<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
AMOUNT TO BE MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES REGISTERED (1) PER UNIT (1) (1) REGISTRATION FEE
--------------------- ---------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
Asset Backed Certificates
Asset Backed Notes......... $1,000,000 100% $ 1,000,000 $ 303.03
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
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. 1 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 OCTOBER 9, 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) [LOGO]
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
S-2
<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- month
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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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>
SUBJECT TO AMENDEMENT, DATED OCTOBER 9, 1997
PROSPECTUS
$
------------------------
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 .
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' 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 CONSIDERATIONS
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.
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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
<PAGE>
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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 Certificateholders........... 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>
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ASSET BACKED CERTIFICATES
SERIES 199 -
UCFC ACCEPTANCE CORPORATION
(DEPOSITOR)
UNITED COMPANIES LENDING
CORPORATION(REGISTERED)
(SERVICER)
[LOGO](REGISTERED)
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
[UNDERWRITERS]
, 199
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<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......................... $ 303.03
Printing and Engraving....................... **
Trustee's Fees............................... **
Legal Fees and Expenses...................... **
Accountant's Fees and Expenses............... **
Rating Agency Fees........................... **
Miscellaneous Fees and Expenses.............. **
-----------
Total Expenses.......................... $ **
-----------
-----------
</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.
** To be completed by Amendment.
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.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<S> <C>
*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 (included in Part II of this Registration
Statement).
**25.1 -- Statement of Eligibility and Qualification of Trustee (Form T-1).
</TABLE>
- ------------------
* Filed as exhibit to Registration Statement (No. 33-61362) on Form S-11 and
incorporated herein by reference.
** To be filed by Amendment.
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.
II-2
<PAGE>
(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.
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.
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baton Rouge, State of Louisiana on October 8, 1997.
UCFC ACCEPTANCE CORPORATION
By /s/ H. C. MCCALL, III
------------------------------------
H. C. McCall, III
President
Known all men by these presents, that each person whose signature appears
below constitutes and appoints H.C. McCall, III, Dale E. Redman and J. Terrell
Brown, acting singly, as his true and lawful attorney-in-fact and agent, with
full power of substitution, and for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments or post-effective amendments
to this Registration Statement and any registration statement relating to any
offering made pursuant to this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each of said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 8, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------------------------
<S> <C>
/s/ J. TERRELL BROWN Director and Chief Executive Officer
- ----------------------------- (Principal Executive Officer)
(J. Terrell Brown)
/s/ DALE E. REDMAN Director, Vice Chairman and Assistant Secretary
- ----------------------------- (Principal Financial Officer and Principal
(Dale E. Redman) Accounting Officer)
/s/ H.C. McCALL, III
- ----------------------------- Director and President
(H.C. McCall, III)
</TABLE>
II-4
