any indenture or indentures under which other securities of the Issuer
are outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
represents and warrants to the Issuer, for the benefit of the Noteholders, that
this Indenture has been executed and delivered by one of its Responsible
Officers who is duly authorized to execute and deliver such document in such
capacity on its behalf.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(i) to accept assignment of the Home Equity Loans and hold the assets
of the Trust in trust for the Noteholders;
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(ii) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(iii) to take all other actions as shall be required to be taken by the
terms of this Indenture.
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ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) that the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA Section
313(c)) such summaries of any information, documents and reports
required tobe filed by the Issuer pursuant to clauses (i) and (ii) of
this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
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(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each January 1 beginning with January 1, 1999, the
Indenture Trustee shall mail to each Noteholder as required by TIA Section
313(c) and to the Credit Enhancer a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply with
TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the
Certificateholders and the Credit Enhancer, the Trust Accounts as provided in
Section __ of the Sale and Servicing Agreement, including the Payment Account as
provided in Section 3.01 of this Indenture, and the Certificate Distribution
Account.
(b) All moneys deposited from time to time in the Payment Account
pursuant to the Sale and Servicing Agreement and all deposits therein pursuant
to this Indenture are for the benefit of the Noteholders and the
Certificateholders and all investments made with such moneys including all
income or other gain from such investments are for the benefit of the Servicer
as provided by the Sale and Servicing Agreement.
On or before each Payment Date, the Total Distribution Amount
with respect to the preceding Collection Period will be deposited in the
Collection Account as provided in Section ___ of the Sale and Servicing
Agreement. On or before each Payment Date, the Noteholders' Distributable Amount
with respect to the preceding Collection Period will be transferred from the
Collection Account and/or the Reserve Account to the Payment Account as provided
in Sections ___ and ___ of the Sale and Servicing Agreement.
On each Payment Date and Redemption Date, the Indenture
Trustee shall distribute all amounts on deposit in the Payment Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest in the following amounts and in the
following order of priority (except as otherwise provided in Section 5.04(b)):
(i) accrued and unpaid interest on the Notes; provided
that if there are not sufficient funds in the Payment
Account to pay the entire amount of accrued and unpaid
interest then due on the Notes, the amount in the Note
Distribution Account shall be applied to the payment of such
interest on the Notes pro rata on the basis of the total
such interest due on the Notes; and
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(ii) to the Holders of the Notes on account of
principal until the Security Balances of the Notes is
reduced to zero.
The Depositor may direct the Indenture Trustee to invest any funds in
the Payment Account in Eligible Investments, bearing interest or sold at a
discount, maturing no later than the Business Day preceding each Payment Date
and shall not be sold or disposed of prior to the maturity; provided that
Eligible Investments which are obligations of the Indenture Trustee may mature
on the next Payment Date. Unless otherwise instructed by the Depositor, the
Indenture Trustee shall invest all funds in the Payment Account in commercial
paper so long as it is an Eligible Investment.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, the Funding Account and the Reserve Account. The
Servicer may direct the Indenture Trustee to invest any funds in the Funding
Account and the Reserve Account in Eligible Investments, bearing interest or
sold at a discount, maturing no later than the Business Day preceding each
Payment Date and shall not be sold or disposed of prior to the maturity;
provided that Eligible Investments which are the obligations of the Indenture
Trustee may mature on the next Payment Date. Unless otherwise instructed by the
Servicer, the Indenture Trustee shall invest all funds in the Funding Account
and the Reserve Account in commercial paper so long as it is an Eligible
Investment.
(d) During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such moneys are or will
be invested or reinvested during the term of the Notes, shall be held by the
Indenture Trustee in the Funding Account as part of the Trust Estate, subject to
disbursement and withdrawal as herein provided.
(i) Amounts on deposit in the Funding Account in respect of Net
Principal Collections may be withdrawn (a) on each Deposit Date and
paid to the Issuer in payment for Additional Loans by the deposit of
such amount to the Collection Account and (b) at the end of the
Funding Period any amounts remaining in the Funding Account after the
withdrawal called for by clause (a) shall be deposited in the Payment
Account to be included in the payment of principal on the Payment Date
that is the last day of the Funding Period.
(ii) Amounts on deposit in the Funding Account in respect of
investment earnings shall be withdrawn on each Payment Date and
deposited in the Payment Account and included in the amounts paid to
Noteholders and Certificateholders.
Section 8.03. Opinion of Counsel. The Indenture Trustee shall receive
at least seven days notice when requested by the Issuer to take any action
pursuant to Section 8.05(a), accompanied by copies of any instruments to be
executed, and the Indenture Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the
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Notes or the rights of the Noteholders in contravention of the provisions of
this Indenture; provided, however, that such Opinion of Counsel shall not be
required to express an opinion as to the fair value of the Trust Estate. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Indenture Trustee in connection with any such action.
Section 8.04. Termination Upon Distribution to Noteholders. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
the Noteholders and the Indenture Trustee of all amounts required to be
distributed pursuant to Article III and Section ___ of the Sale and Servicing
Agreement; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. Release of Trust Estate. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article IV hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture. The Indenture Trustee shall release property from
the lien of this Indenture pursuant to this Section 8.05 only upon receipt of an
request from the Issuer accompanied by an Officers' Certificate, an Opinion of
Counsel, and (if required by the TIA) Independent Certificates in accordance
with TIA Sections 314(c) and 314(d)(1) meeting the applicable requirements as
described herein, and a letter from the President or any Vice President or any
Secretary of the Credit Enhancer, if any, stating that the Credit Enhancer has
no objection to such request from the Issuer.
Section 8.06. Surrender of Notes Upon Final Payment. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property
to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be inconsistent with
any other provision herein or in any supplemental indenture or to make
any other provisions with respect to matters or questions arising
under this Indenture or in any supplemental indenture; provided, that
such action shall not adversely affect the interests of the Holders of
the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
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The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax or be classified as a
taxable mortgage pool within the meaning of Section 7701(i) of the Code.
Section 9.02. Supplemental Indentures With Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of the Notes, by Act of such Holders delivered
to the Issuer and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Note affected thereby:
(i) change the date of payment of any installment of principal of
or interest on any Note, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of this Indenture
relating to the application of collections on, or the proceeds of the
sale of, the Trust Estate to payment of principal of or interest on
the Notes, or change any place of payment where, or the coin or
currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date;
(ii) reduce the percentage of the Security Balances of the Notes,
the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception
in the definition of the term "Holder";
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(iv) reduce the percentage of the Security Balances of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell
or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause
the Issuer to be subject to an entity level tax or be classified as a
taxable mortgage pool within the meaning of Section 7701(i) of the
Code.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities
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or immunities under this Indenture or otherwise. The Indenture Trustee shall
provide copies of each supplemental indenture to the Rating Agencies.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
Redemption
Section 10.01. Redemption (a) The Notes are subject to redemption in
whole, but not in part, (i) at the direction of the Servicer pursuant to Section
___ of the Sale and Servicing Agreement, on any Payment Date on or after the
Optional Termination Date on which the Servicer exercises its option to purchase
and may cause the purchase from the Trust of all (but not fewer than all) Home
Equity Loans and all property theretofore acquired in respect of any Home Equity
Loan by foreclosure, deed in lieu of foreclosure, or otherwise then remaining in
the Trust Estate pursuant to the Sale and Servicing Agreement and [(ii) upon the
mandatory sale of the Home Equity Loans pursuant to Section ___ of the Sale and
Servicing Agreement.] The purchase price for the Notes shall be equal to the
Redemption Price; provided, however, that the Issuer has available funds
sufficient to pay the Redemption Price. The Servicer shall furnish the Credit
Enhancer and Rating Agencies notice of such redemption. If the Notes are to be
redeemed pursuant to this Section 10.01(a) (i) or (ii), the Servicer shall
furnish notice to the Indenture Trustee not later than 25 days prior to the
Redemption Date and the Issuer shall deposit with the Indenture Trustee in the
Payment Account, on or before the Redemption Date, the Redemption Price of the
Notes to be redeemed whereupon all such Notes shall be due and payable on the
Redemption Date upon the furnishing of a notice complying with Section 10.02 to
each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.02 of the Trust Agreement, all amounts on deposit in the Payment
Account shall be paid (i) to the Noteholders up to the Security Balances of the
Notes and all accrued and unpaid interest thereon. If amounts are to be paid to
Noteholders pursuant to this Section 10.01(b), the Servicer shall, to the extent
practicable, furnish notice of such event to the Trustee not later than 25 days
prior to the Redemption Date whereupon all such amounts shall be payable on the
Redemption Date.
Section 10.02. (a) Notice of redemption under Section 10.01(a) shall be
given by the Trustee by facsimile or by first-class mail, postage prepaid,
transmitted or mailed not less than five days in the case of Section 10.01(a)(i)
and Section 10.01(a)(ii) prior to the applicable Redemption Date to each Holder
of Notes, as of the close of business on the Record Date preceding the
applicable Redemption Date, at such Holder's address appearing in the Note
Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be made
only upon presentation and surrender of such Notes and the place
where such Notes are to be surrendered
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for payment of the Redemption Price (which shall be the office or
agency of the Issuer to be maintained as provided in Section
3.02); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.01(b) is not required
to be given to Noteholders.
Section 10.03. Notes Payable on Redemption Date. The Notes to be
redeemed shall, following notice of redemption as required by Section 10.02 (in
the case of redemption pursuant to Section 10.01(a)), on the Redemption Date
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price.
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ARTICLE XI
Miscellaneous
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, an Opinion of Counsel stating that in
the opinion of such counsel all such conditions precedent, if any, have been
complied with and (if required by the TIA) an Independent Certificate from a
firm of certified public accountants meeting the applicable requirements of this
Section 11.01, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary
to enable such signatory to express an informed opinion as to whether
or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the signer of such Certificate or Opinion is required to
be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
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(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the securities to be so deposited
and of all other such securities made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of the Issuer, as
set forth in the certificates delivered pursuant to clause (i) above and this
clause (ii), is 10% or more of the Security Balances of the Notes, but such a
certificate need not be furnished with respect to any securities so deposited,
if the fair value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the Security
Balances of the Notes.
(iii) Whenever any property or securities are to be released
from the lien of this Indenture, the Issuer shall also furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating that
in the opinion of such person the proposed release will not impair the security
under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 11.01, (A) collect, sell or otherwise dispose of Home Equity Loans
and Mortgaged Properties as and to the extent permitted or required by the Basic
Documents or (B) make cash payments out of the Trust Account as and to the
extent permitted or required by the Basic Documents.
Section 11.02 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
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Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller, the Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted
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or suffered to be done by the Indenture Trustee or the Issuer in reliance
thereon, whether or not notation of such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Credit
Enhancer and Rating Agencies. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and
mailed first-class, postage prepaid to the Issuer addressed to: UCFC
Home Equity Loan Owner Trust 1997-__ in care of UCFC Acceptance
Corporation, 4041 Essen Lane, Baton Rouge, Louisiana 70809, Attention
of H.C. McCall, President with a copy to the Administrator at
[______________], Attention: [_____________], or at any other address
previously furnished in writing to the Indenture Trustee by the Issuer
or the Administrator. The Issuer shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture Trustee or
by any Noteholders shall be sufficient for every purpose hereunder to
in writing and mailed, first-class postage pre-paid, or personally
delivered or telecopied to: [_______________], Attention:
[______________], Telephone: [_____________], Telecopier:
[___________].
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
Fitch Investors Service, L.P., at the following address: 1 State Street Plaza,
New York, New York 10004; (ii) in the case of Moody's, at the following address:
Moody's Investors Service, ABS Monitoring Department, 99 Church Street, New
York, New York 10007; and (iii) in the case of Standard & Poor's, at the
following address: Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies, Inc., 26 Broadway (15th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department; or as to each of the
foregoing, at such other address as shall be designated by written notice to the
other parties.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such
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notice with respect to other Noteholders, and any notice that is mailed in the
manner herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 11.06. Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
Section 11.07. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 11.08. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 11.09. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
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Section 11.10. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 11.11. Benefits of Indenture. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.14. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 11.16. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable,
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to the extent provided by applicable law, for any unpaid consideration for
stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
Section 11.17. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 11.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 11.19. Authority of the Administrator. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
UCFC HOME EQUITY LOAN OWNER
TRUST 1997-__,
as Issuer
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By:___________________________________
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA,
N.A., as Indenture Trustee, as Note
Paying Agent and as Note Registrar
By:___________________________________
Name:
Title:
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of December, 1997 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at _________________, __________________ _____, that he is the
__________ of the Owner Trustee, one of the corporations described in and which
executed the above instrument; that he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
Notary Public
[NOTARIAL SEAL]
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of December, 1997 before me personally appeared , to
me known, who being by me duly sworn, did depose and say, that he resides at
_____________, that he is the ______________ of ________________, as Indenture
Trustee, one of the corporations described in and which executed the above
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
Notary Public
[NOTARIAL SEAL]
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Appendix A
Definitions
See Appendix A of the Sale and Servicing Agreement.
<PAGE>
EXHIBIT A
[Form of Note]
REGISTERED $_______________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ___________
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
A-1
<PAGE>
UCFC HOME EQUITY LOAN OWNER TRUST 1997-___
ASSET BACKED NOTES
UCFC Home Equity Loan Owner Trust 1997-_, a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO.,
or registered assigns, the principal sum of [ ] DOLLARS payable on each
Distribution Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE]
and the denominator of which is $________________ by (ii) the aggregate amount,
if any, payable from the Payment Account in respect of principal on the Notes
pursuant to Section 3.01 of the Indenture; provided, however, that the entire
unpaid principal amount of this Note shall be due and payable on the earlier of
the ________________ Payment Date (the "Note Final Scheduled Payment Date") and
the Redemption Date, if any, pursuant to Section 10.1(a) (i) or (ii) or Section
10.1(b) of the Indenture. The Issuer will pay interest on this Note at a
variable rate calculated by reference to the London Interbank offered rate for
one-month US dollar deposits on each Payment Date commencing in January 1997
until the principal of this Note is paid or made available for payment, on the
principal amount of this Note outstanding on the preceding Payment Date (after
giving effect to all payments of principal made on the preceding Payment Date).
Interest on this Note will accrue for each Payment Date from the most recent
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from December __, 1997. Interest will be
computed on the basis of the actual number of days in a 360-day year. Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
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<PAGE>
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be signed, manually or in facsimile, by its Authorized Officer as of the date
set forth below.
Date: UCFC HOME EQUITY LOAN OWNER
TRUST 1997-___
By: WILMINGTON TRUST COMPANY, not
in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:_______________________
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Asset Backed Notes of UCFC Home Equity Loan
Owner Trust 1997-_ designated above and referred to in the within-mentioned
Indenture.
Date: BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
not in its individual capacity
but solely as Indenture Trustee,
By: _________________________
Authorized Signatory
A-4
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its Asset Backed Notes (herein called the "Notes"), all
issued under an Indenture dated as of December __, 1997 (such indenture, as
supplemented or amended, is herein called the "Indenture"), between the Issuer
and Bankers Trust Company of California, N.A., as indenture trustee (the
"Indenture Trustee", which term includes any successor Indenture Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Payment Date" means the
fifteenth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing January 1997.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Note Final Scheduled Payment
Date and the Redemption Date, if any, pursuant to Section 10.1(a) (i) or (ii) or
Section 10.1(b) of the Indenture. Notwithstanding the foregoing, the entire
unpaid principal amount of the Notes shall be due and payable on the date on
which an Event of Default shall have occurred and be continuing and the
Indenture Trustee or the Holders of the Notes representing not less than a
majority of the Security Balances of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.02 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Noteholders entitled thereto.
Payments of interest on this Note due and payable on each
Payment Date, together with the installment of principal, if any, to the extent
not in full payment of this Note, shall be made by check mailed to the Person
whose name appears as the Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Depository (initially, such nominee to be Cede & Co.), payments
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be
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<PAGE>
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note effected by any payments made on any Payment Date
shall be binding upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Indenture Trustee, in
the name of and on behalf of the Issuer, will notify the Person who was the
Holder hereof as of the Record Date preceding such Payment Date by notice mailed
prior to such Payment Date and the amount then due and payable shall be payable
only upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in the City of New York.
[Payments of interest and principal on the Notes will be
guaranteed in part by _____ (the "Credit Enhancer) pursuant to [Credit
Enhancement Instrument.] [The Issuer shall pay interest on overdue installments
of interest at the Interest Rate to the extent lawful.]
As provided in the Indenture and the Sale and Servicing
Agreement, the Notes may be redeemed in whole, but not in part, (i) at the
option of the Servicer, on any Payment Date on or after the date on which the
Pool Balance is less than ten percent of the Initial Pool Balance [or (ii) if
the Servicer has not exercised its rights in clause (i) within ten days
following a Distribution Date as of which the Pool Balance is 5% or less of the
Initial Pool Balance, an auction sale shall be conducted (as described in the
Sale and Servicing Agreement).]
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i)
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or his
attorney duly authorized in writing, accompanied by such other documents as the
Indenture Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the
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<PAGE>
Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Depositor, the
Seller, the Servicer, the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Depositor, the Seller, the Servicer, the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Depositor, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Depositor, the Seller,
the Servicer, the Indenture Trustee or the Owner Trustee in its individual
capacity, except as any such Person may have expressly agreed (it being
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that by accepting the benefits of the Indenture that such Noteholder will not at
any time institute against the Depositor or the Issuer, or join in any
institution against the Depositor or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings, under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, the Indenture or the
Basic Documents.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Holders of Notes
representing a majority of the Security Balances of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Security Balances of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one of more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
A-7
<PAGE>
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the Holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place, and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Indenture or the Basic Documents, neither Wilmington
Trust Company in its individual capacity, Bankers Trust Company of California,
N.A. in its individual capacity, any owner of a beneficial interest in the
Issuer, nor any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture, it
being expressly understood that said covenants, obligations and indemnifications
have been made by the Owner Trustee for the sole purposes of binding the
interests of the Owner Trustee in the assets of the Issuer. The Holder of this
Note by the acceptance hereof agrees that except as expressly provided in the
Indenture or the Basic Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
A-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
--------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints _____________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: ___________ _______________________1
Signature Guaranteed:
- ------------------
1 NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatsoever.
A-9
<PAGE>
Exhibit B
Home Equity Loan Schedule
[To be delivered on the Closing Date.]
B-1
<PAGE>
Exhibit 5.1
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
November 28, 1997
UCFC Acceptance Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Ladies and Gentlemen:
We have acted as counsel to UCFC Acceptance Corporation, a Louisiana corporation
(the "Company"), in connection with the preparation of the registration
statement on Form S-3 (No. 333-37499) (the "Registration Statement") relating to
the proposed offering from time to time in one or more series (each, a "Series")
by one or more trusts of asset backed notes (the "Notes") and asset backed
certificates (the "Certificates," and, together with the Notes, the
"Securities"). The Registration Statement has been filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). As set forth in the Registration Statement, each Series of
Securities is to be issued under and pursuant to the terms of a separate pooling
and servicing agreement, or sale and servicing agreement, trust agreement and
indenture (each, an "Agreement") among the Company, United Companies Lending
Corporation(R), as servicer (the "Servicer"), and one or more independent
trustees (each, a "Trustee") to be identified in the prospectus supplement for
such Series of Securities.
As such counsel, we have examined copies of the Articles of Incorporation and
By-Laws of the Company, the Registration Statement, the base Prospectus and form
of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various
<PAGE>
UCFC Acceptance Corporation
November 28, 1997
Page 3
questions of fact material to such opinion, we have relied, to the extent we
deemed appropriate, upon representations, statements and certificates of
officers and representatives of the Company and others.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes
have been authorized by all necessary corporate action of the Company in
accordance with the provisions of the related Agreement or Agreements, and when
such Notes have been duly executed and delivered, authenticated by the Trustee
and sold as described in the Registration Statement, such Notes will constitute
valid and binding obligations of the issuer thereof in accordance with their
terms and the terms of such Agreement or Agreements. This opinion is subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and we express no opinion with respect to the
application of equitable principles or remedies in any proceeding, whether at
law or in equity.
2. When the issuance, execution and delivery of each Series of
Certificates have been authorized by all necessary corporate action of the
Company in accordance with the provisions of the related Agreement or
Agreements, and when such Certificates have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, such Certificates will be legally issued, fully paid and
non-assessable.
3. We hereby confirm the opinions set forth in the Prospectus under the
heading "Federal Income Tax Consequences," to the extent they constitute matters
of law or legal conclusions with respect thereto.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America and the laws
of the State of New York.
<PAGE>
UCFC Acceptance Corporation
November 28, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm in the Prospectus
which forms a part of the Registration Statement. In giving such consent, we do
not admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
<PAGE>
Exhibit 10.1
FORM OF
SALE AND SERVICING AGREEMENT
Dated as of December __, 1997
among
UCFC HOME EQUITY LOAN OWNER TRUST 1997-_,
as Issuer,
UCFC ACCEPTANCE CORPORATION,
as Depositor,
UNITED COMPANIES LENDING CORPORATION (R),
as Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Indenture Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENT .......................................................................................................... 1
ARTICLE I DEFINITIONS .......................................................................................................... 1
Section 1.1. Definitions................................................................................................. 1
Section 1.2. Use of Words and Phrases.................................................................................... 1
Section 1.3. Captions; Table of Contents................................................................................. 2
ARTICLE II CONVEYANCE OF HOME EQUITY LOANS...................................................................................... 2
Section 2.1. Conveyance of Home Equity Loans............................................................................. 2
Section 2.2. Acceptance by Indenture Trustee; Certain Substitutions of Home Equity Loans;
Certification by Indenture Trustee..................................................................... 3
Section 2.3. Cooperation Procedures...................................................................................... 4
Section 2.4. Sale and Conveyance of the Additional Loans................................................................. 5
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS......................................................................... 6
Section 3.1. Representations and Warranties of the Depositor............................................................. 6
Section 3.2. Representations and Warranties of the Servicer.............................................................. 8
Section 3.3. Covenants of the Depositor.................................................................................. 11
ARTICLE IV. SERVICING AND ADMINISTRATION OF HOME EQUITY LOANS.................................................................. 11
Section 4.1. General Servicing Procedures................................................................................ 11
Section 4.2. Collection of Certain Home Equity Loan Payments............................................................. 13
Section 4.3. Subservicing Agreements Between Servicer and Subservicers................................................... 14
Section 4.4. Successor Subservicers...................................................................................... 14
Section 4.5. Liability of Servicer....................................................................................... 14
Section 4.6. No Contractual Relationship Between Subservicer and the Trustees or the Owners.............................. 14
Section 4.7. Assumption or Termination of Subservicing Agreement by Indenture Trustee.................................... 15
Section 4.8. Collection Accounts......................................................................................... 15
Section 4.9. Delinquency Advances and Servicing Advances................................................................. 19
Section 4.10. Compensating Interest....................................................................................... 20
Section 4.11. Maintenance of Insurance.................................................................................... 20
Section 4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements................................................. 21
Section 4.13. Realization Upon Defaulted Home Equity Loans................................................................ 22
Section 4.14. Indenture Trustee to Cooperate; Release of Files............................................................ 23
Section 4.15. Servicing Compensation...................................................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.16. Annual Statement as to Compliance........................................................................... 24
Section 4.17. Annual Independent Certified Public Accountants' Reports.................................................... 24
Section 4.18. Access to Certain Documentation and Information Regarding the Home Equity Loans............................. 25
Section 4.19. Assignment of Agreement..................................................................................... 25
Section 4.20. ARMs ....................................................................................................... 25
Section 4.21. Inspections by Certificate Insurer and Account Parties; Errors and Omissions Insurance...................... 25
Section 4.22. Financial Statements........................................................................................ 26
Section 4.23. The Designated Depository Institution....................................................................... 26
Section 4.24. Appointment of Custodian.................................................................................... 26
ARTICLE V DISTRIBUTIONS; RESERVE ACCOUNT; STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS...................................... 27
Section 5.1. Establishment of Accounts................................................................................... 27
Section 5.2. Flow of Funds............................................................................................... 27
Section 5.3. Investment of Accounts...................................................................................... 31
Section 5.4. Eligible Investments........................................................................................ 31
Section 5.5. Reports by Trustee to Owners and Depositor.................................................................. 32
Section 5.6. Drawings under the Credit Enhancement Instrument and Reports by Trustee..................................... 35
Section 5.7. The Reserve Account......................................................................................... 36
Section 5.8. Calculation of LIBOR........................................................................................ 36
ARTICLE VI THE SERVICER ........................................................................................................ 37
Section 6.1. Respective Liabilities of the Depositor and the Servicer.................................................... 37
Section 6.2. Merger or Consolidation of the Depositor or the Servicer.................................................... 38
Section 6.3. Limitation on Liability of the Depositor, Servicer and Others............................................... 38
ARTICLE VIII REMOVAL OF SERVICER................................................................................................ 39
Section 7.1. Removal of Servicer; Resignation of Servicer................................................................ 39
Section 7.2. Right of the Credit Enhancer to Replace Servicer............................................................ 43
ARTICLE VIII TERMINATION....................................................................................................... 43
Section 8.1. Termination Upon Option of Servicer......................................................................... 43
ARTICLE IX MISCELLANEOUS PROVISIONS............................................................................................. 44
Section 9.1. Amendment................................................................................................... 44
Section 9.2. Notices .................................................................................................... 44
Section 9.3. Limitations on Rights of Others............................................................................. 46
Section 9.4. Severability................................................................................................ 46
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 9.5. Separate Counterparts....................................................................................... 46
Section 9.7. Governing Law............................................................................................... 46
Section 9.8. Assignment to Indenture Trustee............................................................................. 47
Section 9.9. Nonpetition Covenant........................................................................................ 47
Section 9.10. Limitation of Liability of Owner Trustee and Trustee........................................................ 47
Section 9.11. Independence of the Servicer................................................................................ 47
Section 9.12. No Joint Venture............................................................................................ 48
Section 9.13. Credit Enhancer............................................................................................. 49
APPENDIX A DEFINITIONS
SCHEDULE I Schedule of Home Equity Loans.............................................................................. S-I-1
[SCHEDULE II Representations and Warranties of the Issuer............................................................. S-II-1]
EXHIBITS
EXHIBIT A FORM OF CERTIFICATION OF INDENTURE TRUSTEE................................................................... A-1
EXHIBIT B FORM OF CERTIFICATION OF PREPAID LOANS....................................................................... B-1
EXHIBIT C FORM OF INDENTURE TRUSTEE'S ACKNOWLEDGEMENT
OF RECEIPT................................................................................................... C-1
EXHIBIT D REPRESENTATIONS, WARRANTIES AND COVENANTS
OF ORIGINATORS............................................................................................... D-1
EXHIBIT E FORM OF SERVICER'S TRUST RECEIPT............................................................................. E-1
EXHIBIT F FORM OF NOTICE OF CHARGE-OFFS................................................................................ F-1
EXHIBIT G FORM OF PARAMETERS FOR ADDITIONAL LOANS...................................................................... G-1
</TABLE>
iii
<PAGE>
THIS SALE AND SERVICING AGREEMENT is made and entered into as of December
__, 1997, by and among UCFC Home Equity Loan Owner Trust 1997-_, a statutory
business trust formed under the laws of the State of Delaware, as issuer (the
"Issuer"), UCFC Acceptance Corporation, a Louisiana corporation, as depositor
(the "Depositor"), United Companies Lending Corporation, a Louisiana
corporation, as servicer (the "Servicer") and Bankers Trust Company of
California, N.A., a national banking association corporation (in its capacity as
trustee under the Indenture referred to below, the "Indenture Trustee").
PRELIMINARY STATEMENT
The Issuer was formed for the purpose of issuing asset backed notes and
asset backed certificates backed by single family residential home equity and
home improvement loans. The Issuer has entered into a trust indenture, dated as
of December __, 1997 (the "Indenture"), between the Issuer and the Indenture
Trustee, pursuant to which the Issuer intends to issue its Home Equity Loan
Asset Backed Notes and Home Equity Loan Asset Backed Certificates, Series
1997-_, in the aggregate initial principal amount of $__ (the "Securities").
Pursuant to the Indenture, as security for the indebtedness represented by such
Securities, the Issuer is and will be pledging to the Indenture Trustee, or
granting the Indenture Trustee a security interest in, among other things,
certain Home Equity Loans, its rights under this Agreement, the Payment Account,
the Collection Account and certain Insurance Policies (as each such term is
defined herein).
The parties desire to enter into this Agreement to provide, among other
things, for the servicing of the Home Equity Loans by the Servicer. The Servicer
acknowledges that, in order further to secure the Securities, the Issuer is and
will be granting to the Indenture Trustee a security interest in, among other
things, its rights under this Agreement, and the Servicer agrees that all
covenants and agreements made by the Servicer herein with respect to the Home
Equity Loans shall also be for the benefit and security of the Indenture Trustee
and Holders of the Securities. For its services hereunder, the Servicer will
receive a Servicing Fee (as defined herein) with respect to each Home Equity
Loan serviced hereunder.
ARTICLE I.
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, capitalized
terms used herein shall have the meanings set forth in Appendix A, unless the
context clearly indicates otherwise.
Section 1.2 Use of Words and Phrases. "Herein," "hereby," "hereunder,"
"hereof," "hereinbefore," "hereinafter" and other equivalent words refer to this
Agreement as a whole and not solely to the particular section of this Agreement
in which any such word is used. The definitions set forth in Section 1.1 hereof
include both the singular and the plural. Whenever used in this Agreement, any
pronoun shall be deemed to include both singular and plural and to cover all
genders.
<PAGE>
Section 1.3 Captions; Table of Contents. The captions or headings in this
Agreement and the Table of Contents are for convenience only and in no way
define, limit or describe the scope and intent of any provisions of this
Agreement.
ARTICLE II.
Conveyance of Home Equity Loans
Section 2.1 Conveyance of Home Equity Loans.
(a) As of the Cut-off Date, the Depositor hereby sells, transfers, assigns,
sets over and conveys, without recourse, to the Issuer for the benefit of the
Noteholders, the Certificateholders and the Credit Enhancer, subject to the
terms of this Agreement, all of the Depositor's right, title and interest in and
to (i) the Home Equity Loans (excluding the Additional Loans) and all principal
collected and interest accrued on each such Home Equity Loan on and after the
Cut-off Date; provided, however, that the Depositor reserves and retains all of
its right, title and interest in and to principal (including Prepayments)
collected and interest accrued on each such Home Equity Loan prior to the
Cut-off Date, (ii) such amounts, including Eligible Investments, as from time to
time may be held by the Indenture Trustee in any related Account, and by the
Servicer in the related Collection Account or otherwise held by the Servicer in
trust for the Noteholders or Certificateholders (except as otherwise provided
herein), (iii) any Property, the ownership of which has been effected in the
name of the Servicer on behalf of the Issuer as a result of foreclosure or
acceptance by the Servicer of a deed in lieu of foreclosure and that has not
been withdrawn from the Issuer and any related REO Proceeds, (iv) the rights, if
any, of the Issuer in any Insurance Policies relating to the Home Equity Loans,
(v) Net Liquidation Proceeds (but only to the extent that such Net Liquidation
Proceeds do not exceed the Loan Balance of the related Home Equity Loan plus
accrued and unpaid interest on such Home Equity Loan) with respect to any
Liquidated Loan, (vi) the Policy and (vii) the Reserve Account. Additionally, in
connection with such transfer and assignment pursuant to Section __ of the Loan
Sale Agreement, the Depositor hereby assigns to the Issuer all of the
Depositor's right, title and interest in its rights and benefits, but none of
its obligations or burdens, under the Loan Sale Agreement, including without
limitation, the Seller's rights under the Loan Purchase Agreement, and the
delivery requirements, representations, warranties and the cure, repurchase or
substitution obligations of the Originators under the Loan Purchase Agreement.
The foregoing sale, transfer, assignment, setover and conveyance to the Issuer
shall be made to the Indenture Trustee, on behalf of the Issuer, and each
reference in this Agreement to such sale, transfer, assignment, set over and
conveyance shall be construed accordingly. The foregoing items referred to
herein as the "Trust Estate."
(b) Pursuant to Section ____ of the Loan Purchase Agreement, each
Originator has agreed to take the actions specified in Part I of Exhibit D
attached hereto.
(c) The Issuer, concurrently with the execution and delivery hereof, and
effective immediately following the transfer of the Home Equity Loans or the
Closing Date to the Indenture Trustee, does hereby assign and reconvey to the
Depositor without recourse all right, title and interest in and to the Retained
Interest.
2
<PAGE>
(d) The actions required pursuant to Part I of Exhibit D hereto are not,
and shall not be construed to be, conditions subsequent; the parties hereto
declaring that the sale of the Home Equity Loans to be made hereunder on the
Closing Date shall be a completed, absolute and final sale.
Although it is the intent of the parties to this Agreement that the
conveyance of the Depositor's right, title and interest in and to the Home
Equity Loans and other assets in the Trust Estate pursuant to this Agreement
shall constitute a purchase and sale and not a loan, in the event that such
conveyance is deemed to be a loan, it is the intent of the parties to this
Agreement that the Depositor shall be deemed to have granted to the Owner
Trustee for the benefit of the Securityholders a first priority perfected
security interest in all of the Depositor's right, title and interest in, to and
under the Home Equity Loans and other assets in the Trust Estate, and that this
Agreement shall constitute a security agreement under application law.
Section 2.2 Acceptance by Indenture Trustee; Certain Substitutions of Home
Equity Loans; Certification by Indenture Trustee.
(a) The Indenture Trustee agrees to execute and deliver on the Closing Date
and on each Deposit Date an acknowledgment of receipt of the items specified in
Part I of Exhibit D and delivered by or at the direction of the Depositor with
respect to the Issuer in the form attached as Exhibit C hereto, and declares
that it will hold such documents and any amendments, replacements or supplements
thereto, as well as any other assets included in the definition of the Trust
Estate and delivered to the Indenture Trustee, as Indenture Trustee in trust for
the Issuer upon and subject to the conditions set forth herein for the benefit
of the Noteholders, the Certificateholders and the Credit Enhancer. The
Indenture Trustee agrees, for the benefit of the Noteholders, the
Certificateholders and the Credit Enhancer, to review such items with respect to
the Issuer delivered to it (i) within 45 days after the Closing Date and (ii)
the first anniversary of the Closing Date (or, with respect to any document
delivered after the Closing Date pursuant to Part I of Exhibit D, within 45 days
of receipt and with respect to any Additional Loan or Eligible Substitute
Mortgage, within 45 days after the related Deposit Cut-off Date or Replacement
Cut-off Date) and to deliver to the Depositor, the Owner Trustee, the
Originators and the Credit Enhancer a certification (the "Certification") in the
form attached hereto as Exhibit A to the effect that, as to each Home Equity
Loan listed in the Schedule of Home Equity Loans and Schedule of Additional
Loans (other than any Home Equity Loan paid in full or any Home Equity Loan
specifically identified in such Certification as not covered by such
Certification), (i) all documents required to be delivered to it pursuant to
Part I of Exhibit D are in its possession, (ii) such documents have been
reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such Home Equity Loan and (iii) based on its
examination and only as to the foregoing documents, the information set forth on
the Schedule of Home Equity Loans and Schedule(s) of Additional Loans as to loan
number, address (including state) of the Primary Parcel, the Original Principal
Balance, the Index, the Gross Margin, the Periodic Rate Cap, the Lifetime Cap,
the Lifetime Floor and the maturity date, accurately reflects the information
set forth in the related File. The Indenture Trustee shall be under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine, valid,
3
<PAGE>
recordable, sufficient, suitable, insurable, collectable, enforceable, or
appropriate for the represented purpose or that they are other than what they
purport to be on their face, nor shall the Indenture Trustee be under any duty
to determine independently whether there are any intervening assignments or
assumption or modification agreements with respect to any Home Equity Loan.
(b) If the Indenture Trustee during such 45-day or one-year period finds
any document constituting a part of a File which is not executed, has not been
received, or is unrelated to the Home Equity Loans identified in the Schedule of
Home Equity Loans or Schedule(s) of Additional Loans, as the case may be, or
that any Home Equity Loan does not conform in a material respect to the
description thereof as set forth in the Schedule of Home Equity Loans or
Schedule(s) of Additional Loans, as the case may be, the Indenture Trustee shall
promptly so notify the Depositor, the Owner Trustee, the Originators and the
Credit Enhancer. In the event the Certification delivered after the one-year
period reflects any exceptions, the Indenture Trustee shall deliver
Certifications on each subsequent Payment Date to the Credit Enhancer, the Owner
Trustee, the Depositor, the Servicer and the Originators until all such
exceptions have been cured (or waived by the Credit Enhancer) or the related
Home Equity Loans have been repurchased. In performing any such review, the
Indenture Trustee may conclusively rely on the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
Indenture Trustee's review of the items delivered by or on behalf of the
Depositor pursuant to Part I of Exhibit D is limited solely to confirming that
the documents listed in Part I of Exhibit D have been executed and received,
where required to be original documents are originals, relate to the Files
identified in the Schedule of Home Equity Loans and Schedule(s) of Additional
Loans and conform materially to the description thereof in the Schedule of Home
Equity Loans and Schedule(s) of Additional Loans. The Originators have agreed,
pursuant to the Loan Purchase Agreement, to use reasonable efforts to remedy a
material defect in a document constituting part of a File of which it is so
notified by the Indenture Trustee or the Credit Enhancer. If, however, within 60
days after the Indenture Trustee's or the Credit Enhancer's notice to the
applicable Originator respecting such defect the applicable Originator has not
remedied, or caused to be remedied, the defect and the defect materially and
adversely affects the interest of the Noteholders, the Certificateholders and
the Credit Enhancer in the related Home Equity Loan, the Depositor will (or will
cause the applicable Originator to) on the next succeeding Remittance Date (i)
substitute in lieu of such Home Equity Loan an Eligible Substitute Mortgage and
deliver the Substitution Adjustment Amount applicable thereto to the Servicer
for deposit in the Collection Account or (ii) purchase such Home Equity Loan at
a purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Servicer for deposit in the Collection Account. In
connection with any such proposed purchase or substitution, the Eligible
Substitute Mortgage or Mortgages shall be subject to the terms of this Agreement
in all respects, and the Depositor shall be deemed to have made with respect to
such Eligible Substitute Mortgage or Mortgages, as of the date of substitution,
the covenants, representations and warranties set forth in Exhibit D. The
procedures applied by the Depositor in selecting each Eligible Substitute
Mortgage shall not be materially adverse to the interests of the Owner Trustee,
the Indenture Trustee, the Securityholders or the Credit Enhancer.
Section 2.3 Cooperation Procedures. (a) The Depositor shall or shall cause
the applicable Originator, in connection with the delivery of each Eligible
Substitute Mortgage to the Indenture
4
<PAGE>
Trustee, provide the Indenture Trustee with the information as of the
Replacement Cut-Off Date set forth in the Schedule of Home Equity Loans or
Schedule(s) of Additional Loans, as the case may be, with respect to such
Eligible Substitute Mortgage.
(b) The Depositor, the Servicer and the Indenture Trustee covenant to
provide each other and the Credit Enhancer and the Owner Trustee with all data
and information required to be provided by them hereunder at the times required
hereunder, and additionally covenant reasonably to cooperate with each other and
with the Credit Enhancer and the Owner Trustee in providing any additional
information required by any of them in connection with their respective duties
hereunder. The Depositor covenants to cause the Originators to provide such
information and reasonable cooperation.
Section 2.4 Sale and Conveyance of the Additional Loans. (a) Subject to the
conditions set forth in paragraph (b) below, in consideration of the delivery on
the related Deposit Dates to or upon the order of the Depositor of all or a
portion of the balance of funds in the Funding Account, the Depositor shall on
any Deposit Date sell, transfer, convey and assign to the Issuer, without
recourse as to payment and without any representations or warranties express or
implied except those set forth in the Transfer Agreement, all right, title and
interest of the Depositor in and to each Additional Loan listed on the Schedule
of Additional Loans delivered on such Deposit Date, all its right, title and
interest in and to principal collected and interest accrued on and after the
related Deposit Cut-off Date; provided, however, that the Depositor shall
reserve and retain all its right, title and interest in and to principal
(including Prepayments) collected prior to the related Deposit Cut-off Date and
interest accrued on each such Additional Loan prior to the related Deposit
Cut-off Date. The transfer by the Depositor of the Additional Loans set forth on
the Schedule of Additional Loans shall be absolute and shall be intended by all
parties hereto to be treated as a complete, absolute and final sale.
The amount released from a Funding Account shall be one-hundred percent
(100%) of the aggregate principal balances as of the applicable Deposit Cut-off
Date of the Additional Loans so transferred to the Issuer.
(b) Each of the following conditions shall be satisfied on or prior to each
Deposit Date:
(i) the Originators shall have provided the Indenture Trustee and the
Credit Enhancer with a timely Addition Notice and shall have provided any
information reasonably requested by either of the foregoing with respect to
the Additional Loans;
(ii) the Depositor shall have executed and delivered a Transfer
Agreement with all required schedules and exhibits;
(iii) the Originators shall have delivered to the Servicer for deposit
in the Collection Account all collections in respect of the Additional
Loans received on or after the related Deposit Cut-off Date;
5
<PAGE>
(iv) the Additional Loans shall satisfy the conditions set forth in
Exhibit G hereto;
(v) as of each Deposit Date, none of the related Originator, the
Seller or the Depositor is insolvent nor will any of them have been made
insolvent by such transfer nor is any of them aware of any pending
insolvency;
(vi) such purchase and sale of Additional Loans will not result in a
material adverse tax consequence to the Issuer, the Noteholders or the
Certificateholders;
(vii) the applicable Funding Period shall not have terminated; and
(viii) unless otherwise covered by the opinions delivered on the
Closing Date, the Depositor shall have delivered to the Credit Enhancer,
the Rating Agencies, the Owner Trustee and the Indenture Trustee opinions
of counsel with respect to the transfer of the Additional Loans
substantially in the form of the opinions of counsel delivered to the
Credit Enhancer, the Rating Agencies, the Owner Trustee and the Indenture
Trustee on the Closing Date.
(c) In connection with the transfer and assignment of the Additional Loans,
the Originators have agreed to satisfy the obligations and covenants set forth
in Part I and Part III of Exhibit D with respect to such Additional Loans,
except that references in Part I of Exhibit D to Home Equity Loans, the Closing
Date and the Cut-off Date shall refer to the applicable Additional Loans,
Deposit Date and Deposit Cut-off Date, respectively except that references to
one year from the Closing Date shall remain unchanged.
ARTICLE III.
Representations, Warranties and Covenants
Section 3.1 Representations and Warranties of the Depositor. (a) The
Depositor hereby represents, warrants and covenants to the Servicer, the
Indenture Trustee, the Owner Trustee and the Credit Enhancer as of the Closing
Date and each Deposit Date as follows:
(i) The Depositor is, and as of each Deposit Date will be, a
corporation duly organized, validly existing and in good standing under the
laws of the State of Louisiana. The Depositor has all requisite corporate
power and authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted, to enter
into and discharge its obligations under this Agreement and each Transfer
Agreement. The Depositor is, and as of each Deposit Date will be, duly
qualified to do business and is in good standing in each jurisdiction
necessary to perform its obligations under this Agreement and each Transfer
Agreement.
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(ii) The execution and delivery of this Agreement and each Transfer
Agreement by the Depositor and its performance and compliance with the
terms of this Agreement and each Transfer Agreement have been duly
authorized by all necessary corporate action on the part of the Depositor
and will not violate the Depositor's Articles of Incorporation or Bylaws or
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default), under, or result in a breach of, any
material contract, agreement or other instrument to which the Depositor is
a party or by which the Depositor is bound or violate any statute or any
order, rule or regulation of any court, governmental agency or body or
other tribunal having jurisdiction over the Depositor or any of its
properties.
(iii) Assuming due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes, and each Transfer Agreement
will constitute, a valid, legal and binding obligation of the Depositor,
enforceable against it in accordance with the terms hereof, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (whether considered in
a proceeding or action in equity or at law).
(iv) The Depositor is not, and as of each Deposit Date will not be, in
default with respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or governmental
agency, which is likely to have consequences that would materially and
adversely affect the condition (financial or other) or operations of the
Depositor or its properties or is likely to have consequences that would
materially and adversely affect its performance hereunder or under any
Transfer Agreement.
(v) No litigation is pending or, to the best of the Depositor's
knowledge, threatened against the Depositor the consequences of which would
prohibit its entering into this Agreement or any Transfer Agreement or that
would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or the
consequences of which would materially and adversely affect its performance
hereunder or thereunder.
(vi) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required
to be taken, given or obtained, as the case may be, by or from any federal,
state or other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Depositor makes no such
representation or warranty), that are necessary or advisable in connection
with the purchase of the Home Equity Loans and the execution and delivery
by the Depositor of this Agreement and each Transfer Agreement, have been
or will be duly taken, given or obtained, as the case may be, are or will
be in full force and effect on the date hereof or thereof, as the case may
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be, are not subject to any pending proceeding or appeals (administrative,
judicial or otherwise) and either the time within which any appeal
therefrom may be taken or review thereof may be obtained has expired or no
review thereof may be obtained or appeal therefrom taken, and are adequate
to authorize this Agreement and each Transfer Agreement and the performance
by the Depositor of its obligations hereunder or thereunder.
(vii) No certificate of an officer, statement furnished in writing,
report or electronic tape delivered pursuant to the terms hereof or any
Transfer Agreement by the Depositor contains or will contain any untrue
statement of a material fact or omits or will omit to state any material
fact necessary to make the certificate, statement or report not misleading.
(viii) Immediately prior to the transfer and assignment contemplated
by this Agreement and each Transfer Agreement, the Depositor was or will be
the sole owner of each Home Equity Loan, subject to no liens, charges,
mortgages, encumbrances or rights of others except liens which will be
released simultaneously with such transfer or assignment; and immediately
upon the transfer and assignment contemplated by this Agreement and each
Agreement, the Indenture Trustee will hold good and indefeasible title to,
and will be the sole owner of, each Home Equity Loan subject to no liens,
charges, mortgages, encumbrances or rights of others.
(b) It is understood and agreed that the representations and warranties set
forth in this Section 3.1 shall survive delivery of the respective Home Equity
Loans to the Indenture Trustee. Upon discovery by the Servicer, the Depositor,
any Subservicer, the Credit Enhancer, the Indenture Trustee or the Owner Trustee
of a breach of any of the representations and warranties set forth in this
Section 3.1 which materially and adversely affects the interests of the
Noteholders, the Certificateholders or of the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
listed in the preceding sentence.
Section 3.2 Representations and Warranties of the Servicer. (a) The
Servicer hereby represents, warrants and covenants to the Depositor, the
Indenture Trustee, the Owner Trustee and the Credit Enhancer as of the Closing
Date and each Deposit Date that:
(i) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Louisiana, is, and any
Subservicer will be, in compliance with the laws of each state in which any
Property is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation in
each jurisdiction in which the nature of its business, or the properties
owned or leased by it make such qualification necessary. The Servicer and
each Subservicer has all requisite corporate power and authority to own and
operate its properties, to carry out its business as presently conducted
and as proposed to be conducted and to enter into and discharge its
obligations under this Agreement. The Servicer has, on a consolidated basis
with its top-tier parent,
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United Companies Financial Corporation, equity of at least $15,000,000, as
determined in accordance with generally accepted accounting principles.
(ii) The execution and delivery of this Agreement by the Servicer and
its performance and compliance with the terms of this Agreement have been
duly authorized by all necessary corporate action on the part of the
Servicer and will not violate the Servicer's Articles of Incorporation or
Bylaws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach
of, any material contract, agreement or other instrument to which the
Servicer is a party or by which the Servicer is bound or violate any
statute or any order, rule or regulation of any court, governmental agency
or body or other tribunal having jurisdiction over the Servicer or any of
its properties.
(iii) This Agreement, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a valid, legal and
binding obligation of the Servicer, enforceable against it in accordance
with the terms hereof, except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in
equity or at law).
(iv) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which is likely to have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its properties or
is likely to have consequences that would materially and adversely affect
its performance hereunder.
(v) No litigation is pending or, to the best of the Servicer's
knowledge, threatened against the Servicer which litigation is likely to
have consequences that would prohibit its entering into this Agreement or
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Servicer or its properties or is likely to
have consequences that would materially and adversely affect its
performance hereunder.
(vi) No certificate of an officer, statement furnished in writing,
report or electronic tape delivered pursuant to the terms hereof by the
Servicer contains any untrue statement of a material fact or omits to state
any material fact necessary to make the certificate, statement or report
not misleading.
(vii) The Servicing Fee is a "current (normal) servicing fee rate" as
that term is used in Statement of Financial Accounting Standards No. 65
issued by the Financial Accounting Standards Board. Neither the Servicer
nor any affiliate
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thereof will report on any financial statements any part of the Servicing
Fee as an adjustment to the sales price of the Home Equity Loans.
(viii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any
such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Servicer makes no such
representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Servicer of this Agreement, have
been duly taken, given or obtained, as the case may be, are in full force
and effect on the date hereof, are not subject to any pending proceedings
or appeals (administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the performance by the
Servicer of its obligations under this Agreement.
(ix) The collection practices used by the Servicer with respect to the
Home Equity Loans have been, in all material respects, legal, proper,
prudent and customary in the home equity loan servicing business.
(x) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer.
(b) It is understood and agreed that the representations and warranties set
forth in this Section 3.2 shall survive delivery of the Home Equity Loans to the
Indenture Trustee. Upon discovery by any of the Servicer, the Depositor, the
Credit Enhancer, the Indenture Trustee or the Owner Trustee of a breach of any
of the representations and warranties set forth in this Section 3.2 which
materially and adversely affects the interest of the Noteholders, the
Certificateholders or of the Credit Enhancer, the party discovering such breach
shall give prompt written notice to the other parties. Within 30 days of its
discovery or its receipt of notice of breach, the Servicer shall cure such
breach in all material respects and, upon the Servicer's continued failure to
cure such breach, may thereafter be removed by the Indenture Trustee pursuant to
Section 7.1 hereof; provided, however, that if the Servicer can demonstrate to
the reasonable satisfaction of the Credit Enhancer that it is diligently
pursuing remedial action, then the cure period shall be extended for up to an
additional 30 days.
Section 3.3 Covenants of the Depositor. (a) Pursuant to Section 2.1 hereof,
the Depositor has conveyed to the Issuer all of the Depositor's right, title and
interest in its rights and benefits, but none of its obligations or burdens,
under the Loan Purchase Agreement and the Loan Sale Agreement, including without
limitation, the benefit of the representations, warranties and covenants and
cure, repurchase or substitution obligations of the Originators under the Loan
Purchase Agreement. The Depositor hereby represents and warrants to the
Indenture Trustee and the Owner Trustee on behalf of the Noteholders, the
Certificateholders and the Credit Enhancer that such assignment is valid,
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enforceable and effective to permit the Trustees to enforce such obligations of
the Originators under the Loan Purchase Agreement. Each Originator has made the
representations and warranties regarding the Home Equity Loans as set forth in
Part II of Exhibit D hereto, and has agreed to certain actions as specified in
Part III of Exhibit D hereto.
(b) It is understood and agreed that the representations and warranties set
forth in Part II of Exhibit D and the covenants set forth in Part III of Exhibit
D shall survive delivery of the respective Home Equity Loans (including Eligible
Substitute Mortgages) to the Indenture Trustee.
(c) None of the Originators, the Seller or any Affiliate has made any
representations or warranties, whether express or implied, to the Depositor or
to the Indenture Trustee as to the collectability of the Home Equity Loans or
the solvency of the Mortgagors, or any guarantor(s), endorser(s), co-maker(s),
assuming party(ies) or the sufficiency or value, as of the date of this
Agreement, of any Property, except as specifically listed in Part II of Exhibit
D.
ARTICLE IV.
Servicing and Administration
of Home Equity Loans
Section 4.1 General Servicing Procedures. (a) Acting directly or through
one or more Subservicers as provided in Section 4.3, the Servicer, as an
independent contract servicer, shall service and administer the Home Equity
Loans in accordance with this Agreement and shall have full power and authority,
acting alone, to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable and
consistent with the terms of this Agreement. Notwithstanding any provision to
the contrary elsewhere in this Agreement, the Servicer shall not have any
duties, responsibilities, or fiduciary relationship with the parties hereto
except those expressly set forth herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or shall otherwise exist against the Servicer.
(b) The Servicer may, and is hereby authorized to, perform any of its
servicing responsibilities with respect to all or certain of the Home Equity
Loans through a Subservicer as it may from time to time designate, but no such
designation of a Subservicer shall serve to release the Servicer from any of its
obligations under this Agreement. Such Subservicer shall have all the rights and
powers of the Servicer with respect to such Home Equity Loans under this
Agreement.
(c) Without limiting the generality of the foregoing, but subject to
Sections 4.2, 4.13 and 4.14, the Servicer in its own name or in the name of a
Subservicer hereby is authorized and empowered, which authorization may further
be evidenced, at the reasonable request of the Servicer, by a power of attorney
executed and delivered by the Indenture Trustee, on behalf of itself, the
Issuer, the Owner Trustee, the Noteholders and the Certificateholders or any of
them, (i) to execute and deliver any and all instruments of satisfaction or
cancellation or of partial or full release or discharge and all other comparable
instruments with respect to the Home Equity Loans and with respect to the
Properties, (ii) to institute foreclosure proceedings or obtain a deed in lieu
of
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foreclosure so as to effect ownership of any Property in its own name on behalf
of the Indenture Trustee, and (iii) to hold title in its own name on behalf of
the Indenture Trustee to any Property upon such foreclosure or deed in lieu of
foreclosure on behalf of the Indenture Trustee; provided, however, that to the
extent any instrument described in clause (i) preceding would be delivered by
the Servicer outside of its ordinary procedures for mortgage loans held for its
own account the Servicer shall, prior to executing and delivering such
instrument, obtain the prior written consent of the Credit Enhancer, and
provided further, however, that Section 4.14(a) shall constitute a power of
attorney from the Indenture Trustee to the Servicer to execute an instrument of
satisfaction (or assignment of mortgage without recourse) with respect to any
Home Equity Loan paid in full (or with respect to which payment in full has been
escrowed). Subject to Sections 4.13 and 4.14, the Indenture Trustee shall
furnish the Servicer and any Subservicer with any powers of attorney and other
documents as the Servicer or such Subservicer shall reasonably request to enable
the Servicer and such Subservicer to carry out their respective servicing and
administrative duties hereunder.
(d) The Servicer shall have the right to approve requests of Mortgagors for
consent to (i) partial releases of Mortgages, (ii) alterations and (iii)
removal, demolition or division of Properties subject to Mortgages. No such
request shall be approved by the Servicer unless: (A) (x) the provisions of the
related Mortgage Note and Mortgage have been complied with; (y) the
loan-to-value ratio (which may, for this purpose, be determined at the time of
any such action in a manner reasonably acceptable to the Credit Enhancer) after
any release does not exceed the loan-to-value ratio set forth for such Home
Equity Loan in the Schedule of Home Equity Loans or Schedule of Additional
Loans, as applicable, delivered to the Indenture Trustee; and (z) the lien
priority of the related Mortgage is not affected or (B) the Credit Enhancer
shall have approved the granting of such request.
(e) The Servicer shall give prompt notice to the Indenture Trustee, to the
Owner Trustee and to the Credit Enhancer of any action, of which the Servicer
has actual knowledge, to (i) assert a claim against the Issuer or (ii) assert
jurisdiction over the Issuer.
(f) Servicing Advances incurred by the Servicer or any Subservicer in
connection with the servicing of the Home Equity Loans (including any penalties
in connection with the payment of any taxes and assessments or other charges) on
any Property shall be recoverable by the Servicer or such Subservicer to the
extent described in Section 4.9(b) hereof.
(g) The Servicer and any Servicer Affiliate may make loans to and generally
engage in any kind of business with the Mortgagors and/or any other obligors
under the Home Equity Loans as though the Servicer were not a party to this
Agreement. The Servicer may have other existing loans and in the future may make
additional loans to any of the Mortgagors and/or to other obligors under the
Home Equity Loans, which other and/or additional loans may not be sold, or a
loan participation therein granted, to the Issuer. The Servicer shall collect
payments under the Home Equity Loans in the same preference and priority as the
collection and/or enforcement of any other and/or additional loans by the
Servicer or any Servicer Affiliate.
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(h) Each of the Servicer, the Depositor, the Indenturer Trustee, the Owner
Trustee and the Certificate Enhancer shall be entitled to rely, and shall be
fully protected in relying, upon any promissory note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document reasonably
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person or persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Mortgagor(s)), independent
accountants and other experts selected by the Servicer, the Depositor, the
Indenture Trustee, the Owner Trustee or the Credit Enhancer. The Servicer shall
be fully justified in failing or refusing to take any action under this
Agreement for which it has sought and received instructions from the Noteholders
and the Certificateholders and has been consented to by the Credit Enhancer. The
Servicer shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the Home Equity Loans in accordance with an
express written request of the Noteholders and the Certificateholders to which
the Credit Enhancer has consented, and such request and any action taken or
failure to act pursuant thereto shall be binding upon the Servicer, the
Depositor, the Indenture Trustee, the Owner Trustee, the Credit Enhancer and all
Noteholders and the Certificateholders. In the event of any conflicting
instructions or requests, the instructions or requests delivered by the Credit
Enhancer shall prevail, unless such instructions or requests violate the express
terms of this Agreement or violate applicable law.
Section 4.2 Collection of Certain Home Equity Loan Payments. The Servicer
shall generally service the Home Equity Loans in a prudent manner consistent
with its general servicing standards and agrees to make reasonable efforts to
collect all payments called for under the terms and provisions of the Home
Equity Loans, and shall, to the extent such procedures shall be consistent with
this Agreement, follow collection procedures for all Home Equity Loans at least
as rigorous as those the Servicer would ordinarily take in servicing loans and
in collecting payments thereunder for its own account. Consistent with the
foregoing, the Servicer may (i) in its discretion waive or permit to be waived
any late payment charge, prepayment charge, assumption fee or any penalty
interest in connection with the prepayment of a Home Equity Loan or any other
fee or charge which the Servicer would be entitled to retain hereunder as
servicing compensation, (ii) extend the due date for payments due on a Mortgage
Note for a period (with respect to each payment as to which the due date is
extended) not greater than 125 days after the initially scheduled due date for
such payment, (iii) amend any Mortgage Note to reduce the Loan Rate applicable
thereto, provided that such reduced Loan Rate shall always be greater than the
applicable Adjusted Pass-Through Rate, and (iv) amend any Mortgage Note to
extend the maturity thereof, provided that no maturity shall be extended beyond
the maturity date of the Home Equity Loan with the latest maturity date in the
Issuer and that no more than ____% of the Original Aggregate Loan Balance of the
Home Equity Loans shall have a maturity date which has been extended by the
Servicer beyond the maturity date thereof at the Cut-off Date. In the event the
Servicer shall consent to the deferment of the due dates for payments due on a
Mortgage Note, the Servicer shall nonetheless make payment of any required
Delinquency Advance with respect to the payments so extended to the same extent
as if such installment were due, owing and Delinquent and had not been deferred,
and shall be entitled to reimbursement therefor in accordance with Section
4.9(a) hereof.
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Section 4.3 Subservicing Agreements Between Servicer and Subservicers. The
Servicer may enter into Subservicing Agreements for any servicing and
administration of Home Equity 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 (x)(i) has been designated an approved
seller-servicer by FHLMC or FNMA for first and second mortgage loans and (ii)
has equity of at least $15,000,000, as determined in accordance with generally
accepted accounting principles or (y) is a Servicer Affiliate or (z) is approved
by the Credit Enhancer. The Servicer shall give notice to the Depositor, the
Indenture Trustee, the Owner Trustee, the Rating Agencies and the Credit
Enhancer of the appointment of any Subservicer. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Home Equity Loans when
any Subservicer has received such payments. Any such Subservicing Agreement
shall be consistent with and not violate the provisions of this Agreement.
Section 4.4 Successor Subservicers. The Servicer shall be entitled to
terminate any Subservicing Agreement in accordance with the terms and conditions
of such Subservicing Agreement and to either itself directly service the related
Home Equity Loans or enter into a Subservicing Agreement with a successor
Subservicer which qualifies under Section 4.3.
Section 4.5 Liability of Servicer. (a) The Servicer shall not be relieved
of its obligations under this Agreement notwithstanding any Subservicing
Agreement or any of the provisions of this Agreement relating to agreements or
arrangements between the Servicer and a Subservicer or otherwise, 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 Home Equity
Loans. The Servicer shall be entitled to enter into any agreement with a
Subservicer for indemnification of the Servicer by such Subservicer and nothing
contained in such Subservicing Agreement shall be deemed to limit or modify this
Agreement.
(b) The Servicer shall be responsible for the servicing of all of the Home
Equity Loans, including Servicing Transfer Loans. The Servicer shall not be
relieved of its obligations under this Agreement notwithstanding the fact that
the Servicing Transfer Loans may be serviced during the Servicing Transfer
Period by a party other than the Servicer or a Subservicer and the Servicer
shall be obligated to the same extent and under the same terms and conditions as
if it were servicing and administering all of the Home Equity Loans.
(c) It is understood and agreed that if the servicing of any Servicing
Transfer Loan is not transferred to the Servicer prior to the expiration of the
Servicing Transfer Period, the Servicer shall purchase such Servicing Transfer
Loan from the Indenture Trustee on the next Remittance Date.
Section 4.6 No Contractual Relationship Between Subservicer and the
Trustees, the Noteholders or the Certificateholders. Any Subservicing Agreement
and any other transactions or services relating to the Home Equity Loans
involving a Subservicer shall be deemed to be between the Subservicer and the
Servicer alone and the Depositor, the Indenture Trustee, the Owner Trustee, the
Noteholders and the Certificateholders shall not be deemed parties thereto and
shall have no claims,
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rights, obligations, duties or liabilities with respect to any Subservicer
except as set forth in Section 4.7.
Section 4.7 Assumption or Termination of Subservicing Agreement by
Indenture Trustee. In connection with the assumption of the responsibilities,
duties and liabilities and of the authority, power and rights of the Servicer
hereunder by the Indenture Trustee pursuant to Section 7.1, it is understood and
agreed that the Servicer's rights and obligations under any Subservicing
Agreement then in force between the Servicer and a Subservicer may be assumed or
terminated by the Indenture Trustee at its option without the payment of any fee
(notwithstanding any contrary provision in any Subservicing Agreement).
The Servicer shall, upon request of the Indenture Trustee, but at the
expense of the Servicer, deliver to the assuming party documents and records
relating to each Subservicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effect the
orderly and efficient transfer of the Subservicing Agreements to the assuming
party.
Section 4.8 Collection Accounts. (a) The Servicer shall establish and
maintain at one or more Designated Depository Institutions a Collection Account
in the name of the Issuer, which shall be a segregated account held in trust for
the benefit of the Noteholders and the Certificateholders.
Subject to Subsections (c), (e) and (g) below, the Servicer and any
Subservicer shall deposit all collections (other than amounts escrowed for taxes
and insurance) related to the Home Equity Loans to the Collection Account on a
daily basis (but no later than the first Business Day after receipt).
On or before the Closing Date, the Servicer shall deposit to the
appropriate Collection Account all collections (other than amounts representing
the Servicing Fee, interest accrued on the Home Equity Loans attributable to
periods prior to the Cut-off Date or amounts escrowed for taxes and insurance)
related to the Home Equity Loans in received on or after the Cut-off Date and
prior to the Closing Date. In addition, with respect to any Home Equity Loan
that did not have a first payment due on the Due Date in the calendar month
preceding the month of a Payment Date, on the Remittance Date in the month of
such Payment Date the Servicer shall deposit in the Collection Account an amount
equal to 30 days' interest at the Loan Rate (net of the Servicing Fee Rate) on
the Original Principal Balance of such Home Equity Loan. Such deposit shall not
be recoverable by the Servicer as a Delinquency Advance except to the extent
that Net Liquidation Proceeds exceed the Loan Principal Balance plus accrued
interest thereon at the related Loan Rate.
(b) All funds in the Collection Account shall be invested in Eligible
Investments maturing not later than the Business Day immediately preceding the
related Remittance Date. The Collection Account shall be held in trust in the
name of the Issuer for the benefit of the related Noteholders and
Certificateholders. Any investment earnings on funds held in the Collection
Account shall be for the account of the Servicer and may only be withdrawn from
the Collection Account by the Servicer immediately following the remittance of
the related Monthly Remittance by the Servicer. Any references herein to amounts
on deposit in the Collection Account shall refer
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to amounts net of such investment earnings. The amount of any losses on
investments in the Collection Account, to the extent not offset by earnings on
other investments held therein, shall be deposited in the Collection Account by
the Servicer upon the recognition of such net losses.
(c) The Servicer shall deposit to the Collection Account the following
amounts with respect to the Home Equity Loans: all principal and interest
collections on the Home Equity Loans received by the Servicer, including any
Prepayments, REO Proceeds and Net Liquidation Proceeds, other recoveries or
amounts related to the Home Equity Loans received by the Servicer, Compensating
Interest, Delinquency Advances together with any amounts which are reimbursable
to the Collection Account, amounts on account of net investment losses pursuant
to Section 4.8(b), the amount of any Loan Purchase Price received or paid by the
Servicer, the amount of any Substitution Adjustment Amount received by the
Servicer, any condemnation proceeds, the amount, if any, required to be
deposited pursuant to Section 4.11(b) and any proceeds received by the Servicer
in connection with the termination of the Issuer, but net of (i) the Servicing
Fee with respect to each Home Equity Loan and other servicing compensation to
the Servicer as permitted by Section 4.15 hereof, (ii) late collections on a
Home Equity Loan in respect of which the Servicer previously made a Delinquency
Advance which was not yet reimbursed, (iii) Liquidation Proceeds on account of a
Home Equity Loan to the extent necessary to reimburse the Servicer with respect
to any Liquidation Expenses and unreimbursed Servicing Advances or Delinquency
Advances relating to such Home Equity Loan, (iv) Net Liquidation Proceeds to the
extent such Net Liquidation Proceeds exceed the sum of (I) the Loan Balance of
the related Home Equity Loan, plus (II) accrued and unpaid interest on such Home
Equity Loan at the Loan Rate (net of the Servicing Fee) to the date of such
liquidation and (v) Retained Interest. Amounts described in clause (iv) of the
preceding sentence shall be retained by the Servicer as additional servicing
compensation or paid over to the related Mortgagor if required by law.
(d) (i) The Servicer may make withdrawals from the Collection Account only
for the following purposes:
(A) to effect the timely remittance to the Indenture Trustee of the
Monthly Remittances, the Loan Purchase Prices and the
Substitution Adjustment Amounts due on the Remittance Date;
(B) to withdraw investment earnings on amounts on deposit in the
Collection Account;
(C) to withdraw amounts that have been deposited to the Collection
Account in error; and
(D) to clear and terminate the Collection Account.
(ii) On the tenth day of each month, the Servicer shall send to the
Indenture Trustee a report, in the form of a computer tape, detailing the
payments on the Home Equity Loans during the prior Remittance Period. Such
tape shall be in the form and have the specifications as may be agreed to
between the Servicer and the
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Indenture Trustee from time to time. In addition, on or prior to each
Remittance Date, the Servicer will furnish to the Indenture Trustee and to
the Credit Enhancer the information set forth in Section 5.5(b) as of the
close of business on the last business day of the prior calendar month.
(iii) On each Remittance Date the Servicer shall remit to the
Indenture Trustee by wire transfer, or otherwise make funds available in
immediately available funds; the Monthly Remittances, all Substitution
Adjustment Amounts and any Loan Purchase Prices.
(e) At any time prior to the occurrence of a Credit Enhancer default and in
lieu of the requirement of depositing collections on the Home Equity Loans into
the Collection Account, the Servicer may deliver to the Indenture Trustee a
Servicer LOC. A Servicer LOC must be irrevocable and (i) issued by a commercial
bank rated A or better by S&P and A2 or better by Moody's and acceptable to the
Credit Enhancer, the Depositor and the Trustees, (ii) be in form and substance
satisfactory to the Credit Enhancer, the Depositor and the Trustees, (iii) may
have a maximum term of not more than one year, (iv) must name the Trustees as
beneficiaries, (v) must be in an amount acceptable to the Credit Enhancer, the
Depositor and the Rating Agencies, and (vi) must provide for drawings thereunder
conditioned only upon presentation of a sight draft accompanied by the
applicable certificate in the form attached thereto.
The Indenture Trustee shall accept any such Servicer LOC only if such
Servicer LOC is accompanied by (i) the written consent of the Depositor and of
the Credit Enhancer, (ii) an opinion of counsel to the issuer thereof
satisfactory to the Credit Enhancer and the Depositor to the effect that (x)
such Servicer LOC has been duly authorized, executed and delivered by the issuer
thereof and constitutes a valid and binding obligation of such issuer, subject
only to laws affecting creditors' rights generally and (y) in the event that the
Person obligated to reimburse the issuer thereof for drawings under such
Servicer LOC should be subject to any proceedings under the U.S. Bankruptcy
Code, drawings under such Servicer LOC would not be recoverable by the estate of
such Person, from the Trustees or any Noteholder or Certificateholder as a
"preference" or otherwise and (iii) an opinion of counsel experienced in federal
income tax matters acceptable to the Credit Enhancer and the Depositor to the
effect that such delivery __________.
Upon receipt of such Servicer LOC, such consents and such opinions by the
Indenture Trustee, and for so long as such Servicer LOC (or any qualifying
replacement thereof) is in effect, the Servicer shall not be required to deposit
collections on the Home Equity Loans to the Collection Account, but may
co-mingle such collections with the Servicer's general funds. Amounts are to be
deposited with the Indenture Trustee on the Business Day preceding such
Remittance Date. Notice of the delivery of any Servicer LOC shall be given to
the Rating Agencies by the Indenture Trustee.
If, as of any date that is 125 Business Days prior to the stated expiration
date of any Servicer LOC, (i) a Servicer LOC (which may be a renewal or
extension of the expiring Servicer LOC) in the same amount as the amount then
available for drawing under the expiring Servicer
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LOC has not been delivered to the Indenture Trustee or (ii) the Servicer has not
deposited all collections on the Home Equity Loans then held by the Servicer to
the Collection Account and notified the Indenture Trustee that the Servicer will
thenceforth deposit all future collections on the Home Equity Loans in the
Collection Account, then the Indenture Trustee shall, on the next Business Day,
cause to be presented to the issuer of the expiring Servicer LOC a draft in
proper form for payment thereunder and otherwise in conformity with the terms
thereof for the full amount then available to be drawn thereunder, together with
its certificate that such drawing is in accordance with this Section 4.8.
Upon discovery by any of the Depositor, the Credit Enhancer, the Indenture
Trustee or the Owner Trustee that the bank issuing a Servicer LOC has a rating
(x) by S&P of lower than A or by Moody's of lower than A2 or (y) which is
unacceptable to the Credit Enhancer, the party discovering such rating hereby
covenants and warrants that it shall promptly give notice to the others. If,
within 20 days of such discovery (i) the Indenture Trustee has not received a
substitute Servicer LOC meeting the requirements of this Agreement in
replacement of such Servicer LOC, or (ii) the Servicer has not theretofore
deposited all collections on the Home Equity Loans then held by the Servicer to
the Collection Account and notified the Indenture Trustee that the Servicer will
thenceforth deposit all future collections on the Home Equity Loans to the
Collection Account, then the Indenture Trustee shall cause to be presented to
the issuer of such Servicer LOC a drawing certificate in proper form for payment
thereunder and otherwise in conformity with the terms thereof, and shall draw
the full amount available to be drawn under such Servicer LOC.
In the event that, upon the occurrence of any event described in clauses
(a)(i) or (a)(ii) of Section 7.1 hereof, the Servicer is unable to remit to the
Indenture Trustee any collections on the Home Equity Loans, the Indenture
Trustee shall immediately draw on the Servicer LOC the full amount available to
be drawn thereunder. Upon the occurrence of any event described in clauses
(a)(i) or (a)(ii) of Section 7.1 hereof, the Servicer shall immediately deposit
all collections on the Home Equity Loans then held by the Servicer to the
Collection Account and shall thenceforth deposit all future collections on the
Home Equity Loans to the Collection Account.
The proceeds of any drawing on the Servicer LOC shall be held by the
Indenture Trustee in trust for the benefit of the Noteholders and
Certificateholders in a segregated trust account, and shall be used to fund any
shortfall in the required amount of any Monthly Remittance. Any amounts not so
used by the Indenture Trustee shall be turned over to the Servicer only upon the
written consent of the Credit Enhancer, of the Owner Trustee and of the
Depositor, which consent shall not unreasonably be withheld.
During any period for which a Servicer LOC is in effect, the phrase
"amounts then on deposit in the Collection Account," or words of similar import,
as used in this Agreement, shall mean collections on the Home Equity Loans held
by the Servicer as part of its general funds.
(g) As to each ARM, the Retained Interest shall be payable by the Servicer
to or at the direction of the Depositor from payments of interest on such ARM
actually collected or recovered while such ARM (other than the Retained
Interest) is part of the Trust, shall accrue at the
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Retained Interest Rate and shall be computed on the basis as the same principal
amount and for the same period respecting which any related interest payment due
on such ARM is computed. If any Property securing an ARM becomes an REO
Property, the Retained Interest with respect thereto shall cease to accrue as of
the date of acquisition of such Property on behalf of the Issuer. If any ARM is
removed from the Issuer, the Retained Interest with respect thereto shall cease
to accrue as of the date of removal. Any Person entitled to the Retained
Interest shall be entitled to recover accrued but unpaid Retained Interest in
respect of any ARM out of related Insurance Proceeds and Net Liquidation
Proceeds as provided below, or from any Person acquiring such ARM. Subject to
the foregoing, the Depositor's right to receive the Retained Interest with
respect to each ARM is absolute and unconditional, and shall survive
notwithstanding the termination of the rights and obligations of the Servicer or
the termination of this Agreement. The Servicer shall pay to or at the direction
of the Depositor, on a monthly basis, any amounts collected by the Servicer on
account of Retained Interest on the ARMs or shall otherwise hold and distribute
such amounts in accordance with the terms of any agreement relating to the
Retained Interest to which the Servicer is a party. The Depositor shall have the
right to assert any or all of its right in and to the Retained Interest, without
notice to or the consent of the Indenture Trustee, the Owner Trustee, the Credit
Enhancer or any Noteholder or Certificateholder.
For purposes of determining the Retained Interest recovered from Net
Liquidation Proceeds or Insurance Proceeds, such proceeds shall be allocated
first to accrued but unpaid interest at the Loan Rate and then to principal. If
the amount of such proceeds allocated to accrued but unpaid interest at the Loan
Rate is less than the total amount of such accrued but unpaid interest, the
portion thereof attributable to interest at the Adjusted Pass-Through Rate and
the Retained Interest Rate (if applicable) shall be allocated pro rata in
proportion to the amount that would have been so allocated in the absence of
such shortfall.
Section 4.9 Delinquency Advances and Servicing Advances. (a) If the amount
on deposit in a Collection Account as of any Remittance Date is less than the
related Monthly Remittance for such Remittance Date, the Servicer shall deposit
to such Collection Account a sufficient amount of its own funds to make such
amount equal to the sum of the related Monthly Remittance for such Remittance
Date. Such amounts of the Servicer's own funds so deposited are "Delinquency
Advances".
The Servicer shall be permitted to fund its payment of Delinquency Advances
on any Remittance Date from collections on any Home Equity Loan deposited to the
Collection Account subsequent to the related Remittance Period, and shall
deposit to the Collection Account with respect to Delinquency Advances funded
from amounts on deposit in the Collection Account (i) collections from the
Mortgagor whose Delinquency gave rise to the shortfall which resulted in such
Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account of
the related Home Equity Loan to the extent of the amount of aggregate
Delinquency Advances related thereto. In any event, to the extent the Servicer
uses such funds, the Servicer must reimburse the Collection Account by the next
Remittance Date to the extent necessary to provide for the related Monthly
Remittance to the extent received.
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(b) The Servicer will pay all reasonable and customary "out-of-pocket"
costs and expenses (including reasonable legal fees) incurred in the performance
of its servicing obligations including, but not limited to, the cost of (i)
Preservation Expenses, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of REO Property (including,
without limitation, realtors' commissions) and (iv) advances made for taxes,
insurance and other charges against the Property. Each such expenditure will
constitute a "Servicing Advance". The Servicer may recover Servicing Advances
from the Mortgagors to the extent permitted by the Home Equity Loans or, if not
theretofore recovered from the Mortgagor on whose behalf such Servicing Advance
was made, from Liquidation Proceeds realized upon the liquidation of the related
Home Equity Loan. In no case may the Servicer recover Servicing Advances from
the principal and interest payments on any other Home Equity Loan or from any
amounts relating to any other Home Equity Loan. Delinquency Advances shall be
reimbursed as provided in Section 4.8(c).
Section 4.10 Compensating Interest. A full month's interest at a rate equal
to the applicable Adjusted Pass-Through Rate minus the Servicing Fee Rate, is
due to the Indenture Trustee on the Loan Balance of each Home Equity Loan as of
the Remittance Date occurring in each Remittance Period. If (i) a Prepayment of
a Home Equity Loan occurs during any calendar month or (ii) such Home Equity
Loan or Additional Loan has its first monthly payment due after the Cut-off Date
or the applicable Deposit Cut-off Date, any difference between the interest
collected from the Mortgagor during such calendar month and the full month's
interest at the applicable Adjusted Pass-Through Rate ("Compensating Interest")
shall be deposited prior to the Remittance Date by the Servicer to the
Collection Account and shall be included in the related Monthly Remittance to be
made available to the Indenture Trustee on the next succeeding Remittance Date;
provided, however, that the Servicer shall not be required to deposit
Compensating Interest in respect of Prepayments in an amount that exceeds the
Servicing Fee received for the prior calendar month. The Servicer shall not be
entitled to reimbursement for Compensating Interest payments.
Section 4.11 Maintenance of Insurance. (a) The Servicer shall cause to be
maintained with respect to each Home Equity Loan a hazard insurance policy with
a carrier licensed in the state in which the Property is located that provides
for fire and extended coverage, and which provides for a recovery by the Trust
of insurance proceeds relating to such Home Equity Loan in an amount not less
than the least of (i) the outstanding principal balance of the Home Equity Loan,
(ii) the minimum amount required to compensate for loss or damage on a
replacement cost basis and (iii) the full insurable value of the premises. The
Servicer shall indemnify the Issuer out of the Servicer's own funds for any loss
to the Issuer resulting from the Servicer's failure to maintain the insurance
required by this paragraph.
(b) In the event that the Servicer shall obtain and maintain a blanket
policy insuring against fire and hazards of extended coverage on all of the Home
Equity Loans, then, to the extent such policy names the Servicer as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Home Equity Loans with co-insurance, and otherwise complies with
the requirements of this Section 4.11, the Servicer shall be deemed conclusively
to have satisfied its obligations with respect to fire and hazard insurance
coverage under this Section
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4.11, it being understood and agreed that such blanket policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Property a policy complying with
the preceding paragraph of this Section 4.11, and there shall have been a loss
which would have been covered by such policy, deposit in the Collection Account
from the Servicer's own funds the difference, if any, between the amount that
would have been payable under a policy complying with the preceding paragraph of
this Section 4.11 and the amount paid under such blanket policy. Upon the
request of the Indenture Trustee, the Owner Trustee or the Credit Enhancer, the
Servicer shall cause to be delivered to the Indenture Trustee, the Owner Trustee
or the Credit Enhancer, a certified true copy of such policy.
Section 4.12 Due-on-Sale Clauses; Assumption and Substitution Agreements.
(a) When a Property has been or is about to be conveyed by the Mortgagor, the
Servicer shall, to the extent it has knowledge of such conveyance or prospective
conveyance, exercise its rights to accelerate the maturity of the related Home
Equity Loan under any "due on sale" clause contained in the related Mortgage or
Mortgage Note; provided, however, that the Servicer shall not exercise any such
right if the "due on sale" clause, in the reasonable belief of the Servicer, is
not enforceable under applicable law; and provided, further, that the Servicer
may refrain from exercising any such right if the Credit Enhancer gives its
prior consent to such non-enforcement.
(b) In connection with the proposed assumption of a Home Equity Loan that
is permitted by the terms of the related Mortgage Note, the Servicer will permit
the assumption only to the extent that the credit quality of the proposed
assignee is at least as good as that of the original borrower at the time such
Home Equity Loan was originated. The Home Equity Loan, if assumed, shall conform
in all respects to the requirements, representations and warranties of this
Agreement including Part II of Exhibit D. The Servicer shall notify the
Indenture Trustee that any applicable assumption or substitution agreement has
been completed by forwarding to the Indenture Trustee, the original copy of such
assumption or substitution agreement, which original copy shall be added by the
Indenture Trustee to the related File and which shall, for all purposes, be
considered a part of such File to the same extent as all other documents and
instruments constituting a part thereof. The Servicer shall be responsible for
recording any such assumption or substitution agreements. In connection with any
such assumption or substitution agreement, the required monthly payment on the
related Home Equity Loan shall not be changed but shall remain as in effect
immediately prior to the assumption or substitution, the stated maturity or
outstanding principal amount of such Home Equity Loan shall not be changed, the
Loan Rate, except as provided in Section 4.2, or as required on a Change Date
for an ARM or as required with respect to a Convertible ARM, shall not be
changed nor shall any required monthly payments of principal or interest be
deferred or forgiven. Any fee collected by the Servicer or the Subservicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Servicer as additional servicing
compensation.
(c) Notwithstanding the foregoing clauses (a) and (b) or any other
provision of this Agreement, the Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Home Equity Loan by operation of law or
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any assumption which the Servicer may be restricted by law from preventing, for
any reason whatsoever.
Section 4.13 Realization Upon Defaulted Home Equity Loans. (a) The Servicer
shall foreclose upon or otherwise comparably effect the ownership in the name of
the Servicer on behalf of the Issuer of Properties relating to defaulted Home
Equity Loans as to which no satisfactory arrangements can be made for collection
of Delinquent payments and which the Servicer has not purchased pursuant to
Section 4.13(f), unless the Servicer reasonably believes that Net Liquidation
Proceeds with respect to such Home Equity Loan would not be increased as a
result of such foreclosure or other action, in which case such Home Equity Loan
will be charged-off and will become a Liquidated Loan. The Servicer will give
notice of any such charge-off to the Credit Enhancer substantially in the form
of Exhibit F attached hereto. In connection with such foreclosure or other
conversion, the Servicer shall exercise foreclosure procedures with the same
degree of care and skill in their exercise or use, as it would ordinarily
exercise or use under the circumstances in the conduct of its own affairs. Any
amounts advanced in connection with such foreclosure or other action shall
constitute "Servicing Advances" within the meaning of Section 4.9(b) hereof.
(b) The Servicer shall sell any REO Property within 23 months of its
acquisition by the Trust, unless the Servicer obtains for the Indenture Trustee
an opinion of counsel experienced in federal income tax matters, addressed to
such Indenture Trustee and the Servicer, to the effect that the holding by such
Trust of such REO Property for a greater specified period [will not result in
the imposition of taxes on __________.
(c) Notwithstanding the generality of the foregoing provisions, the
Servicer shall manage, conserve, protect and operate each REO Property for the
related Owners solely for the purpose of its prompt disposition and sale in a
manner which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or __________.
Pursuant to its efforts to sell such REO Property, the Servicer shall either
itself or through an agent selected by the Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Noteholders and the
Certificateholders, rent the same, or any part thereof, as the Servicer deems to
be in the best interest of such Noteholders and the Certificateholders for the
period prior to the sale of such REO Property. The net income from the rental or
sale of an REO Property shall be deposited in the Collection Account.
(d) If the Servicer has actual knowledge that a Property which the Servicer
is contemplating acquiring in foreclosure or by deed in lieu of foreclosure
contains environmental or hazardous waste risks known to the Servicer, the
Servicer shall notify the Credit Enhancer and the Indenture Trustee prior to
acquiring the Property. The Servicer is not permitted to take any action with
respect to such a Property without the prior written approval of the Credit
Enhancer.
(e) The Servicer shall determine, with respect to each defaulted Home
Equity Loan, when it has recovered, whether through trustee's sale, foreclosure
sale or otherwise, all amounts, if
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any, it expects to recover from or on account of such defaulted Home Equity
Loan, whereupon such Home Equity Loan shall become a "Liquidated Loan."
(f) The Servicer has the right and the option, but not the obligation, to
purchase for its own account any Home Equity Loan (i) which becomes Delinquent,
in whole or in part, as to four consecutive monthly installments or any Home
Equity Loan as to which enforcement proceedings have been brought by the
Servicer pursuant to this Section 4.13 and (ii) (x) with respect to which the
Credit Enhancer has refused to give its consent to the Servicer's non-exercise
of its rights under any "due-on-sale" clause, as described in Section 4.12(a)
and (y) which is in default or as to which a default is imminent. Any such Home
Equity Loan so purchased shall be purchased by the Servicer on a Remittance Date
at a purchase price equal to the Loan Purchase Price thereof, which purchase
price shall be deposited in the Collection Account.
Section 4.14 Indenture Trustee to Cooperate; Release of Files. (a) Upon the
payment in full of any Home Equity Loan (including the repurchase of any Home
Equity Loan or any liquidation of such Home Equity Loan through foreclosure or
otherwise), or the receipt by the Servicer of a notification that payment in
full will be escrowed in a manner customary for such purposes, the Servicer
shall deliver to the Indenture Trustee a Servicer's Trust Receipt. Upon receipt
of such Servicer's Trust Receipt, the Indenture Trustee shall promptly release
the related File, in trust to (i) the Servicer, (ii) an escrow agent or (iii)
any employee, agent or attorney of the Indenture Trustee, in each case pending
its release by the Servicer, such escrow agent or such employee, agent or
attorney of the Indenture Trustee, as the case may be. Upon any such payment in
full, or the receipt of such notification that such funds have been placed in
escrow, the Servicer is authorized to give, as attorney-in-fact for the
Indenture Trustee and the mortgagee under the Mortgage which secured the
Mortgage Note, an instrument of satisfaction (or assignment of Mortgage without
recourse) regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In lieu of executing any such satisfaction
or assignment, as the case may be, the Servicer may prepare and submit to the
Indenture Trustee, a satisfaction (or assignment without recourse, if requested
by the Person or Persons entitled thereto) in form for execution by the
Indenture Trustee with all requisite information completed by the Servicer; in
such event, the Indenture Trustee shall execute and acknowledge such
satisfaction or assignment, as the case may be, and deliver the same with the
related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any Home
Equity Loan, including, without limitation, foreclosure or other comparable
conversion of a Home Equity Loan or collection under any applicable Insurance
Policy, the Indenture Trustee shall (except in the case of the payment or
liquidation pursuant to which the related File is released to an escrow agent or
an employee, agent or attorney of the Indenture Trustee), promptly upon request
of the Servicer and delivery to the Indenture Trustee of a Servicer's Trust
Receipt, release the related File to the Servicer and shall execute such
documents as shall be necessary to the prosecution of any such proceedings,
including, without limitation, an assignment without recourse of the related
Mortgage
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to the Servicer. The Indenture Trustee shall complete in the name of the
Indenture Trustee any endorsement in blank on any Mortgage Note prior to
releasing such Mortgage Note to the Servicer. Such receipt shall obligate the
Servicer to return the File to the Indenture Trustee when the need therefor by
the Servicer no longer exists unless the Home Equity Loan shall be liquidated,
in which case, upon receipt of the liquidation information, in physical or
electronic form, a copy of the Servicer's Trust Receipt shall be released by the
Indenture Trustee to the Servicer.
(c) In all cases where the Servicer needs the Indenture Trustee to sign any
document or to release a File within a particular period of time, the Servicer
shall notify an Authorized Officer of the Indenture Trustee by telephone of such
need and the Indenture Trustee shall thereupon use its best efforts to comply
with the Servicer's needs, but in any event will comply within two Business Days
of such request.
Section 4.15 Servicing Compensation. As compensation for its activities
hereunder, the Servicer shall be entitled to retain the amount of the Servicing
Fee with respect to each Home Equity Loan. Additional servicing compensation in
the form of prepayment charges, release fees, bad check charges, assumption
fees, late payment charges, and any other servicing-related fees, Net
Liquidation Proceeds not required to be deposited in the Collection Account
pursuant to Section 4.8(c)(iii) and similar items may, to the extent collected
from Mortgagors, be retained by the Servicer.
Section 4.16 Annual Statement as to Compliance. The Servicer, at its own
expense, will deliver to the Indenture Trustee, the Owner Trustee, the Depositor
and the Credit Enhancer, on or before the last day of April of each year,
commencing in 1998, an Officer's Certificate stating, as to each signer thereof,
that (i) a review of the activities of the Servicer during such preceding
calendar year and of performance under this Agreement has been made under such
officer's supervision, and (ii) to the best of such officer's knowledge, based
on such review, the Servicer has fulfilled all its obligations under this
Agreement for such year, or, if there has been a default in the fulfillment of
all such obligations, specifying each such default known to such officer and the
nature and status thereof including the steps being taken by the Servicer to
remedy such default. Any Subservicer which is not a Servicer Affiliate shall
also deliver an annual statement as to compliance in the form described above or
the Servicer shall cover their performance in their statement. These statements
shall be available to the Noteholders and the Certificateholders upon written
request.
Section 4.17 Annual Independent Certified Public Accountants' Reports. On
or before the last day of April of each year, commencing in 1998, the Servicer,
at its own expense, shall cause to be delivered to the Indenture Trustee, the
Owner Trustee, the Credit Enhancer and the Rating Agencies a letter or letters
of a firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Credit Enhancer stating that such firm has, with
respect to the Servicer's overall servicing operations (i) performed applicable
tests in accordance with the compliance testing procedures as set forth in
Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised
Mortgagees or (ii) 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. These reports will be made available to the
Noteholders and the Certificateholders upon written request.
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Section 4.18 Access to Certain Documentation and Information Regarding the
Home Equity Loans. The Servicer shall provide to the Indenture Trustee, the
Owner Trustee, the Depositor, the Credit Enhancer, and the supervisory agents
and examiners (as required in the latter case by applicable state and federal
regulations) of each of the foregoing access to the documentation regarding the
Home Equity Loans, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer designated by it.
Upon any change in the format of the computer tape maintained by the
Servicer in respect of the Home Equity Loans, the Servicer shall deliver a copy
of such computer tape to the Indenture Trustee and the Credit Enhancer and in
addition shall provide a copy of such computer tape to the Indenture Trustee and
the Credit Enhancer at such other times as the Indenture Trustee or the Credit
Enhancer may request.
Section 4.19 Assignment of Agreement. The Servicer may not assign its
obligations under this Agreement, in whole or in part, unless (i) it shall have
first obtained the written consent of the Indenture Trustee, the Owner Trustee,
and the Credit Enhancer, and (ii) the Indenture Trustee, the Owner Trustee and
Credit Enhancer shall have received a confirmation letter from the Rating
Agencies confirming the rating of the Offered Certificates as AAA or its
equivalent; provided, however, that any assignee must meet the eligibility
requirements set forth in Section 7.1(f) hereof for a successor servicer.
Section 4.20 ARMs. (a) The Servicer shall enforce each ARM and Convertible
ARM in accordance with its terms and shall timely calculate, record, report and
apply all interest rate adjustments in accordance with the related Mortgage
Note. The Servicer's records shall, at all times, reflect the then Loan Rate and
monthly payment and the Servicer shall timely notify the Mortgagor of any
changes to the Loan Rate or the Mortgagor's monthly payment. If the Servicer
fails to make either a timely or accurate adjustment to the Loan Rate or monthly
payment or to notify the Mortgagor of such adjustments, the Servicer shall pay
from its own funds any shortage. If the Servicer's failure to make a scheduled
change affects the Issuer's rights to make future adjustments under the terms of
the ARM or Convertible ARM, the Servicer shall repurchase the ARM or Convertible
ARM in accordance with the provisions of the last sentence of Section 4.13(f).
Any amounts paid by the Servicer pursuant to this Section shall not be an
advance and shall not be reimbursable from the proceeds of any Home Equity Loan.
(b) The Indenture Trustee, as the holder of the Mortgage Notes, hereby
authorizes and directs the Servicer, on behalf of the Indenture Trustee, to
determine the fixed rates into which Mortgagors having Convertible ARMs may
convert the adjustable rates on their Mortgage Notes upon compliance with the
terms thereof. The Servicer agrees to determine such rates, and otherwise
administer the program as contemplated in the Mortgage Notes for the Convertible
ARMS.
Section 4.21 Inspections by Certificate Insurer and Account Parties; Errors
and Omissions Insurance. (a) At any reasonable time and from time to time upon
reasonable notice, the Credit Enhancer, the Indenture Trustee, the Owner Trustee
or any agents or representatives thereof may inspect the Servicer's servicing
operations and discuss the servicing operations of the Servicer with
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any of its officers or directors. The costs and expenses incurred by the
Servicer or its agents or representatives in connection with any such
examinations or discussions shall be paid by the Servicer.
(b) The Servicer agrees to maintain errors and omissions coverage and a
fidelity bond, each at least to the extent required by Section 305 of Part I of
the FNMA Guide or any successor provision thereof.
Section 4.22 Financial Statements. The Servicer understands that, in
connection with the transfer of the Notes and the Certificates, Noteholders and
Certificateholders may request that the Servicer make available to prospective
Noteholders and Certificateholders any quarterly unaudited financial statement
of the Servicer for the then-current fiscal year and annual audited financial
statements of the Servicer for one or more of the most recently completed five
fiscal years for which such statements are available, which request shall not be
unreasonably denied. Such financial statements shall also be supplied to the
Credit Enhancer.
The Servicer also agrees to make available on a reasonable basis to the
Depositor, the Credit Enhancer, any Noteholder or Certificateholder or any
prospective Noteholder or Certificateholder a knowledgeable financial or
accounting officer for the purpose of answering reasonable questions respecting
recent developments affecting the Servicer or the financial statements of the
Servicer and to permit the Depositor, the Credit Enhancer, any Noteholder or
Certificateholder or any prospective Noteholder or Certificateholder to inspect
the Servicer's servicing facilities during normal business hours for the purpose
of satisfying the Depositor, the Credit Enhancer, any Noteholder or
Certificateholder or such prospective Noteholder or Certificateholder that the
Servicer has the ability to service the Home Equity Loans in accordance with
this Agreement.
Section 4.23 The Designated Depository Institution. The Servicer shall give
the Depositor, the Indenture Trustee, the Owner Trustee and the Credit Enhancer
(a) at least thirty days' prior written notice of any anticipated change of the
Designated Depository Institution and (b) written notice of any change in the
ratings of the Designated Depository Institution of which the Servicer is aware,
within two Business Days after discovery.
Section 4.24 Appointment of Custodian. If the Servicer determines that the
Indenture Trustee is unable to deliver Files to the Servicer as required
pursuant to Section 4.14 hereof, the Servicer shall so notify the Depositor, the
Credit Enhancer, the Rating Agencies, the Owner Trustee and the Indenture
Trustee, and make request that a custodian acceptable to the Servicer and the
Credit Enhancer be appointed to retain custody of the Files on behalf of the
Indenture Trustee. The Indenture Trustee and the Depositor agree to co-operate
reasonably with the Servicer in connection with the appointment of such
custodian. The Depositor shall pay all reasonable fees and expenses of such
custodian.
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ARTICLE V.
Distributions; Reserve Account;
Statements to Certificateholders and Noteholders
Section 5.1 Establishment of Accounts. (a) The Depositor hereby directs the
Indenture Trustee to create the Payment Account and the Insured Payment Account.
Each such Account shall be maintained as a segregated trust account at a
Designated Depository Institution to be held in the name of the Issuer for the
benefit of the Noteholders and the Credit Enhancer.
(b) The Depositor hereby directs the Indenture Trustee to create the
Funding Account and the Capitalized Interest Account. Each such Account shall be
maintained as a segregated account with the Indenture Trustee to be held for the
benefit of the related Noteholders and Certificateholders as provided herein and
the Credit Enhancer.
(c) The Depositor hereby directs the Indenture Trustee to create the
Reserve Account, including the [Spread Sub-Account], to be maintained as a
segregated account at a Designated Depository Institution to be held for the
benefit of the Noteholders and the Certificateholders.
Section 5.2 Flow of Funds. (a) Upon receipt, the Indenture Trustee shall
deposit (i) the Monthly Remittance remitted by the Servicer pursuant to Section
4.8(d)(iii) hereof, plus any related Substitution Adjustment Amounts and any
related Loan Purchase Prices received by the Indenture Trustee pursuant to the
terms hereof, to the Payment Account [or [to the Owner Trustee for deposit in]
the Certificate Distribution Account, as applicable], (ii) the Reserve Account
Initial Deposit, if any, to the Reserve Account, (iii) the amount of any Insured
Payment (other than Insured Payments in respect of amounts described in clause
(ii) of the definition of Insured Payment) to the Insured Payment Account, (iv)
on the Closing Date, the Original Funded Amount in the Funding Account, and (v)
on the Closing Date, the applicable Original Capitalized Interest Deposit in the
Capitalized Interest Account. Insured Payments in respect of amounts described
in clause (ii) of the definition of Insured Payment shall be paid by the Credit
Enhancer to the Indenture Trustee for distribution to the Noteholders who have
complied with the provisions of [Section 5.2(m)], in the same manner as
distributions with respect to the Securities.
(b) (i) On each Deposit Date, the Indenture Trustee shall withdraw from the
Funding Account any Funding Earnings on the amounts on deposit therein and
deposit such Funding Earnings in the Capitalized Interest Account. On each
Deposit Date, the Indenture Trustee shall withdraw from the Funding Account an
amount equal to 100% of the Original Principal Balance of each Additional Loan
to be included, on such Deposit Date, and, subject to the next succeeding
sentence, pay such amounts to or upon the order of the Depositor. From the
amount withdrawn from the Funding Account, the Indenture Trustee shall (w)
deduct the amount of the related Additional Deposit, if any, [(x) deposit such
Additional Deposit in the Spread Sub-Account,] and (y) pay the remaining amount
withdrawn from the Funding Account to or upon the order of the Depositor. On the
final Funding Payment Date, if any amounts remain in the Funding Account after
the withdrawals specified above in this Section 5.2(b), (A) the Indenture
Trustee shall withdraw such amounts and deposit them in the Payment Account [or
the Certificate Distribution
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Account, as applicable], (B) if such aggregate amount is less than $100,000, it
will be distributed as a Prepayment and allocated among the [Noteholders and
Certificateholders] as part of the applicable Principal Distribution Amount, and
(C) if such aggregate amount is greater than or equal to $100,000, such amount
will be distributed to the [Noteholders], pro rata on the basis of Security
Balances of all Notes, and the Funding Account shall be closed. The Indenture
Trustee shall maintain records of the amounts in the Funding Account.
(ii) On each Funding Payment Date, the Indenture Trustee shall transfer
from the Capitalized Interest Account to the Payment Account [or the Certificate
Distribution Account, as applicable,] the applicable Capitalized Interest
Requirement for such Funding Payment Date. In addition, on each Deposit Date,
other than as provided in the next sentence, the Servicer shall deliver to the
Indenture Trustee, and the Indenture Trustee shall deposit in the Capitalized
Interest Account, any Underfunded Amount. On the earlier to occur of the Deposit
Date on which the Funding Period ends and the final Funding Payment Date, after
giving effect to the transfers, if any, described in the preceding sentences,
any amounts remaining in the Capitalized Interest Account shall be withdrawn by
the Indenture Trustee and paid to _________, and such Capitalized Interest
Account shall be closed.
(c) If, on any Payment Date, the amount then on deposit in the Payment
Account or the Certificate Distribution Account, as applicable, is insufficient
to pay the full amount of (i) the Premium Payment, the Indenture Trustee's Fee
or the Owner Trustee's Fee on such Payment Date, and (ii) the Total Distribution
Amount, the Indenture Trustee shall withdraw the amount of such insufficiency
from the Reserve Account, to the extent of the amounts, if any, on deposit
therein and deposit such amounts in the applicable Account.
(d) On each Payment Date after the transfers pursuant to clause (c) above
and before any other distributions, the Indenture Trustee shall, from amounts
then on deposit in the appropriate Account (i) pay to the Credit Enhancer the
Premium Payment then due and (ii) pay to the Indenture Trustee and the Owner
Trustee, the Indenture Trustee's Fee and the Owner Trustee's Fee, as applicable,
then due.
(e) On each Payment Date after the transfers and distributions pursuant to
clauses (c) and (d) and before any other distributions, the Indenture Trustee
shall make the following transfers and distributions in the priority indicated
from the Available Funds then on deposit in the appropriate Account, to the
extent of the Total Distribution Amount:
(i) to the Payment Account, from the Total Distribution Amount, the
Noteholders' Interest Distributable Amount;
(ii) to the Payment Account, from the Total Distribution Amount,
remaining after the application of clause (i), the Noteholders' Principal
Distributable Amount;
(iii) if amounts withdrawn from the Funding Account are to be
distributed pursuant to Section 5.2(b)(i)(C), to the Payment Account;
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(iv) to the Credit Enhancer, any unreimbursed Reimbursement
Obligations;
(v) [to the Owner Trustee] for deposit in the Certificate Distribution
Account, from the Total Distribution Amount remaining after the application
of clauses (i) through (iv), the Certificateholders' Interest Distributable
Amount;
(vi) [to the Owner Trustee] for deposit in the Certificate
Distribution Account, from the Total Distribution Amount remaining after
the application of clauses (i) through (v), the Certificateholders'
Principal Distributable Amount; and
(vii) to the Indenture Trustee for deposit in the Reserve Account,
from the Total Distribution Amount, the amounts remaining after the
application of clauses (i) through (vi) above provided, however, that
following the occurrence of an Event of Default pursuant to [Section
5.1(i), 5.1(ii), 5.1(iv) or 5.1(v)] of the Indenture, an acceleration of
the Notes pursuant to Section 5.02 of the Indenture amounts on deposit in
the Collection Account will be deposited in the Payment Account to the
extent necessary to pay accrued and unpaid interest on the Notes and then,
to the extent funds are available therefore, principal on the Notes until
the principal balance of the Notes has been reduced to zero, before any
amounts are deposited in the Certificate Distribution Account. Following
the payment in full of the Notes, amounts on deposit in the Collection
Account will be deposited in the Certificate Distribution Account to the
extent necessary to pay accrued and unpaid interest on the Certificates and
then, to the extent funds are available therefore, principal on the
Certificates until the principal balance thereof has been reduced to zero.
(f) The Indenture Trustee shall (i) receive as attorney-in-fact of the
Notes any Insured Payment from the Credit Enhancer, (ii) shall deposit the
Insured Payment to the Insured Payment Account and (iii) shall disburse the same
from the Insured Payment Account to the Payment Account and the Noteholders as
set forth in Section 5.2(e) hereof. Insured Payments disbursed by the Indenture
Trustee from proceeds of the Credit Enhancement Instrument shall not be
considered payment by the Issuer with respect to the Notes and the Credit
Enhancer shall become the owner of such unpaid amounts due from the Issuer in
respect of Insured Payments as the deemed assignee of such Notes, as hereinafter
provided. The Indenture Trustee, on behalf of each Noteholder, hereby agrees for
the benefit of the Credit Enhancer that it recognizes that to the extent the
Credit Enhancer pays Insured Payments, either directly or indirectly (as by
paying through the Indenture Trustee), to the Insured Payment Account, the
Credit Enhancer (x) will be surrogated to the rights of the Noteholders, with
respect to such Insured Payment, (y) shall be deemed to the extent of the
payments so made to be an owner of such Notes and (z) shall receive future
distributions of the applicable Distribution Amount until all such Insured
Payments by the Credit Enhancer have been fully reimbursed, as described in the
following paragraph. The Credit Enhancer shall not acquire any voting rights
hereunder as a result of such subrogation, except as otherwise described herein.
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It is understood and agreed that the intention of the parties is that the
Credit Enhancer shall not be entitled to reimbursement on any Payment Date for
amounts previously paid by it unless on such Payment Date the Noteholders shall
also have received the full amount of the related Distribution Amount for such
Payment Date.
(g) Subject to the terms and conditions of the Credit Enhancement
Instrument, the Credit Enhancer will pay any Insured Payment that is a
Preference Amount (as defined below) on the Business Day (as defined in the
Policy) following receipt on a Business Day by the Fiscal Agent of (i) a
certified copy of the order requiring the return of the preference payment, (ii)
an opinion of counsel satisfactory to the Credit Enhancer that such order is
final and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Credit Enhancer, irrevocably assigning to the Credit
Enhancer all rights and claims of the Noteholder relating to or arising under
the Notes against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Credit Enhancer as agent for such Noteholder in
any legal proceeding related to such preference payment, such instruments being
in a form satisfactory to the Credit Enhancer, provided that if such documents
are received after 12:00 noon New York City time on such Business Day, they will
be deemed to be received on the following Business Day. Such payments shall be
disbursed to the receiver or trustee in bankruptcy named in the final order of
the court exercising jurisdiction on behalf of the Noteholder and not to any
Owner directly unless such Noteholder has returned principal or interest paid on
the Obligations to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Noteholder.
"Preference Amount" means any amount previously distributed to an Owner of
a Note that is recoverable and sought to be recovered as a voidable preference
by a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11
U.S.C.), as amended from time to time in accordance with a final nonappealable
order of a court having competent jurisdiction.
In no event shall the Credit Enhancer pay more than one Insured Payment in
respect of any Preference Amount. Consequently, a Noteholder shall not be
entitled to reimbursement with respect to any final order relating to the
Noteholder's receipt of funds representing Insured Payments made by the Credit
Enhancer.
Each Noteholder, by its purchase of a Note, the Servicer and the Indenture
Trustee hereby agree that the Credit Enhancer may, after making payment of the
Preference Amounts or acknowledging to Noteholders its obligation to make
payment of any Preference Amounts, at any time thereafter during the
continuation of any proceeding relating to a preference claim direct all matters
relating to such preference claim, including, without limitation, the direction
of any appeal of any order relating to such preference claim and the posting of
any surety, supersedes or performance bond pending any such appeal. In addition
and without limitation of the foregoing, the Credit Enhancer, after making
payment of the Preference Amounts, shall be surrogated to the rights of the
Servicer, the Indenture Trustee, the Owner Trustee and each Noteholder [and
Certificateholder] in the conduct of any such preference claim, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in
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connection with any such preference claim. Any expenses incurred in complying
with the direction of the Credit Enhancer shall be borne solely by the Credit
Enhancer.
Section 5.3 Investment of Accounts. (a) All or a portion of each Account
(other than the Insured Payment Account and the Certificate Distribution
Account) shall be invested and reinvested by the Indenture Trustee in the name
of the Indenture Trustee for the benefit of the related Noteholders and
Certificateholders, as directed in writing (i) by the Depositor, with respect to
the Payment Account, or (ii) by the Servicer with respect to the Reserve
Account, the Funding Account and the Capitalized Interest Account, in one or
more Eligible Investments bearing interest or sold at a discount. Amounts in the
Insured Payment Accounts shall not be invested. [Amounts in the Certificate
Distribution Account shall be invested and reinvested by the [Owner Trustee]].
No investment in any Account shall mature later than the Business Day
immediately preceding the next Payment Date and every investment shall be held
until maturity; provided that Eligible Investments which are obligations of the
Indenture Trustee may mature on the next Payment Date.
(b) Subject to Section ___ of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Account held
by the Indenture Trustee resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Indenture
Trustee is the obligor thereon).
(c) If the Servicer or the Depositor, as the case may be, shall have failed
to give investment directions to the Indenture Trustee, then the Indenture
Trustee shall invest the funds in the related Account in commercial paper that
qualifies as an Eligible Investment.
(d) All income or other gain from investments in any Account held by the
Indenture Trustee shall be deposited in such Account immediately on receipt, and
any loss resulting from such investments shall be charged to such Account.
Section 5.4 Eligible Investments. The following are Eligible Investments:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment
or the guarantee of which constitutes a full faith and credit obligation of
the United States.
(b) Federal Housing Administration debentures, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption.
(c) FHLMC senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(d) Federal Home Loan Banks' consolidated senior debt obligations, but
excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption.
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(e) FNMA senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(f) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365
days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 by Moody's.
(g) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $3,000,000
which deposits are not in excess of the applicable limits insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC,
provided that the long-term deposits of such bank or savings and loan
association are rated at least "BBB" by S&P and "Baa3" by Moody's.
(h) Commercial paper (having original maturities of not more than 270
days) rated A-1 or better by S&P and P-1 by Moody's.
(i) Investments in money market funds rated AAAm or AAAm-G by S&P and
Aaa by Moody's.
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity.
Section 5.5 Reports to Noteholders, Certificateholders and Depositor. (a)
On each Payment Date, the Indenture Trustee shall report in writing to each
Noteholder of record, to each Paying Agent, if any, to the Owner Trustee for the
Owner Trustee to forward to each Certificateholder of record, and to the
Depositor, with a copy to the Credit Enhancer and the Rating Agencies:
(i) the amount of the distribution allocable to principal of the Notes
and to the Certificate Balance of the Certificates;
(ii) the amount of such distribution allocable to interest on or with
respect to the Notes and to the Certificates;
(iii) the amount of such distribution allocable to principal on the
related Home Equity Loans, separately identifying the scheduled payments
and the aggregate amount of any Prepayments or other unscheduled recoveries
of principal included therein;
(iv) the amount of such distributions allocable to interest on the
related Home Equity Loans;
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(v) the aggregate outstanding principal balance of the Notes and the
Note Pool Factor, in each case after giving effect to any payment of
principal on such Payment Date;
(vi) the total of any Substitution Adjustment Amounts and any Loan
Purchase Prices included in such distribution;
(vii) the amount on deposit in the Reserve Account as of such Payment
Date, the Specified Reserve Account Requirement as of such Payment Date,
and the amount of any addition or withdrawal from the Reserve Account since
the last Payment Date;
(viii) the amount of any Insured Payment included in distributions on
the Notes on such Payment Date;
(ix) the amount of the Servicing Fee paid with respect to such Payment
Date;
(x) the total dollar amount of losses realized during the preceding
month, the cumulative losses since the Closing Date and each expressed as a
percentage of the Original Loan Balance;
(xi) as of such Payment Date, the Cumulative Reserve Account
Withdrawals;
(xii) the Pass-Through Rate for the Notes for the Accrual Period
preceding such Payment Date and the Note LIBOR Rate for such Accrual
Period;
(xiii) the Note LIBOR Rate for the Accrual Period beginning on such
Payment Date;
(xiv) the weighted average Loan Rate of the Home Equity Loans as of
the last day of the preceding calendar month; and
(xv) the weighted average of the remaining term of the Home Equity
Loans as of the last day of the preceding calendar month.
The Indenture Trustee shall report in writing to the Certificate Insurer on
each Payment Date, the following information: the Noteholders' Interest
Shortfall Amount, the Noteholders' Principal Shortfall Amount and the
Noteholders' Carry-Forward Amount; provided, however, that the Indenture Trustee
shall not be responsible to recompute, recalculate or verify any information
provided to it by the Servicer. The obligations of the Indenture Trustee under
this Section are conditioned upon such information being received from the
Servicer pursuant to Section 4.8(d)(ii) hereof.
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(b) In addition, on each Payment Date the Indenture Trustee will
disseminate to each Noteholder of record, to each Paying Agent, if any, to the
Owner Trustee for the Owner Trustee to forward to each Certificateholder of
Record, and to the Depositor, with a copy to the Credit Enhancer and the Rating
Agencies, together with the information described in Section 5.5 (a) above, the
following information as of the close of business on the related Record Date,
which is required to be prepared by the Servicer and furnished to the Indenture
Trustee pursuant to Section 4.8(d)(ii) hereof for such purpose on or prior to
the related Remittance Date:
(i) the total number of Home Equity Loans and the aggregate Loan
Balances thereof, together with the number and aggregate principal balances
of Home Equity Loans (a) 30-59 days Delinquent, (b) 60-89 days Delinquent
and (c) 90 or more days Delinquent;
(ii) the number and aggregate principal balances of all Home Equity
Loans in foreclosure proceedings (and whether any such Home Equity Loans
are also included in any of the statistics described in the foregoing
clause (i));
(iii) the number and aggregate principal balances of all Home Equity
Loans relating to Mortgagors in bankruptcy proceedings (and whether any
such Home Equity Loans are also included in any of the statistics described
in the foregoing clauses (i) and (ii));
(iv) the number and aggregate principal balances of all Home Equity
Loans relating to REO Properties (and whether any such Home Equity Loans
are also included in any of the statistics described in the foregoing
clauses (i), (ii) and (iii));
(v) the number and aggregate Loan Balances of all Home Equity Loans as
to which foreclosure proceedings were commenced during the prior Remittance
Period;
(vi) a schedule regarding cumulative foreclosures since the Cut-off
Date;
(vii) the book value of any REO Property and any income received from
REO Properties during the prior Remittance Period;
(viii) the Pool Principal Balance;
(ix) as of each Remittance Date, Delinquency Advances and Servicing
Advances;
(x) for each Home Equity Loan which is an REO Property, the Loan
Balance of such Home Equity Loan, the value of the Mortgaged Property, the
value
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established by any new appraisal, the estimated cost of disposing of the
Home Equity Loan and the amount of any unreimbursed Delinquency Advances
and Servicing Advances;
(xi) for each Home Equity Loan which is in foreclosure, the Loan
Balance of such Home Equity Loan, the value of the Mortgaged Property, the
Loan-to-Value Ratio as of the date of origination, the Loan-to-Value Ratio
as of the close of business on the last day of the calendar month next
preceding such Payment Date and the last paid-to date; and
(xii) the number and aggregate Loan Balances of Delinquent Home Equity
Loans purchased by the Servicer during the related Remittance Period
pursuant to Section 4.13(f).
(c) On each Payment Date, the Indenture Trustee shall report in writing to
the Owner Trustee, the Depositor, the Credit Enhancer and the Rating Agencies:
(i) the amount of Cumulative Reserve Account Withdrawals immediately
prior to such Payment Date and immediately after such Payment Date,
(ii) the amount on deposit in the Reserve Account immediately after
such Payment Date; and
(iii) the Specified Reserved Account Requirement immediately prior to
such Payment Date and immediately after such Payment Date.
Section 5.6 Drawings under the Credit Enhancement Instrument and Reports by
Trustee. (a) On each Determination Date, the Indenture Trustee shall determine,
no later than 12:00 noon, California time, on such Determination Date, whether a
Noteholders' Interest Shortfall Amount or a Noteholders' Principal Shortfall
Amount has theretofore occurred and will remain uncured on the following Payment
Date. If the Indenture Trustee determines that a Noteholders' Interest Shortfall
Amount or a Noteholders' Principal Shortfall Amount has theretofore occurred and
will remain uncured or will occur, the Indenture Trustee shall furnish the
Credit Enhancer and the Depositor with a completed Notice in the form set forth
as Exhibit A to the Credit Enhancement Instrument. The Notice shall specify the
amount of Insured Payment and shall constitute a claim for an Insured Payment
pursuant to the Credit Enhancement Instrument.
(b) The Indenture Trustee shall report to the Depositor, the Credit
Enhancer, the Owner Trustee and the Servicer with respect to the amounts then
held in each Account and/or Sub-Account and the identity of the investments
included therein, as the Depositor, the Credit Enhancer, the Owner Trustee or
the Servicer may from time to time request. Without limiting the generality of
the foregoing, the Indenture Trustee shall, at the request of the Depositor, the
Credit Enhancer, the Owner Trustee or the Servicer, transmit promptly to the
Credit Enhancer, the Depositor and the Servicer copies of all accountings of
receipts in respect of the Home Equity Loans furnished to it by the Servicer.
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(c) From time to time, the Indenture Trustee shall promptly report to the
Depositor and to the Credit Enhancer with respect to its actual knowledge,
without independent investigation, of any inaccuracies of any of the statements
set forth in Part II of Exhibit D hereto.
Section 5.7 The Reserve Account. [(a) On the Closing Date, the Depositor
shall deposit the Reserve Account Initial Deposit into the Reserve Account. In
no circumstances will the Depositor be required to deposit from its own funds
any amounts in the Reserve Account other than the Reserve Account Initial
Deposit to be made on the Closing Date.
(b) If the amount on deposit in the Reserve Account on any Distribution
Date (after giving effect to any and all deposits and withdrawals therefrom on
such Distribution Date) is greater than the Specified Reserve Account Balance
for such Distribution Date, the Servicer shall instruct the Indenture Trustee to
distribute, and the Indenture Trustee shall distribute, the amount of the excess
to the Depositor. Amounts properly distributed to the Depositor pursuant to this
Section 5.6(b) shall be deemed released from the Issuer and the security
interest therein granted to the Indenture Trustee and the Depositor shall in no
event thereafter be required to refund any such distributed amounts.
(c) Upon termination of the Issuer, after payment of all Reimbursement
Obligations due to the Credit Enhancer under the terms hereof, funds in the
Reserve Account shall be distributed as provided in Section __ hereof.]
Section 5.8 Calculation of LIBOR. On each Interest Determination Date,
until the Security Balances of the Notes has been reduced to zero, the Indenture
Trustee will either (i) request each Reference Bank to inform the Indenture
Trustee of the quotation offered by its principal London office for making
one-month United States dollar deposits in leading banks in the London interbank
market as of 11:00 a.m. (London time) on such Interest Determination Date, or
(ii) in lieu of making a request of the Reference Banks, the Indenture Trustee
may rely on the quotations for those Reference Banks that appear at such time on
the Reuters Screen LIBO Page, to the extent available.
LIBOR for the next Accrual Period will be established by the Interest
Trustee on each Interest Determination Date as follows:
(a) If on any Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Accrual Period shall be
the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/16%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Accrual Period shall be whichever is the higher of (i) LIBOR as determined
on the previous Interest Determination Date or (ii) the Reserve Interest
Rate. The "Reserve Interest Rate" shall be the rate per annum which the
Indenture Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month United States dollar lending rates that New York City banks
selected by the Indenture Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in
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the opinion of the Indenture Trustee, being so made, or (ii) in the event
that the Indenture Trustee can determine no such arithmetic mean, the
lowest one-month United States dollar lending rate which New York City
banks selected by the Indenture Trustee are quoting on such Interest
Determination Date to leading European banks.
(c) If on the first Interest Determination Date, the Indenture Trustee
is required but is unable to determine the Reserve Interest Rate in the
manner provided in paragraph (b) above, LIBOR shall be _______%.
Until the Notes are paid in full, the Indenture Trustee will at all times
retain at least four Reference Banks for the purpose of determining LIBOR with
respect to each Interest Determination Date. Each Reference Bank shall (i) be a
leading bank engaged in transactions in Eurodollar deposits in the international
Eurocurrency market, (ii) not be an Affiliate of the Depositor and (iii) have an
established place of business in London. If any such Reference Bank should be
unwilling or unable to act as such or if the Indenture Trustee should terminate
the appointment of any such Reference Bank, the Indenture Trustee will promptly
appoint another leading bank meeting the criteria specified above. None of the
Depositor, the Servicer or the Indenture Trustee shall have any liability or
responsibility to any Person for (i) the selection of any Reference Bank for
purposes of determining LIBOR or (ii) any inability to retain at least four
Reference Banks which is caused by circumstances beyond their reasonable
control.
In determining LIBOR and the Pass-Through Rate for the Notes, the Indenture
Trustee may conclusively rely and shall be protected in relying upon the offered
quotations (whether written, oral or on the Reuters Screen) from the Reference
Banks or the New York City banks as to LIBOR or the Reserve Interest Rate, as
appropriate, in effect from time to time. None of the Depositor, the Servicer,
the Credit Enhancer or the Indenture Trustee shall have any liability or
responsibility to any Person for (i) the Indenture Trustee's selection of New
York City banks for purposes of determining any Reserve Interest Rate or (ii)
the Indenture Trustee's inability, following a good-faith reasonable effort, to
obtain such quotations from the Reference Banks or the New York City banks or to
determine such arithmetic mean, all as provided for in this Section 5.8.
The establishment of LIBOR and the Pass-Through Rate for the Notes by the
Indenture Trustee shall (in the absence of manifest error) be final, conclusive
and binding upon each Holder of a Note, the Depositor, the Servicer and the
Credit Enhancer.
ARTICLE VI.
The Depositor; The Servicer
Section 6.1 Respective Liabilities of the Depositor and the Servicer
Each of the Depositor and the Servicer shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by each of them herein.
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Section 6.2 Merger or Consolidation of the Depositor or the Servicer
The Depositor and the Servicer will each keep in full effect its existence,
rights and franchises as a corporation under the laws of the United States or
under the laws of one of the states thereof and will each obtain and preserve
its qualification to do business as a foreign corporation in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, or any of the Home Equity Loans and to perform
its respective duties under this Agreement.
Any Person into which the Depositor or the Servicer may be merged or
consolidated, or any Person resulting from any merger or consolidation to which
the Depositor or the Servicer shall be a party, or any person succeeding to the
business of the Depositor or the Servicer, shall be the successor of the
Depositor or the Servicer, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor or surviving Person to the Servicer meet the qualifications set
forth in Section 7.1(f).
Section 6.3 Limitation on Liability of the Depositor, the Servicer and
Others.
Neither the Depositor, the Servicer nor any of the directors, officers,
employees or agents of the Depositor or the Servicer shall be under any
liability to the Securityholders for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the
Depositor, the Servicer or any such Person against any breach of representations
or warranties made by it herein or protect the Depositor, the Servicer or any
such Person from any liability which would otherwise be imposed by reasons of
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties hereunder. The
Depositor, the Servicer and any director, officer, employee or agent of the
Depositor or the Servicer may rely in good faith on any document of any kind
prima facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Depositor, the Servicer and any director, officer,
employee or agent of the Depositor or the Servicer shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with any audit, controversy or judicial proceeding relating to a
governmental taxing authority or any legal action relating to this Agreement,
the Notes or the Certificates, other than any loss, liability or expense related
to any specific Home Equity Loan or Home Equity Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties hereunder or by
reason of reckless disregard of obligations and duties hereunder. Neither the
Depositor nor the Servicer shall be under any obligation to appear in, prosecute
or defend any legal action that is not incidental to its respective duties
hereunder and which in its opinion may involve it in any expense or liability;
provided, however, that the Depositor, or the Servicer may in its discretion
undertake any such action that it may deem necessary or desirable in respect of
this Agreement and the rights and duties of the parties hereto and interests of
the Indenture Trustee, the Owner Trustee, the Credit Enhancer and the
Securityholders hereunder. In such event, the legal expenses and costs of such
action and any liability
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resulting therefrom shall be expenses, costs and liabilities of the Issuer, and
the Depositor and the Servicer shall be entitled to be reimbursed therefor out
of the Collection Account.
ARTICLE VII.
Removal of Servicer
Section 7.1 Removal of Servicer; Resignation of Servicer. (a) The Indenture
Trustee, with the consent of the Credit Enhancer and the Owner Trustee or the
Credit Enhancer may remove the Servicer upon the occurrence of any of the
following events (each, an "Event of Default"):
(i) The Servicer shall (I) apply for or consent to the appointment of
a receiver, trustee, liquidator or custodian or similar entity with respect
to itself or its property, (II) admit in writing its inability to pay its
debts generally as they become due, (III) make a general assignment for the
benefit of creditors, (IV) be adjudicated a bankrupt or insolvent, (V)
commence a voluntary case under the federal bankruptcy laws of the United
States of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer admitting
the material allegations of a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding or (VI) cause corporate action to
be taken by it for the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the Servicer,
a proceeding shall be instituted in any court of competent jurisdiction,
under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking in respect of the Servicer an order for relief or an
adjudication in bankruptcy, reorganization, dissolution, winding up,
liquidation, a composition or arrangement with creditors, a readjustment of
debts, the appointment of a trustee, receiver, liquidator or custodian or
similar entity with respect to the Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being contested by
the Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B) continue
undismissed or pending and unstayed for any period of seventy-five (75)
consecutive days; or
(iii) The Servicer shall fail to perform any one or more of its
obligations hereunder (other than its obligations referenced in clauses
(vi) and (vii) below) and shall continue in default thereof for a period of
thirty (30) days after the earlier to occur of (x) the date on which an
Authorized Officer of the Servicer knows or reasonably should know of such
failure or (y) receipt by the Servicer of a written notice from the
Indenture Trustee, the
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Owner Trustee, any Securityholder, the Depositor or the Credit Enhancer of
said failure; provided, however, that if the Servicer demonstrates to the
reasonable satisfaction of the Credit Enhancer that it is diligently
pursuing corrective action, the cure period shall be extended for up to an
additional 60 days; or
(iv) The Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.2 which materially
and adversely affects the interests of the Noteholders, the
Certificateholders or Credit Enhancer for a period of thirty (30) days
after the earlier of (x) the date on which an Authorized Officer of the
Servicer knows or reasonably should know of such breach or (y) receipt by
the Servicer of a written notice from the Indenture Trustee, the Owner
Trustee, any Noteholder or Certificateholder, the Depositor or the Credit
Enhancer of such breach; provided, however, that if the Servicer
demonstrates to the reasonable satisfaction of the Credit Enhancer that it
is diligently pursuing corrective action, the cure period shall be extended
for up to an additional 30 days; or
(v) If the Credit Enhancer pays out any money under the Credit
Enhancement Instrument, or if the Credit Enhancer otherwise funds any
shortfall with its own money, because the amounts available to the
Indenture Trustee (other than from the Credit Enhancer) are insufficient to
make required distributions on the Notes; provided, however, that the
Servicer may not be removed under this clause (v) if the Servicer can
demonstrate to the reasonable satisfaction of the Indenture Trustee and the
Credit Enhancer that such event was due to circumstances beyond the control
of the Servicer; or
(vi) The failure by the Servicer to make any required Servicing
Advance for a period of 30 days following the earlier of (x) the date on
which an Authorized Officer of the Servicer knows or reasonably should know
of such failure or (y) receipt by the Servicer of a written notice from the
Indenture Trustee, the Owner Trustee, any Securityholder, the Depositor or
the Credit Enhancer of such failure; or
(vii) The failure by the Servicer to make any required Delinquency
Advance, to pay any Compensating Interest or to pay over the Monthly
Remittance, Loan Purchase Prices and Substitution Adjustment Amounts or, so
long as the Servicer is an Affiliate of the Depositor, the failure by any
Originator to pay any required Loan Purchase Price or Substitution
Adjustment Amount;
provided, however, that (x) prior to any removal of the Servicer pursuant to
clauses (ii) through (iv) and (vi) of this Section 7.1(a), any applicable grace
period granted by any such clause shall have
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expired prior to the time such occurrence shall have been remedied and (y) in
the event of the refusal or inability of the Servicer to comply with its
obligations described in clause (vii) above, such removal shall be effective
(without the requirement of any action on the part of the Depositor, the Credit
Enhancer or of the Trustees) at 4 p.m. on the second Business Day following the
day on which the Indenture Trustee notifies an Authorized Officer of the
Servicer that a required amount described in clause (vii) above has not been
received by the Indenture Trustee, unless the required amount described in
clause (vii) above is paid by the Servicer prior to such time. Upon the
Indenture Trustee's determination that a required amount described in clause
(vii) above has not been made by the Servicer, the Indenture Trustee shall so
notify an Authorized Officer of the Servicer, the Depositor, the Owner Trustee,
and the Credit Enhancer, as soon as is reasonably practical.
(b) The Servicer shall not resign from the obligations and duties hereby
imposed on it, except upon determination that its duties hereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of the Servicer so causing such a conflict being of a type and nature carried on
by the Servicer at the date of this Agreement. Any such determination permitting
the resignation of the Servicer shall be evidenced by an opinion of counsel to
such effect which shall be delivered to the Indenture Trustee, the Owner
Trustee, the Depositor and the Certificate Insurer.
(c) No removal or resignation of the Servicer shall become effective until
the Indenture Trustee or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with this Section.
(d) Upon removal or resignation of the Servicer, the Servicer also shall
promptly deliver or cause to be delivered to a successor servicer or the
Indenture Trustee all the books and records (including, without limitation,
records kept in electronic form) that the Servicer has maintained for the Home
Equity Loans, including all tax bills, assessment notices, insurance premium
notices and all other documents as well as all original documents then in the
Servicer's possession.
(e) Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly and
immediately to the Indenture Trustee or the successor Servicer.
(f) Upon removal or resignation of the Servicer, the Indenture Trustee (x)
may solicit bids for a successor servicer as described below, and (y) pending
the appointment of a successor Servicer as a result of soliciting such bids,
shall serve as Servicer. The Indenture Trustee, if it serves as successor
Servicer, shall be entitled to a Servicing Fee calculated at the applicable
Servicing Fee Rate and payable on a monthly basis. The Indenture Trustee shall,
if it is unable to obtain a qualifying bid and is prevented by law from acting
as Servicer, appoint, or petition a court of competent jurisdiction to appoint,
any housing and home finance institution, bank or mortgage servicing institution
which has been designated as an approved seller-servicer by FNMA or
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FHLMC for first and second mortgage loans and having equity of not less than
$15,000,000, as determined in accordance with generally accepted accounting
principles, and acceptable to the Credit Enhancer as the successor to the
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer hereunder. The compensation of any
successor servicer (including, without limitation, the Indenture Trustee) so
appointed shall be the aggregate Servicing Fees, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 4.8 and 4.15; provided, however, that if the
Indenture Trustee acts as successor Servicer then the Depositor agrees to pay to
the Indenture Trustee at such time that the Indenture Trustee becomes such
successor Servicer a set up fee of twenty-five dollars ($25.00) for each Home
Equity Loan, if any, then included in the Trust. The Indenture Trustee shall be
obligated to serve as successor Servicer whether or not the $25.00 fee described
in the preceding sentence is paid by the Depositor, but shall in any event be
entitled to receive, and to enforce payment of, such fee from the Depositor.
(g) In the event the Indenture Trustee solicits bids as provided above, the
Indenture Trustee shall solicit, by public announcement, bids from housing and
home finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 4.8 and 4.15. Within thirty days after any such public
announcement, the Indenture Trustee shall, with the consent of the Credit
Enhancer, negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualified party
submitting the highest satisfactory bid. The Indenture Trustee shall deduct from
any sum received by the Indenture Trustee from the successor to the Servicer in
respect of such sale, transfer and assignment all costs and expenses of any
public announcement and of any sale, transfer and assignment of the servicing
rights and responsibilities hereunder. After such deductions, the remainder of
such sum shall be paid by the Trustee to the Servicer at the time of such sale,
transfer and assignment to the Servicer's successor.
(h) The Indenture Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. The Servicer agrees to cooperate with the Indenture Trustee and any
successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Trustee or
such successor Servicer, as applicable, all documents and records reasonably
requested by it to enable it to assume the Servicer's functions hereunder and
shall promptly also transfer to the Trustee or such successor Servicer, as
applicable, all amounts which then have been or should have been deposited in
the Collection Account by the Servicer or which are thereafter received with
respect to the Home Equity Loans. Neither the Indenture Trustee nor any other
successor Servicer shall be held liable by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivering, cash,
documents or records to it, or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer.
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(i) The Indenture Trustee or any other successor Servicer, upon assuming
the duties of Servicer hereunder, shall immediately make all Delinquency
Advances and pay all Compensating Interest which the Servicer has theretofore
failed to remit with respect to the Home Equity Loans and shall make all future
Delinquency Advances, Servicing Advances and payments of Compensating Interest
required by this Agreement during the time it is acting as Servicer hereunder;
provided, however, that if the Indenture Trustee is acting as successor
Servicer, the Indenture Trustee shall only be required to make Delinquency
Advances (including the Delinquency Advances described in this clause (i)) if,
in the Indenture Trustee's reasonable good faith judgment, such Delinquency
Advances will ultimately be recoverable from the related Home Equity Loans.
(j) The Servicer which is being removed or is resigning shall give notice
to the Mortgagors and to the Rating Agencies of the transfer of the servicing to
the successor.
(k) Any successor Servicer shall assume all rights and obligations of the
predecessor Servicer under this Agreement, except those arising before
succession (other than the obligation to make Delinquency Advances) and under
Section 3.2.
Section 7.2 Right of the Credit Enhancer to Replace Servicer. From and
after the occurrence of a Servicing Delinquency Trigger, the Credit Enhancer
may, upon written notice to the Indenture Trustee, the Owner Trustee and the
Rating Agencies, replace the Servicer with a successor. No such replacement
shall become effective until a successor has assumed the Servicer's
responsibilities and obligations hereunder.
ARTICLE VIII.
Termination
Section 8.1 Termination Upon Option of Servicer. (a) On any Remittance Date
on or after the Optional Termination Date, the Servicer may determine to
purchase and may cause the purchase from the Issuer of all (but not fewer than
all) Home Equity Loans and all property theretofore acquired in respect of any
Home Equity Loan by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Issuer at a price equal to 100% of the aggregate Loan Balances
of the related Home Equity Loans as of the day of purchase minus amounts
remitted from the Collection Account to the Payment Account and the Certificate
Distribution Account, as applicable, representing collections of principal on
the Home Equity Loans during the current Remittance Period, plus one month's
interest on such amount computed at the weighted average Remittance Rate plus
the unpaid amounts due and owing to the Credit Enhancer for the payment of
certain fees and reimbursement of draws under the Credit Enhancement Instrument
plus the aggregate amount of any related unreimbursed Delinquency Advances and
Servicing Advances which the Servicer has theretofore failed to remit. In
connection with such purchase, the Servicer shall remit to the Indenture Trustee
all amounts then on deposit in the Collection Account for deposit to the Payment
Account and the Certificate Distribution Account, as appropriate, which deposit
shall be deemed to have occurred immediately preceding such purchase. The Notes
and Certificates will be redeemed concurrently therewith.
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(b) Promptly following any such purchase, the Indenture Trustee will
release the Files for the related Home Equity Loans with appropriate
endorsements and transfer documents, to the Servicer or otherwise upon its
order.
ARTICLE IX.
Miscellaneous Provisions
Section 9.1 Amendment. This Agreement may be amended by the Issuer, the
Depositor, the Servicer, the Indenture Trustee and the Owner Trustee, with the
consent of the Credit Enhancer (which consent may not be unreasonably withheld),
but without the consent of any of the Noteholders or the Certificateholders, to
cure any ambiguity or defect, to correct or supplement any provisions in this
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Agreement or of modifying in
any manner the rights of the Noteholders or the Certificateholders; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the Indenture Trustee, the Owner Trustee and the Credit Enhancer,
adversely affect in any material respect the interests of any Noteholder or
Certificateholder.
This Agreement may also be amended from time to time by the Issuer, the
Depositor, the Servicer, the Indenture Trustee and the Owner Trustee, with the
consent of the Credit Enhancer, the consent of the Noteholders evidencing not
less than a majority of the Security Balances of the Notes and the consent of
the Certificateholders evidencing not less than a majority of the Percentage
Interest for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, distributions that shall be
required to be made for the benefit of the Noteholders or the Certificateholders
or (b) reduce the aforesaid percentage of the Security Balances of the Notes and
the Percentage Interest of the Certificates, the Holders of which are required
to consent to any such amendment, without the consent of the Holders of all the
outstanding Notes and the Holders of all the outstanding Certificates affected
thereby.
Promptly after its execution of any such amendment or consent, the
Indenture Trustee shall furnish written notification of the substance of such
amendment or consent to each Rating Agency and each Securityholder.
It shall not be necessary for the consent of the Certificateholders or
Noteholders pursuant to this Section to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof.
Section 9.2 Notices. All notices hereunder shall be given as follows, until
any superseding instructions are given to all other Persons listed below:
The Indenture Trustee: Bankers Trust Company of
California, N.A.
3 Park Plaza
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Irvine, California 92614
Attention:
UCFC Home Equity Loan Owner Trust 1997-__
Tel: (714) 253-7575
Fax: (714) 253-7577
The Depositor: UCFC Acceptance Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attention: H. C. McCall, III
President
Tel: (504) 924-6007
Fax: (504) 922-4244
The Servicer: United Companies Lending Corporation(R)
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attention: B. Dale Quick,
Senior Vice President
Copy to: C. Geron Hargon,
President
Tel: (504) 924-6007
Fax: (504) 922-4244
Credit Enhancer: [ ]
The Owner Trustee: Wilmington Trust Company
[ ]
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Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Home Equity
Monitoring Department
S & P: Standard & Poor's Ratings Group,
a division of
The McGraw-Hill Companies, Inc.
26 Broadway
15th Floor
New York, New York 10004
Attention: Surveillance Dept.
Fitch: Fitch Investors Service L.P.
1 State Street Plaza
New York, New York 10004
Attention:
Section 9.3 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the parties hereto, and the Credit
Enhancer, the Certificateholders and the Noteholders, as third-party
beneficiaries, and nothing in this Agreement, whether express or implied, shall
be construed to give to any other Person any legal or equitable right, remedy or
claim in the Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
Section 9.4 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 9.5 Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 9.6 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 9.7 Assignment to Indenture Trustee. The Depositor hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Indenture Trustee pursuant to the
Indenture for the benefit of the Noteholders of all right, title and
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interest of the Issuer in, to and under the Home Equity Loans and/or the
assignment of any or all of the Issuer's rights and obligations hereunder to the
Indenture Trustee.
Section 9.8 Nonpetition Covenant. Notwithstanding any prior termination of
this Agreement, the Servicer and the Depositor shall not, prior to the date
which is one year and one day after the termination of this Agreement with
respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
Section 9.9 Limitation of Liability of Owner Trustee and Indenture Trustee.
(a) Notwithstanding anything contained herein to the contrary, this Agreement
has been countersigned by Wilmington Trust Company, not in its individual
capacity but solely in its capacity as Owner Trustee of the Issuer and in no
event shall Wilmington Trust Company, in its individual capacity or, except as
expressly provided in the Trust Agreement, as Owner Trustee have any liability
for the representations, warranties, covenants, agreements or other obligations
of the Issuer hereunder or under any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Issuer. For all purposes of this Agreement, in the performance
of its duties or obligations hereunder or in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of [Articles VI, VII and
VIII of the Trust Agreement.]
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Bankers Trust Company of California, N.A.
not in its individual capacity but solely as Indenture Trustee and in no event
shall Bankers Trust Company of California, N.A. have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer.
Section 9.10 Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Owner Trustee with respect to
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Servicer shall have no
authority to act for or represent the Issuer or the Owner Trustee in any way and
shall not otherwise be deemed an agent of the Issuer or the Owner Trustee.
Section 9.11 No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Servicer and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
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Section 9.12 Credit Enhancer. Any right conferred to the Credit Enhancer
shall not arise until the issuance by the Credit Enhancer of its Credit
Enhancement Instrument and shall be suspended during any period in which the
Credit Enhancer is in default in its payment obligations under such certificate
insurance policy (except that subrogation rights which have previously arisen
shall not be so suspended). During the period of any such suspension, such
rights shall vest in the Noteholders, and may be exercised by the Holders of a
majority of the Security Balances of the Notes then Outstanding.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
UCFC HOME EQUITY LOAN OWNER TRUST 1997-__
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Trustee on behalf of the Issuer,
By:____________________________________
Name:
Title:
UCFC ACCEPTANCE CORPORATION,
Depositor,
By:____________________________________
Name:
Title:
UNITED COMPANIES LENDING
CORPORATION, (R)
Servicer,
By:____________________________________
Name:
Title:
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BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity but solely as
Indenture Trustee on behalf of the Issuer,
By:____________________________________
Name:
Title:
Acknowledged and Accepted:
WILMINGTON TRUST COMPANY, not
in its individual capacity
but solely as Owner Trustee,
By:___________________________
Name:
Title:
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APPENDIX A
DEFINITIONS
"Account": Any of the following: the Payment Account, the Certificate
Distribution Account, the Insured Payment Account, the Funding Account, the
Capitalized Interest Account and the Reserve Account.
"Accrual Period": As to any Payment Date and the Securities, the period
beginning on the Payment Date in the month preceding the month of such Payment
Date (or in the case of the first Payment Date, beginning on the Closing Date)
and ending on the preceding such Payment Date.
"Addition Notice": As to any Deposit Date occurring after December __,
1997, written notice to the Indenture Trustee, the Owner Trustee and the
Certificate Insurer from the Originators given at least 10 Business Days prior
to such Deposit Date identifying the Additional Loans and the aggregate Original
Loan Balance thereof and accompanied by an electromagnetic data file for such
Additional Loans.
"Additional Deposit": As to any Deposit Date, an amount equal to the sum of
(i) the product of the percentage used in the definition of Initial Deposit and
the aggregate Principal Balance as of the related Deposit Cut-off Date of the
Additional Loans being transferred on such date, and (ii) the amount, if any,
required to be deposited in the [Reserve Account] with respect to the Additional
Loans transferred and sold on such Deposit Date as provided in Section 5.2 of
the Sale and Servicing Agreement.
"Additional Loans": Those home equity loans sold, transferred and conveyed
on a Deposit Date pursuant to Section ___ of the Sale and Servicing Agreement
and the related Transfer Agreement, which shall be listed in the Schedule of
Additional Loans delivered pursuant to such Transfer Agreement.
"Administration Agreement": The Administration Agreement dated as of
December __, 1997, among the Issuer, the Indenture Trustee and
[_____________________], as Administrator.
"Administrator": [______________], as administrator under the
Administration Agreement or any successor Administrator appointed pursuant to
the terms of the Administration Agreement.
"Adjusted Pass-Through Rate": As to any Remittance Date, a per annum rate
equal to the sum of (x) the Expense Fee Rate and (y) the Pass-Through Rate for
the Notes [and the] Certificates for the Accrual Period related to the Payment
Date in the month of such Remittance Date. As of the Closing Date, the Adjusted
Pass-Through Rates for the Notes [and the Certificates] are ___ and ___%,
respectively.
<PAGE>
"Affiliate": As to any Person, any other Person controlling, controlled by
or under common control with such Person. "Control" means the power to direct
the management and policies of a Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise. "Controlled" and
"Controlling" have meanings correlative to the foregoing. The Trustees may
conclusively presume that a Person is not an Affiliate of another Person unless
an Authorized Officer of the Trustees has actual knowledge to the contrary.
["Amortized Reserve Account Requirement": As defined in the Insurance
Agreement.]
"Appraised Value": The appraised value of any Property based upon the
appraisal made at the time of origination of the related Home Equity Loan,
which, with respect to Escrow Loans, may be an appraised value which is subject
to completions of certain improvements to be paid for out of escrowed funds, or
in the case of a Home Equity Loan which is a purchase money mortgage, the sales
price of the Property at such time of origination, if such sales price is less
than such appraised value, and as otherwise calculated in accordance with the
credit underwriting guidelines described in the Prospectus.
"ARM": A Home Equity Loan the Coupon Rate of which adjusts on each Change
Date by reference to the applicable Index, subject to the applicable Periodic
Rate Cap, Lifetime Floor and Lifetime Cap.
"Assignment of Mortgage": With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering the Home Equity Loans secured by Mortgaged Properties
located in the same jurisdiction.
"Authorized Newspaper": A newspaper of general circulation in the Borough
of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
"Authorized Officer": With respect to the Issuer, any officer of the Owner
Trustee who is authorized to act for the Owner Trustee in matters relating to
the Issuer and who is identified on the list of Authorized Officers delivered by
the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Responsible Officer of the
Administrator who is authorized to act for the Administrator in matters relating
to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Authorized
Officers delivered by the Administrator to the Indenture Trustee on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter). With respect to the Depositor and the Servicer, initially including
those individuals whose names appear on the lists of Authorized Officers
delivered on the Closing Date.
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"Available Funds": As to any Payment Date, the sum, without duplication, of
(a) the amount on deposit in the Payment Account on such Payment Date after the
transfers specified in Section [5.2] of the Sale and Servicing Agreement, plus
(b) any amount transferred from the Reserve Account to the Payment Account on
such Payment Date pursuant to Section [5.2], minus (c) the amount of any
payments made from the Payment Account pursuant to Section [5.2] of the Sale and
Servicing Agreement and prior to making any distributions pursuant to Section
[5.2] of the Sale and Servicing Agreement. The term "Available Funds" does not
include Insured Payments and does not include any amounts that cannot be
distributed to the Noteholders or the Certificateholders of the related Notes
and Certificates by the Indenture Trustee as a result of proceedings under the
United States Bankruptcy Code.
"Balloon Loan": A Home Equity Loan for which the amortization schedule
exceeds the stated maturity date of the related Mortgage Note by a substantial
period of time leaving a payment due on such stated maturity date which exceeds
the regular monthly payment by a substantial amount.
"Basic Documents": The Trust Agreement, the Certificate of Trust, the
Indenture, the Loan Purchase Agreement, the Loan Sale Agreement, the Insurance
Agreement, the Administration Agreement, the Sale and Servicing Agreement and
the other documents and certificates delivered in connection with any of the
above.
"Basic Principal Amount": As to any Payment Date, an amount equal to the
sum, without duplication, of the following amounts received with respect to the
Home Equity Loans: (i) the principal portion of all scheduled and unscheduled
payments received by the Servicer on the Home Equity Loans during the related
Remittance Period, including (a) any Prepayments, (b) Insurance Proceeds, (c)
Net Liquidation Proceeds, (d) REO Proceeds and (e) Released Mortgaged Property
Proceeds, (ii) all Substitution Adjustment Amounts and the principal portion of
all Loan Purchase Prices deposited into the Collection Account on the related
Remittance Date, (iii) the applicable portion of the proceeds received by the
Indenture Trustee in connection with any termination of the Trust pursuant to
Article [ ] of the Sale and Servicing Agreement, to the extent such proceeds
relate to principal, (iv) the Loan Balance of each Home Equity Loan which became
a Liquidated Loan during the related Remittance Period to the extent not
included in the amounts described in the preceding clauses (i), (ii) and (iii)
and (v) if such Payment Date is the last Funding Payment Date, amounts
transferred to the applicable Certificate Distribution Account and Payment
Account from the Funding Account pursuant to Section [5.2] of the Sale and
Servicing Agreement.
"Beneficial Owner": With respect to any Note, the Person who is the
beneficial owner of such Note as reflected on the books of the Depository or on
the books of a Person maintaining an account with such Depository (directly as a
Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
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"Book-Entry Notes": Beneficial interests in the Notes, ownership and
transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in the State of New York or in the city in
which the principal corporate trust office of the Indenture Trustee or Owner
Trustee or the principal office of the Certificate Insurer is located, are
authorized or obligated by law or executive order to be closed. When used with
respect to an Interest Determination Date, "Business Day" shall also mean a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City.
"Business Trust Statute": Chapter 38 of Title 12 of the Delaware Code, 12
Del. Codess. 3801 et seq., as the same may be amended from time to time.
"Capitalized Interest Account": Each capitalized interest account created
and maintained pursuant to Section 5.2 of the Sale and Servicing Agreement.
["Capitalized Interest Requirement": _______________________________]
"Certificate Distribution Account": The meaning assigned to such term in
Section 5.01 of the Trust Agreement.
"Certificate Distribution Amount": With respect to any Payment Date, the
sum of (x) the amount accrued during the related Interest Period on the
Percentage Interest of the Certificates at the Certificate Rate for such
Interest Period.
"Certificate of Trust": The Certificate of Trust in the form of Exhibit B
attached to the Trust Agreement filed for the Trust pursuant to Section 3810(a)
of the Business Trust Statute.
"Certificate Rate": __________.
"Certificate Register" and "Certificate Registrar": The register mentioned
in and the registrar appointed pursuant to Section 3.04 of the Trust Agreement.
"Certificate": A certificate evidencing the beneficial interest of a
Certificateholder in the Trust, substantially in the form of Exhibit A attached
to the Trust Agreement.
"Certificateholder": The Person in whose name a Certificate is registered
in the Certificate Register except that, any Certificate registered in the name
of the Issuer, the Owner Trustee or the Indenture Trustee or any Affiliate of
any of them shall be deemed not to be outstanding and the registered holder will
not be considered a Certificateholder or a holder for purposes of giving any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture or the Trust Agreement provided that, in determining whether the
Indenture
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Trustee or the Owner Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Indenture Trustee or the Owner Trustee knows to be so
owned shall be so disregarded. Owners of Certificates that have been pledged in
good faith may be regarded as Holders if the pledgee establishes to the
satisfaction of the Indenture Trustee or the Owner Trustee, as the case may be,
the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
"Certified Assignment Schedule": A computerized schedule listing each
original intervening assignment a true and correct copy of which is in the
possession of the applicable Originator or the Servicer but the original of
which is unavailable and the loan number and property address of the related
Property.
"Certified Mortgage Schedule": A computerized schedule listing each
original Mortgage a true and correct copy of which is in the possession of the
applicable Originator or the Servicer but the original of which in unavailable
and the loan number and property address of the related Primary Parcel.
"Change Date": The date on which the Coupon Rate of each ARM is subject to
adjustment.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Closing Date": December __, 1997.
"CMT": The weekly average of the yields on United States treasury
securities adjusted to a constant maturity of one year, as made available by the
Federal Reserve Board as of the date 45 days (as set forth in the related
Mortgage Note) before each Change Date.
"CMT ARM": An ARM for which: the Index is CMT; the Change Date occurs on
the date set forth in the related Mortgage Note and every twelfth month
thereafter; the Periodic Rate Cap for all but ___ of the CMT ARMs is [200] basis
points; the Lifetime Cap is [600] basis points higher than the initial Mortgage
Rate; and the Lifetime Floor is the Gross Margin set forth in the related
Mortgage Note.
"Code": The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of the
Indenture.
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<PAGE>
"Collection Account": The account or accounts created and maintained
pursuant to Section 4.8 of the Sale and Servicing Agreement. The Collection
Account shall be an Eligible Account.
"Collection Period": With respect to any Home Equity Loan and Payment Date
other than the first Payment Date, the calendar month preceding any such Payment
Date and with respect to the first Payment Date, the period from December __,
1997 through ___________.
"Compensating Interest": As defined in Section 4.10 of the Sale and
Servicing Agreement.
"Converted ARM": [Not Applicable]
"Convertible ARM": [Not Applicable]
"Corporate Trust Office": With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee located at [_____________________],
or at such other address as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the principal corporate trust office of
any successor Owner Trustee at the address designated by such successor Owner
Trustee by notice to the Certificateholders and the Depositor.
"Coupon Rate": As of any date of determination, the rate of interest borne
by each Mortgage Note.
"Credit Enhancement Draw Amount": As defined in Section 3.32 of the
Indenture.
"Credit Enhancement Instrument": The certificated insurance policy, dated
as of the Closing Date, issued by the Credit Enhancer to the Indenture Trustee
for the benefit of the Noteholders.
"Credit Enhancer Default": If the Credit Enhancer fails to make a payment
required under the Credit Enhancement Instrument in accordance with its terms.
"Credit Enhancer": [______________________], a [_______________], any
successor thereto or any replacement credit enhancer substituted pursuant to
Section 3.33 of the Indenture.
"Cumulative Reserve Account Withdrawals": As of any Payment Date, the
cumulative amount transferred from the Reserve Account to the Accounts pursuant
to Section [5.2] of the Sale and Servicing Agreement.
Current Interest: As to any Payment Date and any Note [or Certificate]
interest accrued during the related Accrual Period at the applicable
Pass-Through Rate on the related Security Balance.
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"Cut-off Date": The opening of business on December __, 1997, except that
the Cut-off Date with respect to any Mortgage Note for a Home Equity Loan that
is not an Additional Loan and dated on or after December __, 1997, shall be the
date of such Mortgage Note.
"Default": Any occurrence which is or with notice or the lapse of time or
both would become an Event of Default.
"Definitive Notes": The meaning specified in Section 4.06 of the Indenture.
"Delinquency Advance": As defined in Section 4.9 of the Sale and Servicing
Agreement.
"Delinquent": A Home Equity Loan is "delinquent" if any payment due thereon
is not made by the close of business on the day such payment is scheduled to be
due. A Home Equity Loan is "30 days delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Deposit Cut-Off Date": The opening of business on the first day of the
month in which a Deposit Date occurs as specified in a Transfer Agreement with
respect to those Additional Loans which are being sold pursuant to such Transfer
Agreement.
"Deposit Date": Each Payment Date occurring during the related Funding
Period and the Payment Date occurring in the month (i) following the month in
which such Funding Period ends if such period ends after the Payment Date in a
month or (ii) in which such Funding Period ends, if such period ends prior to
the Payment Date in a month.
"Depositor": UCFC Acceptance Corporation, a Louisiana corporation, and its
successors and permitted assigns.
"Depository or Depository Agency": The Depository Trust Company or a
successor appointed by the Indenture Trustee with the approval of the Depositor.
Any successor to the Depository shall be an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
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<PAGE>
"Designated Depository Institution": With respect to any Account, an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the long-term deposits of which shall be
rated A or better by S&P and A2 or better by Moody's and in one of the two
highest short-term ratings, unless otherwise approved in writing by the Credit
Enhancer with notification to the Rating Agencies, and which is any of the
following: (i) a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Credit Enhancer and the Rating Agencies and, in each case acting
or designated by the Servicer as the depository institution for such Account;
provided, however, that any such institution, association or subsidiary shall
have combined capital, surplus and individual profits of at least $100,000,000.
Notwithstanding the foregoing, an Account may be held by an institution
otherwise meeting the preceding requirements except that the only applicable
rating requirement shall be that the unsecured and uncollateralized debt
obligations thereof shall be rated Baa3 or better by Moody's (or the equivalent
rating by any other Rating Agency) if such institution has capital and surplus
of not less than $50,000,000.00 and has trust powers and the Account is held by
such institution in its trust capacity and not in its commercial capacity.
"Determination Date": The Business Day preceding each Payment Date.
"Disqualified Organization": "Disqualified Organization" shall have the
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code (or any successor statute thereto).
"Due Date": With respect to any Home Equity Loan, the day of the month on
which the monthly payment is due, excluding any days of grace.
"Eligible Investments": Those investments so designated pursuant to Section
5.4 of the Sale and Servicing Agreement.
"Eligible Substitute Mortgage": A Home Equity Loan substituted for another
pursuant to this Agreement, which (i) has a current Loan Rate at least equal to,
and not more than 1% greater than, the current Loan Rate of the Home Equity Loan
being replaced, (ii) is of the same or better lien priority, property type and
occupancy status as the replaced Home Equity Loan, (iii) shall mature no later
than the maturity date of the Home Equity Loan being replaced, (iv) has a
Loan-to-Value Ratio no higher than the Loan-to-Value Ratio of the replaced Home
Equity Loan, (v) is not delinquent and is not an Escrow Loan or a Convertible
ARM, (vi) has a Loan Balance as of the related Replacement Cut-off Date equal to
or less than the Loan Balance of the replaced Home Equity Loan as of such
Replacement Cut-off Date, (vii) satisfies the criteria set forth from time to
time in the definition of "qualified replacement mortgage" at Section 860G(a)(4)
of the Code (or any successor statute thereto) and applicable to such
arrangement, (viii) satisfies each representation and warranty set forth in Part
II of Exhibit D as of the applicable Replacement Cut-off Date, (ix) has the same
status under SMMEA as the Home
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<PAGE>
Equity Loan being replaced or qualifies under SMMEA, (x) is an ARM and (xi) has
a Gross Margin no less than, a Lifetime Floor no higher than, a Lifetime Cap no
lower than and a Coupon Rate which, after the initial adjustment, adjusts at the
same intervals based on the same Index subject to the same Periodic Rate Cap, as
that of the ARM being replaced. In the event that one or more mortgage loans are
proposed to be substituted for one or more Home Equity Loans, the Certificate
Insurer and the Depositor may allow the foregoing tests to be met on a weighted
average or other aggregate basis acceptable to the Certificate Insurer and the
Depositor, except that the requirements of clauses (iv), (viii), (ix), (x), and
(xi) hereof must be satisfied as to each Eligible Substitute Mortgage.
"ERISA": Employee Retirement Income Security Act of 1974, as amended.
"Escrow Loan": Any Home Equity Loan with respect to which (i) all or a
portion of the proceeds of such Home Equity Loan were originally paid into an
escrow account pending completion of improvements to be made to the related
Property and (ii) the Appraised Value was specifically subject to the completion
of such improvements.
"Event of Default": As defined in Section 7.1 of the Sale and Servicing
Agreement.
"Event of Excess Loss": For any of the time periods set forth below,
cumulative Net Realized Losses since the Closing Date equal or exceed the
specified percentages of the Original Aggregate Loan Balance.
Time Period Percentage
----------- ----------
%
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Expense Fee Rate": A per annum rate equal to the sum of (i) the Servicing
Fee Rate, (ii) the [Indenture Trustee's Fee Rate and the Owner Trustee's Fee
Rate] and (iii) with respect to the Payment Date in January 1997 and each
Payment Date thereafter, the Premium Rate, as defined in the Insurance
Agreement.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
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"File": The documents specified in Part I of Exhibit D to the Sale and
Servicing Agreement pertaining to a particular Home Equity Loan pursuant to this
Agreement and any additional documents required to be added to the File pursuant
to this Agreement.
"Final Scheduled Payment Date": To the extent not previously paid, the
principal balance of the Notes will be due on the Payment Date in ____________
____.
"Fiscal Agent": ______________________, as Fiscal Agent for the Credit
Enhancer or any successor fiscal agent appointed by the Credit Enhancer.
"Fitch": Fitch Investors Service, L.P.
"FNMA": The Federal National Mortgage Association, a federally-chartered
and privately-owned corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor thereof.
"FNMA Guide": FNMA's Servicing Guide, as the same may be amended by FNMA
from time to time.
"FTC Rule": The regulations in 16 C.F.R. ss.433.1.
"Funding Account": The trust account created and maintained with the
Indenture Trustee pursuant to Section 5.1 of the Sale and Servicing Agreement
and referred to therein as the Funding Account.
"Funded Amount": As to the Closing Date, the applicable Original Funded
Amount. As to any Determination Date, the amount on deposit in the related
Funding Account excluding Funding Earnings.
"Funding Earnings": As to any Deposit Date, the amount of actual net
investment earnings realized on the Funded Amount in the Funding Account during
the period beginning on the Determination Date in the month preceding such
Deposit Date (or in the case of the first Deposit Payment Date, beginning on the
Closing Date) and ending on the Determination Date in the month of such Deposit
Payment Date.
"Funding Period": The period beginning on the Closing Date and ending on
the earliest to occur of (i) the date on which the Funded Amount is less than
$100,000, (ii) an Event of Default and (iii) ____________, 1998.
"Gross Margin": With respect to each ARM, the number of basis points set
forth in the related Note which is added to the Index to determine the Coupon
Rate on the related Change Date, subject to the applicable Periodic Rate Cap,
Lifetime Cap and Lifetime Floor.
"Grant": Mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off
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against, deposit, set over and confirm pursuant to the Indenture. A Grant of the
Collateral or of any other agreement or instrument shall include all rights,
powers and options (but none of the obligations) of the granting party
thereunder, including the immediate and continuing right to claim for, collect,
receive and give receipt for principal and interest payments in respect of such
collateral or other agreement or instrument and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
["Guarantee Agreement": The agreement, dated the Closing Date, between the
Guarantor and the Credit Enhancer pursuant to which the Guarantor agrees to make
certain reimbursements to the Credit Enhancer and is entitled to the Guarantee
Fee.]
["Guarantee Fee": As to any Remittance Date, an amount equal to the product
of __% and the
["Guarantee Fee Rate": As to any ARM, 0% per annum.]
["Guarantee Fee Sub-Account": One of the sub-accounts within the Reserve
Account.]
["Guarantor": ___________, a ___________ corporation and its successors and
assigns.]
"Holder": Any of the Noteholders or Certificateholders.
"Home Equity Loans": The home equity loans sold to the Issuer on the
Closing Date, together with any Eligible Substitute Mortgages substituted
therefor in accordance with this Sale and Servicing Agreement, as from time to
time are held as a part of the Trust Estate, the Home Equity Loans originally so
transferred and assigned being identified in the Schedule of Home Equity Loans.
The term "Home Equity Loan" includes the term "ARM," "Convertible ARM,"
"Converted ARM" and, except where otherwise indicated, "Eligible Substitute
Mortgages" and "Additional Loans." The term "Home Equity Loan" includes any Home
Equity Loan which is Delinquent, which relates to a foreclosure or which relates
to a Property which is REO Property prior to such Property's disposition by the
Issuer. Any home equity loan which, although intended by the parties hereto to
have been, and which purportedly was, transferred and assigned to the Issuer
established hereby by the Depositor, in fact was not transferred and assigned to
the Issuer for any reason whatsoever, including, without limitation, the
incorrectness of the statement set forth in clause (10) of Part II of Exhibit D
attached to the Sale and Servicing Agreement with respect to such home equity
loan, shall nevertheless be considered a "Home Equity Loan" for all purposes of
this Agreement.
"Indemnified Parties": The meaning assigned to such term in Section 8.02 of
the Trust Agreement.
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"Indenture": The indenture dated as of December __, 1997 between the Issuer
and the Indenture Trustee, as Indenture Trustee.
"Indenture Trustee": Bankers Trust Company of California, N.A., and its
successors and assigns or any successor indenture trustee appointed pursuant to
the terms of the Indenture.
"Indenture Trustee's Fee": With respect to any Payment Date, the product of
(i) one-twelfth of the Indenture Trustee's Fee Rate and (ii) the aggregate Loan
Balances of all Home Equity Loans as of the last day of the related Remittance
Period.
"Indenture Trustee's Fee Rate": ______% per annum.
"Independent Certificate": A certificate or opinion to be delivered to the
Indenture Trustee under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.01 of the Indenture, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Independent": When used with respect to any specified Person, the Person
(i) is in fact independent of the Issuer, any other obligor on the Notes, the
Depositor and any Affiliate of any of the foregoing Persons, (ii) does not have
any direct financial interest or any material indirect financial interest in the
Issuer, any such other obligor, the Depositor or any Affiliate of any of the
foregoing Persons and (iii) is not connected with the Issuer, any such other
obligor, the Depositor or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Index": CMT or 6-Month LIBOR.
"Initial Deposit": The product of ________% and $_______________ (i.e.
$__________).
"Initial LIBOR": _______%.
"Insurance Agreement": The insurance and reimbursement agreement dated as
of December __, 1997 among the Servicer, the Depositor, the Issuer, the
Indenture Trustee, the Credit Enhancer [and _________, as representative of the
Underwriters], including any amendments and supplements thereto.
"Insurance Policy": Any hazard or title insurance policy relating to a Home
Equity Loan.
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"Insurance Proceeds": The proceeds of any insurance policy other than the
Credit Enhancement Instrument relating to a Home Equity Loan, a Property or a
REO Property, net of proceeds to be applied to the repair of the Property or
released to the Mortgagor and net of expenses reimbursable therefrom.
"Insured Payment": (i) As of any Payment Date and any Obligations, the sum
of (x) the applicable Noteholders' Interest Shortfall Amount and (y) the
applicable Noteholders' Principal Shortfall Amount, and (ii) any Preference
Amount with respect to which the affected Noteholders' have complied with the
provisions of the Credit Enhancement Instrument and Section [5.2] hereof during
the related Remittance Period.
"Insured Payment Account": Each insured payment account created pursuant to
Section 5.1 of the Sale and Servicing Agreement.
"Interest Determination Date": December __, 1997, for the initial Payment
Date, and thereafter the second Business Day prior to any subsequent Payment
Date while the Notes are outstanding.
"Interest Period": With respect to any Payment Date other than the first
Payment Date, the period beginning on the preceding Payment Date and ending on
the day preceding such Payment Date, and in the case of the first Payment Date,
the period beginning on the Closing Date and ending on the day preceding the
first Payment Date.
"Interest Remittance Amount": For any Remittance Date, the amount equal to
the sum, without duplication, of the following amounts with respect to the Home
Equity Loans in: (i) the aggregate interest portions (calculated at the
applicable Adjusted Pass-Through Rate) of the payments (whether or not
collected) becoming due on the Home Equity Loans during the immediately
preceding Remittance Period, net of the Servicing Fee as authorized in Section
[4.8] and (ii) Compensating Interest (calculated for this purpose, at the
applicable Adjusted Pass-Through Rate) with respect to the Home Equity Loans.
"Issuer Request": A written order or request signed in the name of the
Issuer by any one of its Authorized Officers and delivered to the Indenture
Trustee.
"Letter of Credit": An irrevocable letter of credit (i) issued by a
commercial bank rated A or better by S&P and A2 or better by Moody's and
acceptable to the Credit Enhancer, (ii) in form and substance acceptable to the
Credit Enhancer and the Trustees, (iii) with a maximum term of one year, (iv)
for the benefit of the Trustees on behalf of the Securityholders and (v)
providing for the amount thereof to be available to the Indenture Trustee on
behalf of the Securityholders in multiple drawings conditioned only upon
presentation of sight drafts accompanied by the applicable certificate in the
form attached to such letter of credit.
"LIBOR": The London interbank offered rate for one-month U.S. dollar
deposits, determined on each Interest Determination Date as provided in Section
5.8 of the Sale and Servicing Agreement.
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"LIBOR ARM": An ARM for which: the Index is 6-Month LIBOR; the initial
Change Date occurs on the date set forth in the related Mortgage Note and every
sixth month thereafter; the Periodic Rate Cap is the number of basis points set
forth in the Schedule of Home Equity Loans; the Lifetime Cap is the number of
basis points higher than the initial Coupon Rate as set forth in the Schedule of
Home Equity Loans; and the Lifetime Floor is the initial Coupon Rate.
"Lifetime Cap": The provision in the Note for each ARM which limits the
maximum Coupon Rate over the life of such ARM.
"Lifetime Floor": The provision in the Note for each ARM which limits the
minimum Coupon Rate over the life of such ARM.
"Liquidated Loan": As defined in Section 4.13(e) of the Sale and Servicing
Agreement.
"Liquidation Expenses": Expenses which are incurred by the Servicer in
connection with the liquidation of any defaulted Home Equity Loan, such
expenses, including, without limitation, legal fees and expenses, and any
unreimbursed Servicing Advances expended by the Servicer pursuant to Section
[5.7] with respect to the related Home Equity Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan, any amounts
(including the proceeds of any Insurance Policy) recovered by the Servicer in
connection with such Liquidated Loan, whether through trustee's sale,
foreclosure sale or otherwise.
"Loan Balance": As of any date of calculation and with respect to each Home
Equity Loan, the Original Principal Balance thereof less any Principal
Remittance Amounts relating to such Home Equity Loan included in previous
Monthly Remittances and, if applicable, the Monthly Remittance as of such date.
` "Loan Principal Balance": As of any date, the aggregate Loan Balances of
all of the Home Equity Loans as of the close of business on such date.
"Loan Rate": As to any date of determination, the rate of interest borne by
each Mortgage Note.
"Loan Purchase Agreement": The Loan Purchase Agreement, dated the Closing
Date, among the Seller and the Originators.
"Loan Purchase Price": With respect to any Home Equity Loan purchased from
the Issuer on a Remittance Date pursuant to the Sale and Servicing Agreement, an
amount equal to the Loan Balance of such Home Equity Loan as of the date of
purchase (after giving effect to the applicable Monthly Remittance remitted by
the Servicer on such Remittance Date), less amounts held in the Collection
Account with respect to such Home Equity Loan, plus one
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month's interest on the Loan Balance thereof as of the end of the preceding
Remittance Period computed at the related Remittance Rate, [prior to the
Subordination Termination Date], and thereafter at the applicable Adjusted
Pass-Through Rate, together with the aggregate amounts of (i) all Delinquency
Advances and Servicing Advances theretofore made with respect to such Home
Equity Loan and not subsequently recovered from the related Home Equity Loan,
(ii) all Delinquency Advances and Servicing Advances which the Servicer has
theretofore failed to remit with respect to such Home Equity Loan and (iii) if
the Loan Purchase Price is being paid in connection with the breach of Paragraph
(13) of Part II of Exhibit D to the Sale and Servicing Agreement by virtue of a
violation of the Riegle Act or the FTC Rule, the actual damages and/or expenses,
if any, incurred by the Issuer in connection with or as a result of such
violations (such actual damages and/or expenses to include both statutory
damages under the Riegle Act and the FTC Rule, as applicable, and those due to
any claim, counterclaim, rescission, set off or defense asserted by the related
Mortgagor, including without limitation, costs incurred by the Issuer to obtain
its dismissal from any suit to which it has been made a defendant as a result of
such violation).
"Loan Sale Agreement": The Loan Sale Agreement dated the Closing Date,
between the Depositor and the Seller.
"Loan-to-Value Ratio": As to any Home Equity Loan, a fraction (expressed as
a percentage rounded to two decimal places), the numerator of which is the
principal amount of such Home Equity Loan at origination and, if such Home
Equity Loan is a Second Mortgage Loan, the outstanding principal amount of the
related first mortgage as of such date, and the denominator of which is the
Appraised Value of the Property securing such Home Equity Loan.
"Monthly Remittance": The total of the related Interest Remittance Amount
and the related Principal Remittance Amount required to be remitted to the
Indenture Trustee on each Remittance Date.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Note.
"Mortgage Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Home Equity Loan.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds
net of Liquidation Expenses and unreimbursed Delinquency Advances relating to
such Home Equity Loan. In no event shall Net Liquidation Proceeds with respect
to any Liquidated Loan be less than zero.
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"Net Loan Rate": With respect to any Home Equity Loan and any day, the
related Loan Rate less the related Servicing Fee Rate.
"Net Realized Losses": As to any Payment Date, the amount, if any, by which
the sum of the Notes exceeds the Loan Principal Balance on the related
Remittance Date.
"Note Depository Agreement": The Agreement among the Trust, the Indenture
Trustee, the Servicer and the Depository Trust Company, as the initial Clearing
Agency, dated as of one Business Day prior to the Closing Date, relating to the
Notes, as the same may be amended or supplemented from time to time.
"Note Owner": The Beneficial Owner of a Note.
"Note Pool Factor": For the Notes as of the close of business on a Payment
Date means a seven-digit decimal figure equal to the outstanding principal
balance of Notes divided by the original outstanding principal balance of the
Notes. The Note Pool Factor for the Notes will be __________ as of the Cut-off
Date; thereafter, the Note Pool Factor for the Notes will decline to reflect
reductions in the outstanding principal balance of the Notes.
"Note Rate": With respect to any Interest Period, a per annum rate
determined by the Servicer equal to LIBOR as of the second LIBOR Business Day
prior to the first day of such Interest Period and [___]%; provided however,
that in no event shall the Note Rate with respect to any Interest Period exceed
the Maximum Rate for such Interest Period.
"Note Register": The register maintained by the Note Registrar in which the
Note Registrar shall provide for the registration of Notes and of transfers and
exchanges of Notes.
"Note Registrar": The Indenture Trustee, in its capacity as Note Registrar.
"Noteholder": The Person in whose name a Note is registered in the Note
Register, except that, any Note registered in the name of the Depositor, the
Issuer or the Indenture Trustee or any Affiliate of any of them shall be deemed
not to be outstanding and the registered holder will not be considered a
Noteholder or holder for purposes of giving any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or the Trust Agreement
provided that, in determining whether the Indenture Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes that the Indenture Trustee or the Owner Trustee
knows to be so owned shall be so disregarded. Owners of Notes that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons.
"Noteholders' Distributable Amount": With respect to any Payment Date, the
sum of the Noteholders' Principal Distributable Amount and the Noteholders'
Interest Distributable Amount.
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"Noteholders' Interest Carryover Shortfall": With respect to any Payment
Date, the excess of the Noteholders' Monthly Interest Distributable Amount for
the preceding Payment Date and any outstanding Noteholders' Interest Carryover
Shortfall on such preceding Payment Date, over the amount in respect of interest
that is actually deposited in the Payment Account on such preceding Payment
Date, plus interest on the amount of interest due but not paid to Noteholders on
the preceding Payment Date, to the extent permitted by law, at the Interest Rate
from such preceding Payment Date through the current Payment Date.
"Noteholders' Interest Distributable Amount": With respect to any Payment
Date, the sum of the Noteholders' Monthly Interest Distributable Amount for such
Payment Date and the Noteholders' Interest Carryover Shortfall for such Payment
Date.
"Noteholders' Monthly Interest Distributable Amount": With respect to any
Payment Date, the product of (i) one-twelfth of the Interest Rate (or, in the
case of the first Payment Date, the Interest Rate multiplied by a fraction, the
numerator of which is the number of days elapsed from and including the Closing
Date to but excluding such Payment Date and the denominator of which is 360) and
(ii) the outstanding principal balance of the Notes on the immediately preceding
Payment Date, after giving effect to all distributions of principal to
Noteholders on such Payment Date (or, in the case of the first Payment Date, on
the Closing Date).
"Noteholders' Monthly Principal Distributable Amount": With respect to any
Payment Date, the Noteholders' Percentage of the Principal Distribution Amount.
"Noteholders' Percentage": 100% until the point in time at which the Notes
have been paid in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall": As of the close of any
Payment Date, the excess of the Noteholders' Monthly Principal Distributable
Amount and any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Payment Date over the amount in respect of principal that is actually
deposited in the Payment Account.
"Noteholders' Principal Distributable Amount": With respect to any Payment
Date, the sum of the Noteholder's Monthly Principal Distributable Amount for
such Payment Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Payment Date; provided, however, that the Noteholders'
Principal Distributable Amount shall not exceed the outstanding principal
balance of the Notes. In addition, on the Final Scheduled Payment Date of the
Notes, the principal required to be deposited in the Payment Account will
include the amount necessary (after giving effect to the other amounts to be
deposited in the Payment Account on such Payment Date and allocable to
principal) to reduce the Outstanding Amount of such Notes to zero.
"Notes": The Notes designated as the "Notes" in the Indenture.
"Outstanding": With respect to the Notes, as of the date of determination,
all Notes theretofore executed, authenticated and delivered under the Indenture
except":
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(i) Notes in exchange for or in lieu of which other Notes have been
executed, authenticated and delivered pursuant to the Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a holder in due course;
(ii) Notes theretofore canceled by the Note Registrar or delivered to
the Indenture Trustee for cancellation; and
(iii) Notes theretofore canceled by the Note Registrar or delivered to
the Indenture Trustee for cancellation; and
[provided, however, that for purposes of effectuating the Credit Enhancer's
right of subrogation as set forth in Section 4.14 of the Indenture only, all
Notes that have been paid with funds provided under the Credit Enhancement
Instrument shall be deemed to be Outstanding until the Credit Enhancer has been
reimbursed with respect thereto.]
"Obligations": As defined in the Insurance Agreement.
"Officer's Certificate": A certificate signed by any Authorized Officer of
any Person delivering such certificate and delivered to the Indenture Trustee or
the Owner Trustee.
"Optional Termination Date": The Remittance Date on which the Loan
Principal Balance is [10]% or less than the Original Loan Principal Balance.
"Original Aggregate Loan Balance": Prior to the occurrence of a Deposit
Date, the aggregate Loan Balances of all Home Equity Loans (other than
Additional Loans) as of the Cut-off Date, i.e., $______________. On a Deposit
Date, the sum of (i) _______________, (ii) the aggregate Loan Balances as of the
related Deposit Cut-off Date of the Additional Loans being sold, transferred and
conveyed on such Deposit Date and (iii) if applicable, an amount, calculated as
provided in clause (ii) with respect to all Deposit Dates occurring prior to
such Deposit Date.
"Original Capitalized Interest Deposit": $__________.
"Original Loan Principal Balance": $________________ (prior to the
occurrence of a Deposit Date). On a Deposit Date, the sum of (i)
$______________, or (ii) the aggregate Loan Balances as of the Deposit Cut-off
Date of the Additional Loans on such Deposit Date and (iii) if applicable, an
amount, calculated as provided in clause (ii) with respect to all Deposit Dates
occurring prior to such Deposit Date.
"Original Funded Amount": $______________.
"Original Principal Balance": With respect to each Mortgage Note, the
outstanding principal amount of such Mortgage Note as of the Cut-off Date or,
with respect to Mortgage Note for an Additional Loan, as of the applicable
Deposit Cut-off Date.
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"Originators": [United Companies Lending Corporation(R), United Companies
Mortgage of Tennessee, Inc., Southern Mortgage Acquisition, Inc., and UNICOR
Mortgage(R), Inc. and their respective successors and permitted assigns.]
"Overfunded Amount": As to any Deposit Date, the excess, if any, of (x) the
sum of (i) the amount on deposit in the Capitalized Interest Account after the
transfers pursuant to the first sentence of Section [5.2] on such Deposit Date
and (ii) the aggregate Funding Earnings on the remaining amount on deposit in
the Funding Account for the period from the preceding Deposit Payment Date to
the next Deposit Payment Date at ___% per annum, over (y) the sum of the
Capitalized Interest Requirement and the Capitalized Premium Payment for each
succeeding Funding Payment Date.
"Owner": Each Holder of a Note or a Trust Certificate.
"Owner Trust Estate": All right, title and interest of the Trust in and to
the property and rights assigned to the Trust pursuant to the Sale and Servicing
Agreement, all funds on deposit from time to time in the Trust Accounts and the
Certificate Distribution Account and all other property of the Trust from time
to time, including any rights of the Owner Trustee and the Trust pursuant to the
Sale and Servicing Agreement and the Administration Agreement.
"Owner Trustee": Wilmington Trust Company, a Delaware bank and trust
company, not in its individual capacity but solely as owner trustee under the
Trust, and any successor Owner Trustee hereunder.
"Owner Trustee's Fee": With respect to any Payment Date, the product of (i)
one-twelfth of the Owner Trustee's Fee Rate and (ii) the aggregate Loan Balances
of all Home Equity Loans as of the last day of the related Remittance Period.
"Owner Trustee's Fee Rate": ______% per annum.
"Pass-Through Margin": As to any Accrual Period prior to the Optional
Termination Date, __ basis points. As to any Accrual Period thereafter, __ basis
points.
"Paying Agent": With respect to the notes, any paying agent or co-paying
agent appointed pursuant to Section 3.03 of the Indenture, which initially shall
be the Indenture Trustee. Any paying agent or co-paying agent appointed pursuant
to Section 3.09 of the Trust Agreement and shall initially be Bankers Trust
Company of California, N.A.
"Payment Account": The account established by the Indenture Trustee
pursuant to Section 3.03 of the Indenture and Section 5.1 of the Sale and
Servicing Agreement. The Payment Account shall be an Eligible Account.
"Payment Date": The 15th day of each month or, if the 15th is not a
Business Day, on the immediately succeeding Business Day, commencing in the
month following the Closing Date.
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"Percentage Interest": With respect to any Note, the percentage obtained by
dividing the Security Balance of such Note by the aggregate of the Security
Balances of all Notes. With respect to any Trust Certificate, the percentage
interest of ownership in the Trust represented thereby as set forth on the face
thereof.
"Periodic Rate Cap": The provision in the Mortgage Note for each ARM which
limits increases or decreases in the Coupon Rate on each Change Date.
"Person": Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Policy": The irrevocable and unconditional limited financial guaranty
insurance policy number [__________], dated as of the Closing Date, issued by
the Credit Enhancer to the Indenture Trustee for the benefit of the Noteholders.
"Pool Principal Balance": As of any date, the aggregate Loan Balances of
all of the Home Equity Loans as of the close of business on such date.
"Preference Amount": As defined in Section 5.2(g) of the Sale and Servicing
Agreement hereof.
"Premium Payment": With respect to the Payment Date in _______, 1998 and
each Payment Date thereafter and Notes, an amount equal to the product of (x)
one-twelfth of the Premium Rate and (y) the sum of the Notes after giving effect
to the distribution of the Note Principal Distribution Amounts.
"Premium Rate": The rate per annum on which the premium is based in
accordance with the Insurance Agreement.
"Prepayment": Any payment of principal of a Home Equity Loan which is
received by the Servicer in advance of the scheduled due date for the payment of
such principal, and the proceeds of any Insurance Policy which are to be applied
as a payment of principal on the related Home Equity Loan, shall be deemed to be
Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Servicer in connection
with a foreclosed Home Equity Loan prior to the liquidation thereof, including,
without limitation, expenditures for real estate property taxes, hazard
insurance premiums, property restoration or preservation.
"Primary Parcel": With respect to any Property with multiple parcels, the
parcel having the greatest Appraised Value.
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"Principal Distribution Amount": As to any Payment Date, the sum of (i) the
Basic Principal Amount for such Payment Date and (ii) the aggregate Principal
Carry-Forward Amount for the Notes for such Payment Date.
"Principal Remittance Amount": For any Remittance Date, without
duplication, the amount equal to the sum of the following amounts received with
respect to the Home Equity Loans in: (i) the aggregate principal payments
collected by the Servicer on the Home Equity Loans during the immediately
preceding Remittance Period and (ii) any Prepayments, Net Liquidation Proceeds
(but only to the extent that such Net Liquidation Proceeds do not exceed the
Loan Balance of the related Home Equity Loan), REO Proceeds and Released
Mortgage Property Proceeds, in each case and only to the extent collected on the
Home Equity Loans during the preceding Remittance Period.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Prohibited Transactions": A prohibited transaction as defined in Section
860F of the Code or a contribution defined in Section 860G(d) of the Code.
"Property": The underlying real property, including the improvements
thereon, securing a Home Equity Loan.
"Prospectus": The Prospectus Supplement dated December __, 1997 together
with the Prospectus dated December __, 1997, relating to the Notes and the
Certificates.
"Purchaser": [Pelican Mortgage Company, Inc., a Delaware corporation].
"Rating Agency": Any nationally recognized statistical credit rating
agency, or its successor, that rates any Notes and Certificates at the request
of the Depositor at the time of the initial issuance of the Notes and
Certificates with the consent of the Credit Enhancer. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such statistical
credit rating agency, or other comparable Person, designated by the Depositor
with the consent of the Credit Enhancer, notice of which designation shall be
given to the Trustees and Servicer. References herein to the highest rating
category of a rating agency shall mean AAA or A-1+, in the case of S&P, and Aaa
or P-1, in the case of Moody's, and in the case of any other Rating Agency shall
mean such equivalent ratings.
"Realized Loss": As to any Liquidated Loan, the excess, if any, of (i) the
sum of the unpaid principal balance of such Liquidated Loan plus accrued
interest at the Coupon Rate from the date interest was last paid or advanced
through the last day of the month during which the liquidation occurred, plus
any unreimbursed Servicing Advances over (ii) the Net Liquidation Proceeds.
"Record Date": With respect to each Payment Date, the last Business Day of
the calendar month immediately preceding the calendar month in which such
Payment Date occurs.
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"Redemption Date": means in the case of a redemption of the Notes pursuant
to Section 10.1, the Payment Date specified by the Servicer or the Issuer
pursuant to Section 10.1.
"Redemption Price": means in the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the unpaid principal amount of the then
outstanding Notes plus accrued and unpaid interest thereon to but excluding the
Redemption Date.
"Reference Banks": Leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) whose
quotations appear on the Reuters Screen LIBO Page on the Interest Determination
Date in question, (iii) which have been designated by the Indenture Trustee to
the Depositor, the Servicer and the Credit Enhancer and (iv) which are not
Affiliates of the Depositor.
"Reimbursement Obligations": As defined in the Insurance Agreement.
"Released Mortgaged Property Proceeds": Proceeds received in connection
with a taking of a Property by condemnation or the exercise of eminent domain or
in connection with a release of part of the Property.
"Remittance Date": Any date on which the Servicer is required to remit
moneys on deposit in the Collection Account to the Indenture Trustee, which
shall be the 10th day of each month, commencing in the month following the month
of the Closing Date or if such day is not a Business Day the immediately
preceding Business Day.
"Remittance Period": The period (inclusive) beginning on the first day of
the calendar month immediately preceding the calendar month in which a
Remittance Date occurs and ending on the last day of such immediately preceding
calendar month.
"Remittance Rate": As to any Home Equity Loan, a per annum rate equal to
the related Coupon Rate minus the Servicing Fee Rate and the Retained Interest
Rate.
"REO Proceeds": Proceeds, net of expenses, from the rental of any REO
Property pending the disposition thereof.
"REO Property": A Property acquired by the Servicer on behalf of the Trust
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Home Equity Loan.
"Replacement Cut-off Date": With respect to any Eligible Substitute
Mortgage, the first day of the calendar month in which such Eligible Substitute
Mortgage is conveyed to the Indenture Trustee.
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"Reserve Account": The reserve account created pursuant to Section 5.1 of
the Sale and Servicing Agreement.
"Reserve Interest Rate": As defined in Section 5.9 of the Sale and
Servicing Agreement.
"Retained Interest": With respect to each ARM, that portion of any payment
as to interest on such ARM at the Retained Interest Rate payable to or at the
direction of the Depositor, the entitlement to which is reconveyed to the
Depositor pursuant to Section [2.2] of the Sale and Servicing Agreement and the
Depositor's right to which is set forth in Section ___ of the Sale and Servicing
Agreement.
"Retained Interest Rate": [0.0]% per annum.
"Reuters Screen LIBO Page": The display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks).
"Riegle Act": The Riegle Community Development and Regulatory Act, 15
U.S.C.S. ss.ss.1601 et seq.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated as
of December __, 1997, among the Trust, as issuer, UCFC Acceptance Corporation,
as depositor, United Companies Lending Corporation(R), as servicer and Bankers
Trust Company of California, N.A., as indenture trustee, as the same may be
amended or supplemented from time to time.
"Schedule of Home Equity Loans": The schedule of Home Equity Loans conveyed
on the Closing Date by the Depositor to the Indenture Trustee in accordance with
Section 2.2(a) hereof. Such schedule identifies each such Home Equity Loan by
the Servicer's loan number and address (including the state) of the Primary
Parcel and sets forth as to each such Home Equity Loan the lien status thereof;
the loan-to-value ratio thereof calculated, for this purposes, using the
appraised value with respect to the related Property set forth in the appraisal
made at the time of origination of the related Home Equity Loan; the Original
Principal Balance; subject to appraisal; the Coupon Rate thereof as of the
Cut-off Date; the current scheduled monthly payment of principal and interest as
of the Cut-off Date; the maturity of the related Mortgage Note; the escrow
amount; the property type; occupancy status; the paid-to-date; the appraised
value with respect to the related Property set forth in the appraisal made at
the time of origination of the related Home Equity Loan; and a code indicating
whether such Home Equity Loan is an Escrow Loan; a code indicating whether such
Home Equity Loan is an ARM, or a Convertible ARM; a code indicating its status
under SMMEA; and for each ARM, the applicable Index, Periodic Rate Cap, the
Gross Margin, the Lifetime Cap, the Lifetime Floor and the first Change Date
after the Cut-off Date.
"Schedule of Additional Loans": The schedule of Additional Loans listing
each Additional Loan sold on the related Deposit Date and identifying each such
Additional Loan by
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the same categories of information set forth in the definition of Schedule of
Home Equity Loans substituting, where appropriate, information as of the
applicable Deposit Cut-off Date rather than Cut-off Date.
"S&P": Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
"Secretary of State": The Secretary of State of the State of Delaware.
"Securities Act": The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Security Balance": The Principal Balance of the Notes, as the case may be.
"Security": Any of the Certificates or Notes.
"Securityholder or Holder": Any Noteholder or a Certificateholder.
"Seller": [Pelican Mortgage Company, Inc., a Delaware corporation.]
"Servicer": United Companies Lending Corporation(R), a Louisiana
corporation, and its permitted successors and assigns.
"Servicer Affiliate": An Affiliate of the Servicer which is qualified to
service residential mortgage loans.
"Servicer LOC": Any letter of credit, surety bond or similar agreement
obtained by the Servicer pursuant to Section [4.8(e)] of the Sale and Servicing
Agreement.
"Servicer's Trust Receipt": The Servicer's trust receipt in the form set
forth as Exhibit E to the Sale and Servicing Agreement.
"Servicing Advance": As defined in Section 4.9 of the Sale and Servicing
Agreement hereof.
"Servicing Delinquency Trigger": Will be deemed to have occurred on any
date of determination (i) on or prior to the fifth anniversary of the Closing
Date, if the Total Expected Losses (as defined below) equal or exceed ____% of
the Original Aggregate Loan Balance and (ii) after the [fifth] anniversary of
the Closing Date but on or prior to the [tenth] anniversary of the Closing Date,
if the Total Expected Losses (as defined below) exceed ____% of the Original
Aggregate Loan Balance.
For purposes of the foregoing definition, the "Total Expected Losses" on
any date of determination shall equal the sum of (i) the cumulative Net Realized
Losses on all of the Home Equity Loans from the Closing Date through and
including such date of determination and (ii) the Delinquency Calculation (as
defined below).
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For purposes of the foregoing definition, the "Delinquency Calculation" on
any date of determination shall equal the sum of:
(i) the principal balance of all Home Equity Loans 30-59 days
delinquent multiplied by _____%;
(ii) the principal balance of all Home Equity Loans 60-89 days
delinquent multiplied by _____%; and
(iii) the principal balance of all Home Equity Loans 90 days or more
delinquent multiplied by ____%.
"Servicing Fee": With respect to any Home Equity Loan, an amount retained
by the Servicer from interest payments received or advanced thereon as
compensation for servicing and administration duties relating to such Home
Equity Loan pursuant to Section 4.15 of the Sale and Servicing Agreement and
equal to one twelfth of the product of the applicable Servicing Fee Rate and the
then outstanding principal amount of such Home Equity Loan as of the first day
of each calendar month payable on a monthly basis.
"Servicing Fee Rate": ____% per annum.
"Servicing Transfer Loan": Any Home Equity Loan for which the servicing has
not been transferred to the Servicer as of the Closing Date or any Deposit Date,
as the case may be.
"Servicing Transfer Period": With respect to any Servicing Transfer Loan on
the Closing Date or Deposit Date, as the case may be, the period (inclusive)
beginning on the Closing Date or the Deposit Date, as the case may be, and
ending on the later of (i) the calendar day which falls forty-five days after
the Closing Date or the Deposit Date, as the case may be, and (ii) the date
agreed to in writing by the Credit Enhancer.
"6-Month LIBOR": The London interbank offered rate for six-month U.S.
dollar deposits, as quoted either (a) in The Wall Street Journal of the edition,
if any, specified in the related Note, or (b) by FNMA, as specified in the
related Note, prior to each Change Date specified in the related Mortgage Note.
"SMMEA": The Secondary Mortgage Market Enhancement Act of 1984, as amended.
["Specified Reserve Account Requirement": As of any date prior to the
Step-Down Date, the greater of the Base Requirement and the amount computed
pursuant to clause (b) below; as of any date thereafter, the greatest of (a) the
lesser of (I) the Base Requirement and (II) the Amortized Reserve Account
Requirement; provided, however, that for any period during which an Event of
Excess Loss exists, the Specified Reserve Account Requirement for this
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clause (II) shall equal two times the percentage used in the definition of Base
Requirement times the Principal Balance as of the date such Event of Excess Loss
first existed, (b) two times the difference between (i) one-half of the
aggregate Loan Balances of all Home Equity Loans which are 90 or more days
Delinquent (including Properties in REO, Foreclosure and Bankruptcy) and (ii)
the Projected Excess Interest as of such date and (c) an amount equal to the sum
of (x) [0.50]% of the aggregate Original Principal Balance and (y) __% of the
Loan Balance of each Balloon Loan. The Specified Reserve Account Requirement
will not be reduced if an Event of Default exists and is continuing under this
Agreement. The Specified Reserve Account Requirement may be reduced or
eliminated by the Certificate Insurer in its sole discretion. Upon any such
reduction or elimination, the Servicer shall give written notice thereof to each
of Moody's, Fitch and S&P. On or prior to the last Deposit Payment Date, the
Credit Enhancer may, by delivery of a Credit Enhancer Certificate, increase, to
the extent permitted by Section ____ of the Sale and Servicing Agreement, the
Base Requirement.
The Specified Reserve Account Requirement shall equal the Base Requirement
if any Insured Payment has been made.]
"Spread": As to any Remittance Date ____________________.
"Step-Down Date": The later to occur of (i) the ____ Payment Date and (ii)
the date on which the Loan Principal Balance is equal to 50% of the Original
Loan Principal Balance.
["Subordinated Amount": Initially, an amount equal to the product of __%
and the Original Aggregate Loan Balance. As of any Payment Date, the
Subordinated Amount shall be adjusted by subtracting the Cumulative Reserve
Account Withdrawals since the immediately preceding Payment Date.]
["Subordination Termination Date": The Payment Date on which the
Subordinated Amount is reduced to zero.]
"Subservicer": Any Person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies the requirements set forth in Section
4.3 of the Sale and Servicing Agreement in respect of the qualification of a
Subservicer.
"Subservicing Agreement": The written contract between the Servicer and any
Subservicer relating to servicing and/or administration of certain Home Equity
Loans as permitted by Section 4.3 of the Sale and Servicing Agreement.
"Substitution Adjustment Amount": As defined in Section ___ of the Loan
Purchase Agreement.
"Title Policy Schedule": A computerized schedule listing for each Home
Equity Loan, the name and address of the title insurance company issuing the
commitment, binder or policy with respect thereto and the commitment, binder or
policy number, as applicable.
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"Transfer Agreement": Each Transfer Agreement dated as of a Deposit Date,
executed and delivered pursuant to the terms hereof and thereof.
"Treasury Regulations": Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust Certificate": A certificate evidencing the beneficial interest of a
Certificateholder in the Trust, substantially in the form of Exhibit A attached
to the Trust Agreement.
"Trust Estate": As to the Trust, collectively, all money, instruments, and
other property to the extent such money, instruments and other property, are
subject or intended to be held in trust for the benefit of the related
Securityholders, including all proceeds thereof.
The Trust Estate shall include, without limitation, the following, as
applicable: (i) the Home Equity Loans, (ii) such amounts, including Eligible
Investments, as from time to time may be held by the Indenture Trustee or the
Owner Trustee in any related Account, and by the Servicer in the Collection
Account or otherwise held by the Servicer in trust for the related
Securityholders (except as otherwise provided herein), (iii) any Property, the
ownership of which has been effected in the name of the Servicer on behalf of
the Issuer as a result of foreclosure or acceptance by the Servicer of a deed in
lieu of foreclosure and that has not been withdrawn from the Trust and any
related REO Proceeds, (iv) the rights, if any, of the Issuer in any Insurance
Policies relating to the Home Equity Loans, (v) Net Liquidation Proceeds (but
only to the extent that such Net Liquidation Proceeds do not exceed the Loan
Balance of the related Home Equity Loan plus accrued and unpaid interest on such
Home Equity Loan) with respect to any Liquidated Loan, (vi) all rights of the
Depositor under the Loan Purchase Agreement and the Loan Sale Agreement
transferred and assigned by the Depositor to the Indenture Trustee pursuant to
the Sale and Servicing Agreement, (vii) Credit Enhancement Instrument and (viii)
the Reserve Account.
"Trustees": Collectively, Bankers Trust Company of California, N.A., not in
its individual capacity but solely as Indenture Trustee and Wilmington Trust
Company, not in its individual capacity but solely as Owner Trustee.
"Trust Indenture Act or TIA": The Trust Indenture Act of 1939, as amended
from time to time, as in effect on any relevant date.
"Trust": The trust established by the Trust Agreement.
"UCC": The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
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"Underfunded Amount": As to any Deposit Date, the excess, if any, of (x)
the Capitalized Interest Requirement for the next Deposit Payment Date over (y)
the sum of (i) the amount on deposit in the Capitalized Interest Account
__________ the transfers pursuant to the first sentence of Section [5.2] of the
Sale and Servicing Agreement on such Deposit Date and (ii) the aggregate Funding
Earnings on the remaining amount on deposit in the Funding Account for the
period from such Deposit Date to the next Deposit Date at ___% per annum.
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SCHEDULE I
Schedule of Home Equity Loans
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SCHEDULE II
UCFC Home Equity Loan Owner Trust 1997-_
Asset Backed Notes and Asset Backed Certificates
Series 1997-_
Representations and Warranties of the Issuer
Home Equity Loan Owner Trust 1997-_ (the "Issuer") hereby makes the
representations and warranties set forth in this Schedule II to the Servicer and
the Indenture Trustee, as of the Closing Date.
(1) The Issuer is a statutory business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
possesses all requisite authority, power, licenses, permits and franchises to
conduct any and all business contemplated by the Sale and Servicing Agreement
and to comply with its obligations under the terms of this Agreement, the
performance of which have been duly authorized by all necessary action.
(2) Neither the execution and delivery of the Sale and Servicing Agreement
by the Issuer, nor the performance and compliance with the terms thereof by the
Issuer will (A) result in a material breach of any term or provision of the
instruments creating the Issuer or governing its operations, or (B) materially
conflict with, result in a material breach, violation or acceleration of, or
result in a material default under, the terms of any other material agreement or
instrument to which the Issuer is a party or by which it may be bound, or (C)
constitute a material violation of any statute, order or regulation applicable
to the Issuer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Issuer; and the Issuer is not in
breach or violation of any material indenture or other material agreement or
instrument, or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over it which breach or violation may materially impair the Issuer's ability to
perform or meet any of its obligations under the Sale and Servicing Agreement.
(3) This Agreement, and all documents and instruments contemplated hereby,
which are executed and delivered by the Issuer, will, assuming due
authorization, execution by and delivery to the other parties hereto and
thereto, constitute valid, legal and binding obligations of the Issuer,
enforceable in accordance with their respective terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights generally and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
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(4) No litigation is pending or, to the best of the Issuer's knowledge,
threatened against the Issuer that would materially and adversely affect the
execution, delivery or enforceability of the Sale and Servicing Agreement or the
ability of the Issuer to perform its obligations thereunder.
(5) Immediately prior to the transfer and assignment of the Home Equity
Loans to the Indenture Trustee, the Issuer had good title to, and was the sole
owner of, each Home Equity Loan and clear of any liens, charges or encumbrances
or any ownership or participation interests in favor of any other Person.
S-I-2
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EXHIBIT A
FORM OF CERTIFICATION OF INDENTURE TRUSTEE
WHEREAS, the undersigned is an Authorized Officer of Bankers Trust Company
of California, N.A., a national banking corporation, acting in its capacity as
indenture trustee (the "Indenture Trustee") of certain home equity and home
improvement loans (the "Home Equity Loans") heretofore conveyed in trust to the
Indenture Trustee, pursuant to that certain Sale and Servicing Agreement dated
as of December __, 1997 (the "Sale and Servicing Agreement") among UCFC Home
Equity Loan Owner Trust 1997-_, a Delaware business trust, as issuer (the
"Issuer"), UCFC Acceptance Corporation, a Louisiana corporation, as depositor
(the "Depositor"), United Companies Lending Corporation(R), a Louisiana
corporation, as servicer (the "Servicer"), and the Indenture Trustee; and
WHEREAS, the Indenture Trustee is required, pursuant to Section 2.2 of the
Sale and Servicing Agreement, to review the Files relating to the Home Equity
Loans within a specified period following the Closing Date and to notify the
Depositor, the Owner Trustee, the Originators and the Credit Enhancer promptly
of any defects with respect to the Home Equity Loans, and the applicable
Originator is required to remedy such defects or take certain other action, all
as set forth in Section 2.2 of the Sale and Servicing Agreement; and
WHEREAS, Section 2.2 of the Sale and Servicing Agreement requires the
Indenture Trustee to deliver this Certification upon the satisfaction of certain
conditions set forth therein.
NOW, THEREFORE, the Indenture Trustee hereby certifies that it has
determined that all required documents (or certified copies of documents listed
in Section 2.2 of the Sale and Servicing Agreement) have been executed or
received, and that such documents relate to the Home Equity Loans identified in
the Schedule of Home Equity Loans pursuant to Section 2.2 of the Sale and
Servicing Agreement or, in the event that such documents have not been executed
and received or do not so relate to such Home Equity Loans, any remedial action
by the Depositor pursuant to Section 2.2 of the Sale and Servicing Agreement has
been completed. The Indenture Trustee makes no representation or certification
hereby, however, (i) that any such document is genuine, valid, recordable,
sufficient, suitable, insurable, collectable, enforceable, or appropriate for
the represented purpose or that they are other than what they purport to be on
their face and (ii) with respect to any intervening assignments or assumption
and modification agreements.
By:__________________________
Title:____________________
Dated: ______________, 199_
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EXHIBIT B
FORM OF CERTIFICATION OF PREPAID LOANS
I, _______________, ________________ of United Companies Lending
Corporation(R), as Servicer, hereby certify that between the "Cut-Off Date" (as
defined in the Sale and Servicing Agreement dated as of December __, 1997 among
UCFC Home Equity Loan Owner Trust 1997-__, as Issuer, United Companies Lending
Corporation(R), as Servicer, UCFC Acceptance Corporation, as Depositor and
Bankers Trust Company of California, N.A., as Indenture Trustee (the "Sale and
Servicing Agreement")), and the Closing Date (as defined in the Sale and
Servicing Agreement) [no/the following schedule of] Home Equity Loans (as
defined in the Sale and Servicing Agreement) have been prepaid in full.
Dated: _______________, 199_
By:_________________________
Name:
Title:
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EXHIBIT C
FORM OF INDENTURE TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT
Bankers Trust Company of California, N.A., a national banking corporation,
in its capacity as indenture trustee (the "Indenture Trustee") under that
certain Sale and Servicing Agreement dated as of December __, 1997 (the "Sale
and Servicing Agreement") among UCFC Home Equity Loan Owner Trust 1997-_, a
Delaware business trust, as issuer (the "Issuer"), UCFC Acceptance Corporation,
a Louisiana corporation, as depositor (the "Depositor"), United Companies
Lending Corporation(R), a Louisiana corporation, as servicer (the "Servicer"),
and the Indenture Trustee, hereby acknowledges receipt of the items required to
be delivered to it pursuant to Section 2.2 of the Sale and Servicing Agreement
with respect to the Home Equity Loans.
The Schedule of Home Equity Loans is attached to this Receipt.
The Trustee hereby additionally acknowledges that it shall review such
items as required by Section 2.2 of the Sale and Servicing Agreement.
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Indenture Trustee
By: ________________________
Name:
Title:
Dated:
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EXHIBIT D
Representations, Warranties and Covenants of Originators
Part 1. Delivery Requirements
(a) On or prior to the Closing Date, each Originator shall deliver to the
Indenture Trustee, as designee of the Purchaser, the following documents with
respect to each of the Home Equity Loans sold by it on the Closing Date:
(i) the original Mortgage Note, endorsed without recourse to the order
of Bankers Trust Company of California, N.A., as custodian or trustee under
the applicable custodial agreement or trust agreement;
(ii) the original Mortgage with evidence of recording thereon or, if
the original Mortgage is unavailable, the Certified Mortgage Schedule;
(iii) the Title Policy Schedule; and
(iv) an original of an assignment of the Mortgage in recordable form
(except with respect to recording information for those Mortgages which
have not yet been returned from the applicable recorder's office) to the
IndentureTrustee;
(v) originals of each intervening assignment, with evidence of
recording thereon, showing a complete chain of title from origination to
the Person executing the assignment to the Indenture Trustee or, if the
original of any such intervening assignment is unavailable, the Certified
Assignment Schedule; and
(vi) originals of all assumption and modification agreements, if any;
provided, however, that the documents listed in clauses (ii)-(vi) above may, but
need not be delivered on the Closing Date and if not so delivered shall be
delivered within 30 days after the Closing Date; and provided, further, that
with respect to no more than __ Home Equity Loans, the applicable Originator may
deliver a lost note affidavit in lieu of the Mortgage Note which was lost.
(b) Promptly after the Closing Date, each Originator, at its sole cost and
expense, shall with respect to the Home Equity Loans sold by it on the Closing
Date, cause assignments of the Mortgages previously assigned of record to United
Companies Life Insurance Company from United Companies Lending Corporation(R),
from United Companies Life Insurance Company to United Companies Lending
Corporation(R) and the assignment of all the Mortgages from such Originator to
the Indenture Trustee, as designee of the Purchaser, to be submitted for
recording in
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the appropriate jurisdictions; provided, however, that such Originator shall not
be required to submit for recording an assignment for any Mortgage with respect
to which the original recording information is lacking until promptly following
the receipt of such recording information. Such assignments shall be submitted
for recording within two Business Days after receipt of the necessary recording
information and in any case within one year after the Closing Date.
(c) With respect to the Home Equity Loans sold by it on the Closing Date,
each Originator shall deliver or cause to be delivered the original or copies
(certified by the applicable recorder's office) of the Mortgages, as the case
may be, and recorded assignments or copies (certified by the applicable
recorder's office) thereof, together with originals or copies (certified by the
applicable recorder's office) of any and all prior recorded assignments, and
policy numbers for all title policies to the Indenture Trustee as the designee
of the Purchaser, within 30 days of receipt thereof by such Originator (but in
any event within one year after the Closing Date).
(d) Notwithstanding anything to the contrary contained in this Part I, in
those instances where the public recording office retains the original Mortgage,
the assignment of a Mortgage or the intervening assignments of the Mortgage
after it has been recorded, such Originator shall be deemed to have satisfied
its obligations hereunder upon delivery to the Indenture Trustee, as the
designee of the Purchaser, of a true and correct copy of such Mortgage, such
assignment or assignments of Mortgage, duly certified by the applicable
recorder's office.
(e) Each Originator covenants and agrees with respect to the Home Equity
Loans sold by it on the Closing Date (i) to maintain or cause to be maintained
on microfiche (or other permanent storage media) a copy of each original title
insurance policy and to furnish a copy thereof to the Credit Enhancer upon its
request or to the Indenture Trustee, as designee of the Purchaser, or the
Servicer if necessary in order to present claims under such policy, (ii) to
provide to the Indenture Trustee, as designee of the Purchaser, or the Servicer
a certified copy of any Mortgage or intervening assignment which was not
delivered on the Closing Date and has not been subsequently delivered as
provided in (c) above if necessary to permit the Servicer to take actions with
respect to the related Home Equity Loan and (iii) to take all action necessary
under applicable state law to transfer the benefits of the lien and security
interest in each manufactured or mobile home and the related Property to the
Indenture Trustee, as the designee of the Purchaser, including without
limitation, the filing of UCC-3 assignments, notations on certificates of title
and recordation of the Mortgage assignment within the time frames required by
this Part I.
(f) In the case of Home Equity Loans sold on the Closing Date which have
been prepaid in full after the Cut-off Date and prior to the Closing Date, each
Originator, in lieu of the foregoing, will cause the Servicer to deliver within
15 days after the Closing Date to the Indenture Trustee and the Purchaser a
certification of an Authorized Officer in the form set forth in [Exhibit A] to
the Loan Purchase Agreement.
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(g) At the direction of the Indenture Trustee, as designee of the
Purchaser, each Originator shall (or shall cause an Affiliate to) sell,
transfer, assign, set over and otherwise convey without recourse, to the
Indenture Trustee, as designee of the Purchaser, all right, title and interest
of such Originator (or of such Affiliate) in and to any Eligible Substitute
Mortgage delivered to the Indenture Trustee on behalf of the related Owners by
such Originator (or such Affiliate) pursuant to Section [3.1] or Section [3.2]
of the Loan Purchase Agreement (including Part III of this Exhibit D) and all
its right, title and interest to principal collected and interest accrued on
such Eligible Substitute Mortgage on and after the applicable Replacement
Cut-Off Date; provided, however, that such Originator (or such Affiliate) shall
reserve and retain all right, title and interest in and to payments of principal
collected and interest accrued on such Qualified Replacement Mortgage prior to
the applicable Replacement Cut-Off Date.
(h) As to each Home Equity Loan reconveyed by the Indenture Trustee in
connection with the conveyance of a Eligible Substitute Mortgage therefor, the
Purchaser shall, or shall cause the Indenture Trustee to, sell, transfer,
assign, set over and otherwise convey without recourse, on each Originator's
order, all of its right, title and interest in and to such conveyed Home Equity
Loan and all the Purchaser's or the Indenture Trustee's right, title and
interest to principal collected and interest accrued on such released Home
Equity Loan on and after the applicable Replacement Cut-Off Date; provided,
however, that the Purchaser or the Indenture Trustee on behalf of the
Noteholders and Certificateholders shall reserve and retain all right, title and
interest in and to payments of principal collected and interest accrued on such
conveyed Home Equity Loan prior to the applicable Replacement Cut-Off Date.
(i) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Indenture Trustee, as designee of the Purchaser,
each Originator agrees with respect to each Eligible Substitute Mortgage
transferred and assigned by it to (i) deliver or cause to be delivered without
recourse to the Indenture Trustee as designee of the Purchaser, on the date of
delivery of such Eligible Substitute Mortgage all documents required by Part I
of this Exhibit D, (ii) cause promptly to be recorded an assignment in the
appropriate jurisdiction to the Indenture Trustee, and (iii) deliver or cause to
be delivered the original Qualified Replacement Mortgage and such recorded
assignment or certified copies of each, together with original or duly certified
copies of any and all prior recorded assignments, to the Indenture Trustee, as
designee of the Purchaser, within 30 days of receipt thereof by the related
Originator (but in any event within one year after the date of conveyance of
such Eligible Substitute Mortgage).
(j) As to each Home Equity Loan reconveyed by the Purchaser or the
Indenture Trustee in connection with the conveyance of a Eligible Substitute
Mortgage, the Purchaser shall or shall cause the Indenture Trustee to deliver on
the date of conveyance of such Qualified Replacement Mortgage and on the order
of the appropriate Originator (i) the original Mortgage Note relating thereto,
endorsed without recourse, to such Originator (or to such other party as such
Originator directs) (ii) the original Mortgage so released and all recorded
assignments relating thereto, (iii) an assignment from the Indenture Trustee to
such Originator (or to such other party as
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such Originator directs) executed by the Indenture Trustee in the same form as
the assignment referred to in clause (iv) of clause (a) of this Part I and (iv)
such other documents as constituted the File with respect thereto.
(k) If a Mortgage assignment is lost during the process of recording, or is
returned from the recorder's office unrecorded due to a defect therein, the
appropriate Originator shall prepare a substitute assignment or cure such
defect, as the case may be, and thereafter cause each such assignment to be duly
recorded.
(l) With respect to each Escrow Loan, the Originator of such Escrow Loan,
at the direction of the Purchaser, shall deliver to the Indenture Trustee, as
designee of the Purchaser, within one year after the Closing Date a list (the
"Exception List") identifying any of the following documents which have not been
received for each Escrow Loan: (i) Mortgagor's certification as to completion
and (ii) the appraiser's unqualified certification as to final completion
pursuant to which the appraiser (or, if the original appraiser has since died,
retired or otherwise is unable to perform, a suitable substitute appraiser)
confirms that the Appraised Value of the Property upon completion of the
improvement (disregarding intervening changes, if any, in market value) is at
least equal to such appraiser's Appraised Value which was subject to completion
of improvements out of the escrowed funds (each such document, a "Required
Escrow Document"). No later than the end of the thirteenth month following the
Closing Date, the Indenture Trustee shall deliver a copy of the Exception List
to the Depositor, the Servicer, the Owner Trustee and the Credit Enhancer. If
such report indicates that any Required Escrow Document has not been received,
the related Originator shall be required to take the actions set forth in
Section [3.1(a)] of the Loan Purchase Agreement (including Part III of this
Exhibit D) if the lack of such Required Escrow Document materially and adversely
affects the interest of the Noteholders, the Certificateholders or of the Credit
Enhancer in the related Home Equity Loan.
(m) If the Originator receives notice from the Indenture Trustee, the Owner
Trustee, the Depositor, the Servicer or the Credit Enhancer pursuant to Section
2.2 of the Sale and Servicing Agreement that any required item has not been
received, and such item materially and adversely affects the interest of the
Noteholders, the Certificateholders or of the Credit Enhancer in the related
Home Equity Loan, the applicable Originator agrees to use reasonable efforts to
remedy a material defect in a document constituting part of a File of which it
is so notified. If, however, within 60 days after notice to it respecting such
defect the related Originator has not remedied, or caused to be remedied, the
defect and the defect materially and adversely affects the interest of the
Noteholders, the Certificateholders and the Credit Enhancer in the related Home
Equity Loan, the related Originator will on the next succeeding Remittance Date
(i) substitute in lieu of such Home Equity Loan a Eligible Substitute Mortgage
and deliver the Substitution Adjustment Amount applicable thereto directly to
the Servicer for deposit in the Collection Account or (ii) purchase such Home
Equity Loan at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered directly to the Servicer for deposit in the
Collection Account. In connection with any such proposed purchase or
substitution, the
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Originator shall cause at the related Originator's expense to be delivered to
the Indenture Trustee an opinion of counsel experienced in federal income tax
matters stating whether or not such a proposed purchase or substitution would
constitute __________________.
Part 2. Representations
Note: Until a Deposit Date occurs, references in this Part II to Home
Equity Loans shall mean the Home Equity Loans sold, transferred, conveyed and
assigned on the Closing Date.
(1) The information with respect to each Home Equity Loan set forth in the
Schedule of Home Equity Loans is true and correct as of the Cut-Off Date;
(2) All of the original or certified documentation set forth in Part I of
this Exhibit D (including all material documents related thereto) with respect
to each Home Equity Loan has been or will be delivered to the Indenture Trustee
on the Closing Date or as otherwise provided in Part I of this Exhibit D;
(3) Each Home Equity Loan being transferred to the Issuer is secured by a
Mortgage that is a Qualified Mortgage and each Note is in a form that is
acceptable to prudent mortgage lenders which make mortgage loans comparable to
the Home Equity Loans;
(4) As of the Closing Date, each Primary Parcel is improved by one or more
single (one- to four-) family residential dwellings, which may include
condominiums, townhouses and manufactured or mobile homes, but only if such
manufactured or mobile home constitutes real property under applicable state
law; provided, however, that no such residential dwelling has been modified for
commercial purposes;
(5) Reserved
(6) As of the Closing Date, each Home Equity Loan is being serviced by the
Servicer, a Servicer Affiliate or a Subservicer described in clause (17) below;
(7) Reserved
(8) As of the Closing Date, each Mortgage is a valid and subsisting first
(as shown in the Schedule of Home Equity Loans) lien of record on the Primary
Parcel of the related Property subject in all cases to the exceptions to title
set forth in the title insurance policy or title opinion with respect to the
related Home Equity Loan, which are 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;
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(9) Prior to the transfer and assignment of each Home Equity Loan, each
Originator held good and indefeasible title to, and was the sole owner of, each
Home Equity Loan conveyed by the Originator subject to no liens, charges,
mortgages, encumbrances or rights of others except as set forth in clauses (9),
(12) and (14) or other liens which will be or were, as the case may be, released
simultaneously with such transfer and assignment; and immediately upon the
transfer and assignment herein contemplated, the Indenture Trustee will hold
good and indefeasible title to, and will be the sole owner of, each Home Equity
Loan subject to no liens, charges, mortgages, encumbrances or rights of others
except as set forth in clauses (9), (12) and (14) or other liens which will be
released simultaneously with such transfer and assignment;
(10) As of the Cut-off Date, no Home Equity Loan is more than 29 days
Delinquent (assuming a 30 day month);
(11) As of the Closing Date, there is no delinquent tax or assessment lien
or mechanic's lien on any Property, except those liens for which funds
sufficient to discharge such liens are held in escrow by the Originator or by an
escrow agent;
(12) As of the Closing Date, there is no claim, offset, right of
rescission, defense or counterclaim to any Mortgage Note or Mortgage, including
the defense of usury;
(13) As of the Closing Date, there is no mechanics' lien or claim for work,
labor or material affecting any Property which is or may be a lien prior to, or
equal with, the lien of the related Mortgage, except those liens for which funds
sufficient to discharge such liens are held in escrow by the Originator or by an
escrow agent;
(14) Each Home Equity Loan at the time it was made complied in all material
respects with applicable state and federal laws and regulations, including,
without limitation, the federal Truth-in-Lending Act, the Real Estate Settlement
Procedures Act and other consumer protection laws, usury, equal credit
opportunity, disclosure and recording laws;
(15) With respect to each Home Equity Loan, either (A) a lender's title
insurance policy, issued in standard or American Land Title Association form
(with modifications, if any, approved by the state in which the related Property
is located) by a title insurance company authorized to transact business in the
state in which the related Property is situated, in an amount at least equal to
the Original Principal Amount of such Home Equity Loan insuring the mortgagee's
interest under the related Home Equity Loan as the holder of a valid first
mortgage lien of record on the real property described in the related Mortgage,
subject only to a survey exception and other exceptions of the character
referred to in clauses (9), (12) and (14) above, was effective on the date of
the origination of such Home Equity Loan, and, as of the Closing Date, such
policy will be valid and thereafter such policy shall continue in full force and
effect regardless of the non-delivery thereof to the Indenture Trustee, or (B)
in those jurisdictions in which it is customary to obtain opinions of counsel as
to title matters rather than title insurance,
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an opinion of counsel as to the mortgagee's interest under the related Home
Equity Loan as the holder of a valid first mortgage lien of record on the real
property described in the related Mortgage, was obtained on the date of
origination of such Home Equity Loan.
(16) Each Subservicer, if any, is a qualified servicer as defined in
Section 4.3 of the Sale and Servicing Agreement with respect to the Home Equity
Loans serviced by it;
(17) At the Closing Date, the improvements upon each Property are covered
by a valid and existing hazard insurance policy with a carrier licensed in the
state in which the Property is located that provides for fire and extended
coverage representing coverage not less than the least of (A) the outstanding
principal balance of the related Home Equity Loan, (B) the minimum amount
required to compensate for loss or damage on a replacement cost basis or (C) the
full insurable value of the Property. All individual insurance policies are the
valid and binding obligation of the insurer and contain a standard mortgage
clause naming the originator, its successors and assigns, as mortgagee. All
premiums then due thereon have been paid. The Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor's cost and expense;
(18) Each Mortgage and Mortgage Note is genuine and constitutes the legal,
valid and binding obligation of the maker thereof and is enforceable in
accordance with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law), and all parties to each Home Equity Loan had full legal capacity to
execute all documents relating to such Home Equity Loan and to convey the estate
therein purported to be conveyed and each Mortgage and Mortgage Note have been
duly and properly executed by such parties;
(19) Each Originator has caused and will cause to be performed any and all
acts required to be performed to preserve the rights and remedies of the
Purchaser or the Indenture Trustee, as designee of the Purchaser, in any
Insurance Policies applicable to any of the Home Equity Loans delivered by such
Originator, at the direction of the Purchaser, to the Indenture Trustee
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of co-insured,
joint loss payee and mortgagee rights in favor of the Purchaser or the Indenture
Trustee;
(20) No Home Equity Loan has a Combined Loan-to-Value Ratio in excess of
100.00%;
(21) Each original Mortgage was recorded or is in the process of being
recorded, and all subsequent assignments of the original Mortgage have been
recorded in the appropriate jurisdictions (or are in the process of being
recorded within the time period permitted by Part I of this Exhibit D);
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(22) The terms of each Mortgage Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the Indenture
Trustee, as designee of the Purchaser and which has been delivered, at the
direction of the Purchaser, to the Indenture Trustee. The substance of any such
alteration or modification made prior to the Cut-off Date is reflected on the
Schedule of Home Equity Loans; any subsequent alteration or modification prior
to the date hereof has been made only as permitted by the Sale and Servicing
Agreement;
(23) The proceeds of each Home Equity Loan have been fully disbursed to the
Mortgagor or into an escrow account pending completion of any improvements to
the related Property, and there is no obligation on the part of the mortgagee to
make future advances thereunder. All costs, fees and expenses incurred in making
or closing or recording such Home Equity Loans were paid;
(24) No Home Equity Loan was originated under a buydown plan;
(25) No Home Equity Loan has a shared appreciation feature, or other
contingent interest feature;
(26) The Primary Parcel of each Property is located in the state identified
in the Schedule of Home Equity Loans; no more than __% of the Original Aggregate
Loan Balance is secured by Mortgaged Properties located within any single postal
zip code area; each Property consists of one or more parcels of real property
with a residential dwelling erected on the Primary Parcel; no Property contains
any commercial property;
(27) Except for ARMs, if any, for which the Index is CMT, each Mortgage
contains a provision for the acceleration of the payment of the unpaid principal
balance of the related Home Equity Loan in the event the related Property is
sold without the prior consent of the mortgagee thereunder;
(28) Any advances made after the date of origination of a Home Equity Loan
but prior to the Cut-off Date have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term
reflected on the Schedule of Home Equity Loans as the same may be adjusted in
accordance with the terms of such Home Equity Loan. The consolidated principal
amount does not exceed the original principal amount of the related Home Equity
Loan. No Mortgage Note permits or obligates the Servicer to make future advances
to the related Mortgagor at the option of the Mortgagor;
(29) To the best of the Originator's knowledge, there is no proceeding
pending or threatened for the total or partial condemnation of any Property, nor
is such a proceeding
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currently occurring, and each Property is undamaged by waste, fire, earthquake,
earth movement, windstorm (including a hurricane), flood, tornado or other
casualty;
(30) To the best of the Originator's knowledge, all of the improvements
which were included for the purposes of determining the Appraised Value of any
Property lie wholly within the boundaries and building restriction lines of such
Property, and no improvements on adjoining properties encroach upon such
Property;
(31) To the best of the Originator's knowledge, no improvement located on
or being part of any Property is in violation of any applicable zoning law or
regulation. To the best of the Originator's knowledge, all inspections, licenses
and certificates required to be made or issued with respect to all occupied
portions of each Property and, with respect to the use and occupancy of the
same, have been made or obtained from the appropriate authorities and such
Property is lawfully occupied under the applicable law;
(32) With respect to each Mortgage constituting a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the Purchaser to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
related Mortgagor;
(33) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Property of the benefits of the security,
including (A) in the case of a Mortgage designated as a deed of trust, by
trustee's sale and (B) otherwise by judicial foreclosure. There is no homestead
or other exemption available to the related Mortgagor which would materially
interfere with the right to sell the related Property at a trustee's sale or the
right to foreclose the related Mortgage;
(34) To the best of the Originator's knowledge, there is no default,
breach, violation or event of acceleration existing under any Mortgage or the
related Mortgage Note and no event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and neither the Servicer
nor the applicable Originator has waived any default, breach, violation or event
of acceleration; except that the Servicer or the Originator may have heretofore
waived late payments or granted extensions of payments (none of which extensions
are material);
(35) No instrument of release or waiver has been executed in connection
with any Home Equity Loan, and no Mortgagor has been released, in whole or in
part, except in a manner consistent with the Originator's ordinary practice;
(36) An appraisal, completed by independent fee appraisers, was performed
with respect to each Home Equity Loan;
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(37) As of the Cut-Off Date, no more than __% of the Original Aggregate
Loan Balance is secured by condominiums; no Home Equity Loan relates to a
co-operative;
(38) As of the Cut-Off Date, no more than __% of the Original Aggregate
Loan Balance is secured by investor-owned Properties;
(39) Each Home Equity Loan was, in all material respects, underwritten
according to credit underwriting guidelines which are no less restrictive than
those described in the Prospectus;
(40) If the Property is located in an area identified as flood zone "A" or
flood zone "V" in the Federal Register by the Federal Emergency Management
Agency, a flood insurance policy in a form meeting the requirements of the then
current guidelines of the Flood Insurance Administration is in effect with
respect to such Property with a generally acceptable carrier in an amount
representing coverage not less than the least of (A) the original outstanding
principal balance of the Home Equity Loan, (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis, or (C) the maximum
amount of insurance that is available under the Flood Disaster Protection Act of
1973, as amended. Any such policy contains a standard mortgagee clause naming
the originator, its successors and assigns, as mortgagee. All premiums then due
thereon have been paid. The Mortgage obligates the Mortgagor thereunder to
maintain all such insurance at the Mortgagor's cost and expense;
(41) With respect to any Home Equity Loan which relates to a "rural
property" (as defined in the Prospectus), the Loan-to-Value Ratio with respect
to such Home Equity Loan was calculated as described in the Prospectus;
(42) The Home Equity Loans were not selected for sale to the Purchaser on
any basis intended to adversely affect the Purchaser or the Issuer;
(43) As of the Closing Date, the Originator has no actual knowledge that
there exists on any Property any hazardous substances, hazard wastes or solid
wastes, as such terms are defined in the Comprehensive Environmental Response
Compensation and Liability Act, the Resource Conservation and Recovery Act of
1976, or other federal, state or local environmental legislation. For purposes
of this clause (44), actual knowledge of the Originator means actual knowledge
of an officer of the Originator involved in the servicing of the relevant Home
Equity Loan. Actual knowledge of the Originator does not include knowledge
imputable by virtue of the availability of or accessibility to information
relating to environmental or hazardous waste sites or the locations thereof;
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(44) Except for payments in the nature of escrow payments, including,
without limitation, taxes and insurance payments, the Servicer has not advanced
funds directly or indirectly, for the payment of any amount required by the
Mortgage;
(45) All parties which have had any interest in any Home Equity Loan prior
to their sale on the Closing Date, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and disposed of such
interest, were) (1) in compliance with any and all applicable licensing
requirements of the laws of the state wherein the Property is located, and
(2)(A) organized under the laws of such state, or (B) qualified to do business
in such state, or (C) federal savings and loan associations or national banks
having principal offices in such state, or (D) not doing business in such state
so as to require qualification or licensing;
(46) No Home Equity Loan is secured by a leasehold interest and no Home
Equity Loan is secured by an Illinois land trust;
(47) As of the Cut-Off Date, no Home Equity Loan is a bankruptcy loan in
which the Mortgagor is subject to bankruptcy proceedings;
(48) With respect to each Home Equity Loan involving property improved by a
manufactured or mobile home, such manufactured or mobile home constitutes real
property under applicable state law and the Servicer has taken all action
necessary to create a valid and perfected first or second priority lien and
security interest in such manufactured or mobile home and the related Property,
including, without limitation, the filing of UCC financing statements or
notations on certificates of title, if necessary under applicable state law;
(49) Each File contains an appraisal and no appraisal for a Home Equity
Loan was based solely upon a cost approach analysis;
(50) [No ARM is a Convertible ARM];
(51) As of the Cut-off Date, for each ARM and Convertible ARM (if any), the
Lifetime Cap is not lower than ____% per annum, the Lifetime Floor is not lower
than ____% per annum, the Gross Margin is not less than _____ basis points, the
related Mortgage Note does not provide for negative amortization, limits in the
amount of monthly payments, the Coupon Rate is subject to adjustment on each
Change Date to equal the sum of the applicable Index plus the applicable Gross
Margin, subject to rounding, the applicable Periodic Rate Cap, the applicable
Lifetime Floor and the applicable Lifetime Cap, on each Change Date, the
Mortgagor's new monthly payment will be adjusted to an amount equal to the
payment which, when paid in substantially equal installments during the then
remaining term of the ARM or Convertible ARM (if any), would amortize fully the
unpaid principal balance of such ARM or Convertible ARM (if any) at the then
applicable Coupon Rate without extension of the original maturity date which
maturity date is not more than 360 months after the original Due Date therefor;
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(52) Each Home Equity Loan conforms in all material respects and all of the
Home Equity Loans in the aggregate conform in all material respects with the
description thereof set forth in the Prospectus;
(53) With respect to each ARM and Convertible ARM (if any), all of the
terms of the Mortgage and Mortgage Note pertaining to interest rate adjustments,
payment adjustments and adjustments of the outstanding principal balance are
enforceable, such adjustments will not affect the priority of the Mortgage lien,
and all of the interest rate calculations have been properly calculated,
recorded, reported and applied in accordance with the Mortgage and Mortgage
Note;
(54) At the end of the applicable Funding Period, each of the Additional
Loans will conform in all material respects and all of such Subsequent Loans in
the aggregate will conform in all material respects with the conditions set
forth in Exhibit G; and
(55) No more than approximately ___% of the ARMs (by Principal Balance as
of the Cut-off Date) are CMT ARMs and the remaining ARMs are LIBOR ARMs.
Part III. Certain Covenants
(a) Upon the discovery by any of the Originators or by the Indenture
Trustee, the Owner Trustee, the Purchaser, the Depositor or the Credit Enhancer
that any statement set forth in Part II of Exhibit D were untrue (disregarding
any qualification with respect to knowledge) as of the Closing Date or the
applicable Deposit Date, as the case may be, with the result that the interests
of the Noteholders, the Certificateholders or the Credit Enhancer are materially
and adversely affected, the party discovering such breach shall give prompt
written notice to the other party or the Credit Enhancer. Upon the earliest to
occur of any Originator's discovery, its receipt of notice of breach, or such
time as a situation resulting from an existing statement which is untrue
materially and adversely affects the interests of the Noteholders, the
Certificateholders or the Credit Enhancer, each Originator hereby covenants and
warrants that it shall promptly cure such breach in all material respects or,
unless otherwise directed by the Indenture Trustee, as designee of the
Purchaser, it shall (or shall cause an Affiliate of the Originator to) on the
second Remittance Date next succeeding such discovery, receipt of notice or such
time (i) substitute in lieu of each Home Equity Loan which has given rise to the
requirement for action by the Originator a Eligible Substitute Mortgage and
deliver the Substitution Adjustment Amount applicable thereto to the Servicer
for deposit in the Collection Account or (ii) purchase such Home Equity Loan
from the Indenture Trustee at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be delivered to the Servicer for deposit in
the Collection Account. It is understood and agreed that (i) a breach of the
statement in clause (13) will be deemed to materially and adversely affect the
interests of the Noteholders, the Certificateholders or the Credit Enhancer if
it is judicially determined that the related Mortgagor is entitled to rescind
such Mortgagor's Home Equity Loan and (ii) the obligation of the Originator so
to cure,
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substitute or purchase any Home Equity Loan as to which such a statement set
forth below is untrue in any material respect and has not been remedied shall
constitute the sole remedy respecting a discovery of any such statement which is
untrue in any material respect in Part II of this Exhibit D available to the
Purchaser or the Indenture Trustee, as designee of the Purchaser.
(b) In the event that any Qualified Replacement Mortgage is delivered by
the Originator to the Trustee pursuant to [Section 2.1, Section 3.1 or Section
3.2] of the Loan Purchase Agreement, the Originator shall be obligated to take
the actions described in clause (a) of Part III of Exhibit D with respect to
such Qualified Replacement Mortgage upon the discovery by any of the
Originators, the Purchaser, the Depositor, the Owner Trustee or the Credit
Enhancer that any statement set forth in Part II of Exhibit D are untrue
(disregarding any qualification with respect to knowledge) on the date such
Qualified Replacement Mortgage is conveyed to the Indenture Trustee such that
the interests of the Noteholders, the Certificateholders or the Credit Enhancer
as in the related Qualified Replacement Mortgage are materially and adversely
affected; provided, however, that for the purposes of this subsection (b) the
statements in Part II of Exhibit D referring to items "as of the Cut-off Date"
or "as of the Closing Date" shall be deemed to refer to such items as of the
date such a Qualified Replacement Mortgage is conveyed to the Indenture Trustee.
(c) On or before the Remittance Date in the month following the month in
which a Convertible ARM becomes a Converted ARM, the applicable Originator shall
repurchase such Converted ARM for an amount equal to the Loan Purchase Price
therefor. The applicable Originator shall cause such Loan Purchase Price to be
delivered to the Servicer for deposit in the applicable Principal and Interest
Account.
(d) As to each Converted ARM reconveyed by the Purchaser or the Indenture
Trustee, the Purchaser shall or shall cause the Indenture Trustee to deliver on
the date of payment of the Loan Purchase Price therefor and on the order of the
appropriate Originator (i) the original Mortgage Note relating thereto, endorsed
without recourse, to such Originator (or to such other party as such Originator
directs), (ii) the original Mortgage so released and all recorded assignments
relating thereto, (iii) an assignment from the Indenture Trustee to such
Originator (or to such other party as such Originator directs) executed by the
Indenture Trustee in the same form as the assignment referred to in clause (iv)
of clause (a) of Part I and (iv) such other documents as constituted the File
with respect thereto.
(e) Notwithstanding that a Convertible ARM becomes a Converted ARM in any
month, such Converted ARM shall remain in the Trust and all payments of
principal and interest in respect thereof shall remain in the Trust unless and
until such Converted ARM is repurchased by the applicable Originator.
(f) The obligations of each Originator provided in Part III(c) shall
terminate without further action upon the bankruptcy or insolvency of such
Originator.
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EXHIBIT E
FORM OF SERVICER'S TRUST RECEIPT
To: Bankers Trust Company of California, N.A.
3 Park Plaza
Irvine, California 92614
Attn: Corporate Trust
Date:
In connection with the administration of the home equity loans serviced by
United Companies Lending Corporation(R) (the "Servicer") pursuant to a Sale and
Servicing Agreement dated as of December __, 1997 (the "Sale and Servicing
Agreement"), among the Servicer, you, as Indenture Trustee, and UCFC Home Equity
Loan Owner Trust 1997-_, as Issuer, UCFC Acceptance Corporation, as Depositor,
the Servicer hereby requests a release of the File held by you as Indenture
Trustee with respect to the following described Home Equity Loan for the reason
indicated below.
Mortgagor's Name:
Loan No.:
Reason for requesting file:
_______ 1. Home Equity Loan paid in full.
(The Servicer hereby certifies that all amounts received in
connection with the loan and required to be remitted to the
Indenture Trustee have been or will be remitted to the
Indenture Trustee pursuant to the Sale and Servicing
Agreement.)
_______ 2. Home Equity Loan repurchased pursuant to Section ______ of the
Sale and Servicing Agreement.
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(The Servicer hereby certifies that the Loan Purchase Price
has been or will be remitted to the Indenture Trustee
pursuant to the Sale and Servicing Agreement.)
_______ 3. Home Equity Loan substituted.
(The Servicer hereby certifies that a Eligible Substitute
Mortgage has been or will be assigned and delivered to you
along with the related File pursuant to the Sale and
Servicing Agreement.)
_______ 4. The Home Equity Loan is being foreclosed.
_______ 5. Other. (Describe)
The undersigned acknowledges that the above File will be held by the
undersigned in accordance with the provisions of the Sale and Servicing
Agreement and will be returned to you, except if the Home Equity Loan has been
paid in full, or repurchased or substituted for by a Eligible Substitute
Mortgage (in which case the File will be retained by us permanently) and except
if the Home Equity Loan is being foreclosed (in which case the File will be
returned when no longer required by us for such purpose).
Capitalized terms used herein shall have the meanings ascribed to them in
the Sale and Servicing Agreement.
UNITED COMPANIES LENDING
CORPORATION(R)
By: _________________________
Name:
Title:
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<PAGE>
EXHIBIT F
FORM OF NOTICE OF CHARGE-OFFS
I,_________ , hereby certify that I am the duly elected _________ of United
Companies Lending Corporation(R) (the "Servicer") acting as servicer pursuant to
a Sale and Servicing Agreement dated as of December __, 1997 among the Servicer,
UCFC Home Equity Loan Owner Trust 1997-__, as Issuer, UCFC Acceptance
Corporation, as Depositor, and Bankers Trust Company of California, N.A., as
Indenture Trustee, and further certify, to the best of my knowledge and after
due inquiry that the following is a summary of the facts and circumstances
surrounding the "charge-off" of any Home Equity Loans during the Collection
Period from _____ 1 through 31, 199__;
[Insert the following information for each "charged-off" Home Equity Loan
Loan #
Borrower Name
Property Address
Date of "charge-off"
Original Loan Balance
Outstanding Loan Balance
Interest Rate
Accrued Interest at time of "charge off"
Unreimbursed Servicing Advances at time of "charge off"
Unreimbursed Delinquency Advances at time of "charge off"
# days in default at time of "charge off"
Original appraised value
Current appraised value based upon "drive by"
Amount of outstanding first lien
Estimate of Foreclosure Costs
Broker Fees
Legal Fees
Repair and Miscellaneous Expenses
Projected Marketing Period
Estimate of Loss on Foreclosure and Liquidation]
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Capitalized terms not otherwise defined herein have the meanings set forth
in the Sale and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of
the Servicer.
Dated:________________ By:________________
Name:
Title:
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EXHIBIT G
FORM OF PARAMETERS FOR ADDITIONAL LOANS
The obligation of the Indenture Trustee to purchase Additional Loans on a
Deposit Date is subject to (i) each Additional Loan meeting the representations
and warranties set forth in the Sale and Servicing Agreement and (ii) the
characteristics of the Additional Loans at the end of the related Funding Period
not varying materially from the parameters applicable to such Additional Loans
set forth on page S-__ of the Prospectus.
G-1
