<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
AND
POST-EFFECTIVE AMENDMENT NO. 1
UNDER
THE SECURITIES ACT OF 1933
------------------------
CWMBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 95-4449516
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
155 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(800) 669-6655
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANDOR E. SAMUELS, ESQ.
COUNTRYWIDE HOME LOANS, INC.
155 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(818) 304-8505
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
EDWARD J. FINE, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time on or after the effective date of the registration statement, as
determined by market conditions.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [x]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT* OFFERING PRICE* FEE
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates........... $3,500,000,000 100% $3,500,000,000 $1,060,606.06
</TABLE>
* Estimated 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. 333-08389 as previously filed by the Registrant. Such
registration statement No. 333-08389 was declared effective on September 9,
1996. This Registration Statement, which is a new registration statement, also
constitutes Post-Effective Amendment No. 1 to registration statement No.
333-08389 and such Post-Effective Amendment No. 1 shall 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 REGISTRATION
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 MAY 2, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED )
$
(APPROXIMATE)
CWMBS, INC.
DEPOSITOR
[COUNTRYWIDE HOME LOANS]
SELLER AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19
DISTRIBUTIONS PAYABLE ON THE TH DAY OF EACH MONTH, COMMENCING IN 19
- ---------------------------------------------------------
The Mortgage Pass-Through Certificates, Series 19 (collectively, the
'Certificates') will represent the entire beneficial interest in a Trust Fund
consisting primarily of a pool (the 'Mortgage Pool') of fixed-rate Mortgage
Loans secured by first liens on one- to four-family residential properties. Only
the Classes identified in the table below (collectively, the 'Offered
Certificates') are offered hereby.
------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER, THE
MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR AFFILIATES OR ANY OTHER PERSON.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FUND FOR THE BENEFIT OF CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
INITIAL CLASS CERTIFICATE
BALANCE (1) PASS-THROUGH RATE
<S> <C> <C>
Class A- $ %
Class $ %
Class PO $ (2)
Class X (3) (4)
Class A-R $ %
Class B- $ %
Class $ %
Class $ %
</TABLE>
(1) Subject to the permitted variance described herein.
(2) The Class PO Certificates will be Principal Only Certificates and will not
bear interest.
(3) The Class X Certificates will be Notional Amount Certificates, will have no
principal balance and will bear interest on their Notional Amount (initially
expected to be approximately $ ).
(4) The Pass-Through Rate for the Class X Certificates for any Distribution Date
will be equal to the excess of (a) the weighted average of the Net Mortgage
Rates of the Non-Discount Mortgage Loans over (b) % per annum. The
Pass-Through Rate for the Class X Certificates for the first Distribution
Date is expected to be approximately % per annum.
The Senior Certificates, other than the Class PO and Class X Certificates
(the 'Underwritten Senior Certificates'), will be purchased by
and the Class
Certificates (together with the Underwritten Senior Certificates, the
'Underwritten Certificates') offered hereby will be purchased by
(each, an 'Underwriter') 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
from the sale of the Underwritten Certificates are expected to be approximately
$ , plus accrued interest, before deducting issuance expenses payable
by the Depositor. The Class , Class PO and Class X Certificates will be issued
to the Depositor on or about 19 as partial consideration for the sale
of the Mortgage Loans to the Trust Fund.
The Underwritten Certificates are offered by the respective Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part. It
is expected that delivery of the Underwritten Senior Certificates, other than
the Class A-R Certificates, will be made in book-entry form only through the
facilities of The Depository Trust Company, that the Class A-R Certificates will
be delivered at the offices of in New York,
New York and that the Class Certificates will be
delivered at the offices of in New York, New York, in each
case on or about , 19 .
, 19
<PAGE>
<PAGE>
The Mortgage Loans will be sold to the Depositor by [Countrywide Home
Loans, Inc. ('Countrywide')].
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
'real estate mortgage investment conduit' (a 'REMIC'). See 'Description of the
Certificates -- Separate REMIC Structure' herein. As described more fully herein
and in the Prospectus, the Certificates, other than the Class A-R Certificates,
will be designated as the 'regular interests' in the Master REMIC. The Class A-R
Certificates will constitute the beneficial ownership of the 'residual
interests' in both the Master REMIC and the Subsidiary REMIC. Prospective
investors are cautioned that a Class A-R Certificateholder's REMIC taxable
income and the tax liability thereon will exceed cash distributions in certain
periods, in which event such holder must have sufficient alternative sources of
funds to pay such tax liability. See 'Certain Federal Income Tax Consequences'
herein and in the Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See 'Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates.'
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH MAY VARY
SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY OF A CLASS OF OFFERED
CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE SENSITIVE TO THE
RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED CERTIFICATES SHOULD
CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT A DISCOUNT, AND
PARTICULARLY THE PRINCIPAL ONLY CERTIFICATES, THE RISK THAT A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF ANY
OFFERED CERTIFICATES PURCHASED AT A PREMIUM AND PARTICULARLY THE INTEREST ONLY
CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD. HOLDERS OF THE INTEREST ONLY CERTIFICATES SHOULD CAREFULLY
CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS
COULD RESULT IN THE FAILURE OF SUCH HOLDERS TO RECOVER THEIR INITIAL
INVESTMENTS. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES, AND
PARTICULARLY THE CLASS CERTIFICATES, ALSO WILL
BE ADVERSELY AFFECTED BY NET INTEREST SHORTFALLS AND BY REALIZED LOSSES. NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE
LOANS, THE AMOUNT AND TIMING OF NET INTEREST SHORTFALLS OR REALIZED LOSSES, OR
AS TO THE RESULTING YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has an
obligation to do so. There is currently no secondary market for the Offered
Certificates and there can be no assurance that such a market will develop or,
if it does develop, that it will continue or that it will provide
Certificateholders with a sufficient level of liquidity of investment.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus of the Depositor dated , 19 (the 'Prospectus') and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, 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 THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[`s' Registered service mark of Countrywide Credit Industries, Inc. and its
affiliates.]
S-2
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<PAGE>
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
<TABLE>
<S> <C>
Title of Certificates.................. Mortgage Pass-Through Certificates, Series 19 - (the 'Certificates').
Offered Certificates................... Class A- , Class Class PO, Class X, Class A-R, Class B- , and Class
Certificates. Only the Offered Certificates are offered hereby. The
aggregate initial Class Certificate Balances of the Certificates will be
subject to a permitted variance in the aggregate of plus or minus 10%.
Variances in the Class Certificate Balances may result in variances in the
Notional Amount of the Class of Notional Amount Certificates.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans with respect to such Distribution Date. The
initial Notional Amount of the Class X Certificates will be equal to the
aggregate of the Stated Principal Balances of the Non-Discount Mortgage
Loans as of the Cut-off Date.
Certificates other than the Offered
Certificates......................... In addition to the Offered Certificates, the following Classes of
Certificates will be issued in the indicated approximate initial Class
Certificate Balances and will bear interest at the indicated Pass-Through
Rates, but are not offered hereby:
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE RATE
------------- ------------
<C> <C> <C>
Class (1).............................. $ %
Class (1).............................. $ %
Class (1).............................. $ %
------------------------
(1) The Class , Class and Class Certificates will provide limited
credit support to the Senior Certificates and the other Subordinated
Certificates, as described herein.
Any information contained herein with respect to the Class , Class
and Class Certificates is provided only to permit a better
understanding of the Offered Certificates.
Designations
Regular Certificates................. All Classes of Certificates other than the Class A-R Certificates.
Residual Certificates................ Class A-R Certificates.
Senior Certificates.................. Class A- , Class , Class PO, Class X and Class A-R Certificates.
Subordinated Certificates............ Class B- , Class , and Class Certificates.
Principal Only Certificates.......... Class PO Certificates.
Interest Only Certificates........... Class X Certificates.
Notional Amount Certificates......... Class X Certificates.
Fixed Rate Certificates.............. All Classes of Certificates other than the Class PO and Class X
Certificates.
Variable Rate Certificates........... Class X Certificates.
Physical Certificates................ Class PO, Class X and Class A-R Certificates and the Subordinated
Certificates.
Book-Entry Certificates.............. All Classes of Certificates other than the Physical Certificates.
</TABLE>
S-3
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<TABLE>
<S> <C>
Trust Fund............................. The Certificates will represent the entire beneficial ownership interest
in the Trust Fund, which will consist primarily of the Mortgage Pool.
Pooling and Servicing
Agreement............................ The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of , 19 (the 'Agreement'), among the
Depositor, the Seller, the Master Servicer and the Trustee.
Depositor.............................. CWMBS, Inc. (the 'Depositor'), a Delaware corporation and a limited
purpose finance subsidiary of Countrywide Credit Industries, Inc. See 'The
Depositor' in the Prospectus.
Seller and Master Servicer............. [Countrywide Home Loans, Inc. ('Countrywide'] or the 'Seller' and, in its
capacity as master servicer of the Mortgage Loans, the 'Master Servicer').
See 'Servicing of Mortgage Loans -- The Master Servicer' herein. The
Mortgage Loans were originated or acquired in the normal course of its
business by the Seller and will be acquired by the Depositor in a
privately negotiated transaction. The Master Servicer will be responsible
for the servicing of the Mortgage Loans and will receive the Master
Servicing Fee from interest collected on the Mortgage Loans. See
'Servicing of Mortgage Loans -- Servicing Compensation and Payment of
Expenses' herein.
Trustee................................ The Bank of New York, a banking corporation organized under the laws of
the State of New York (the 'Trustee').
Cut-off Date........................... , 19 .
Closing Date........................... On or about , 19 .
Determination Date..................... The day of each month or, if such day is not a business day, the
preceding business day; provided that the Determination Date in each month
will be at least two business days prior to the related Distribution Date.
Mortgage Loans......................... The Mortgage Pool will consist primarily of -year conventional fixed-
rate mortgage loans secured by first liens on one- to four-family
residential properties. Distributions of principal and interest on the
Certificates will be based solely on payments received on the Mortgage
Loans, as described herein. See 'The Mortgage Pool' herein.
Distribution Date...................... The day of each month or, if such day is not a business day, on the
first business day thereafter, commencing in 19 (each, a
'Distribution Date'). Distributions on each Distribution Date will be made
to Certificateholders of record as of the related Record Date, except that
the final distribution on the Certificates will be made only upon
presentment and surrender of the Certificates at the Corporate Trust
Office of the Trustee.
Record Date............................ The Record Date for each Distribution Date will be the last business day
of the month preceding the month of such Distribution Date.
Priority of Distributions.............. Distributions will be made on each Distribution Date from Available Funds
in the following order of priority: (i) to interest on each interest
bearing Class of Senior Certificates; (ii) to principal on the Classes of
Senior Certificates then entitled to receive distributions of principal,
in the order and subject to the priorities set forth herein under
'Description of the Certificates -- Principal,' in each case in an
aggregate amount up to the maximum amount of principal to be distributed
on such Classes on such Distribution Date; (iii) to any Class PO Deferred
Amounts with respect to the Class PO Certificates, but only from amounts
that would otherwise be distributable on such Distribution Date as
principal of the Subordinated Certificates; and (iv) to interest on and
then principal of each Class of Subordinated Certificates, in the order of
their numerical Class designations, beginning with the Class
Certificates, in each case subject to the limitations set forth herein
under 'Description of the Certificates -- Principal.'
</TABLE>
S-4
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<TABLE>
<S> <C>
Under certain circumstances described herein, distributions from Available
Funds for a Distribution Date that would otherwise be made on the
Subordinated Certificates may be distributed instead on the Senior
Certificates. See 'Description of the Certificates -- Allocation of
Losses' herein.
Distributions of Interest.............. To the extent funds are available therefor, each interest bearing Class of
Certificates will be entitled to receive interest in the amount of the
Interest Distribution Amount for such Class. The Class PO Certificates are
Principal Only Certificates and will not bear interest. See 'Description
of the Certificates -- Interest' herein.
A. Interest Distribution Amount...... For each interest bearing Class of Certificates, the amount of interest
accrued during the related Interest Accrual Period at the applicable Pass-
Through Rate on the related Class Certificate Balance or Notional Amount,
as the case may be.
B. Pass-Through Rate................. The Pass-Through Rate for each interest bearing Class of Offered
Certificates for each Distribution Date will be as set forth or described
on the cover page hereof.
The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans over (b) % per
annum. The Pass-Through Rate for the Class X Certificates for the first
Distribution Date is expected to be approximately % per annum.
With respect to each Distribution Date, the 'Interest Accrual Period' for
each interest bearing Class of Certificates will be the calendar month
preceding the month of such Distribution Date.
Distributions of Principal............. On each Distribution Date, to the extent funds are available therefor,
principal distributions in reduction of the Class Certificate Balances of
each Class of Certificates (other than the Notional Amount Certificates)
will be made in the order and subject to the priorities set forth herein
under 'Description of the Certificates -- Principal' in an aggregate
amount equal to such Class' allocable portion of the Senior Principal
Distribution Amount, the Class PO Principal Distribution Amount or the
Subordinated Principal Distribution Amount, as applicable. The Notional
Amount Certificates do not have principal balances and are not entitled to
any distributions in respect of principal of the Mortgage Loans. See
'Description of the Certificates -- Principal' herein.
Credit Enhancement -- General.......... Credit enhancement for the Senior Certificates will be provided by the
Subordinated Certificates and credit enhancement for each Class of
Subordinated Certificates will be provided by the Class or Classes of
Subordinated Certificates with higher numerical Class designations, as
described below. The aggregate of the initial Class Certificate Balances
of the Class , Class and Class Certificates, which are the only
Certificates supporting the Class Certificates, is expected to be
approximately $ .
Subordination.......................... The rights of holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Fund will be
subordinated to such rights of holders of the Senior Certificates, and the
rights of the holders of each Class of Subordinated Certificates (other
than the Class Certificates) to receive such distributions will be
further subordinated to such rights of the Class or Classes of
Subordinated Certificates with lower numerical Class designations, in each
case only to the extent described herein.
The subordination of the Subordinated Certificates to the Senior
Certificates, and the further subordination within the Subordinated
Certificates, is intended to increase the likelihood of timely receipt by
the holders of Certificates with higher relative payment priority of the
maximum amount to which they are entitled on any Distribution Date
</TABLE>
S-5
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<TABLE>
<S> <C>
and to provide such holders protection against losses on the Mortgage
Loans to the extent described herein. The Subordinated Certificates also
provide protection, to a lesser extent, against Special Hazard Losses,
Bankruptcy Losses and Fraud Losses. However, in certain circumstances the
amount of available subordination (including the limited subordination
provided for certain types of losses) may be exhausted and shortfalls in
distributions on the Certificates could result. Holders of the Senior
Certificates will bear their proportionate share of any losses realized on
the Mortgage Loans in excess of the available subordination amount. See
'Description of the Certificates -- Priority of Distributions Among
Certificates,' ' -- Allocation of Losses,' and 'Credit
Enhancement -- Subordination of Certain Classes' herein.
Advances............................... The Master Servicer is obligated to make cash advances ('Advances') with
respect to delinquent payments of principal of and interest on any
Mortgage Loan to the extent described herein. The Trustee will be
obligated to make any such Advance if the Master Servicer fails in its
obligation to do so, to the extent provided in the Agreement. See
'Servicing of Mortgage Loans -- Advances' herein.
Prepayment Considerations and Risks;
Reinvestment Risk.................... The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to
maturity of the Offered Certificates will be related to the rate and
timing of payments of principal on the Mortgage Loans.
Since the rate of payment of principal on the Mortgage Loans will depend
on future events and a variety of factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the
yield to maturity of a Class of Offered Certificates may vary from the
anticipated yield may depend upon the degree to which it is purchased at a
discount or premium, and the degree to which the timing of payments
thereon is sensitive to prepayments, liquidations and purchases of the
Mortgage Loans. Further, an investor should consider the risk that, in the
case of the Principal Only Certificates and any other Offered Certificate
purchased at a discount, a slower than anticipated rate of principal
payments (including prepayments) on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield
and, in the case of the Interest Only Certificates and any other Offered
Certificate purchased at a premium, a faster than anticipated rate of
principal payments could result in an actual yield to such investor that
is lower than the anticipated yield. Investors in the Interest Only
Certificates should carefully consider the risk that a rapid rate of
principal payments on the Mortgage Loans could result in the failure of
such investors to recover their initial investments.
Because the Mortgage Loans may be prepaid at any time, it is not possible
to predict the rate at which distributions of principal of the Offered
Certificates will be received. Since prevailing interest rates are subject
to fluctuation, there can be no assurance that investors in the Offered
Certificates will be able to reinvest the distributions thereon at yields
equaling or exceeding the yields on such Offered Certificates. It is
possible that yields on any such reinvestments will be lower, and may be
significantly lower, than the yields on the Offered Certificates. See
'Yield, Prepayment and Maturity Considerations' herein.
Optional Termination................... On any Distribution Date on which the Pool Principal Balance is less than
10% of the Cut-off Date Pool Principal Balance, the Master Servicer will
have the option to purchase, in whole, the Mortgage Loans and the REO
Property, if any, remaining in the Trust Fund. See 'Description of the
Certificates -- Optional Termination' herein.
Federal Income Tax Considerations...... For federal income tax purposes, the Trust Fund will include two
segregated asset pools, with respect to which elections will be made to
treat each as a separate 'real estate mortgage investment conduit'
('REMIC'). The Regular Certificates will constitute 'regular interests'
</TABLE>
S-6
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<TABLE>
<S> <C>
in the Master REMIC. The Class A-R Certificates will represent the
beneficial ownership of the sole class of 'residual interest' in the
Master REMIC and the sole class of residual interest in the Subsidiary
REMIC and will be the class of Residual Certificates, as described in the
Prospectus.
The Interest Only Certificates and the Principal Only Certificates will,
and certain other Classes of Offered Certificates may, be issued with
original issue discount for federal income tax purposes. See 'Certain
Federal Income Tax Consequences' herein and in the Prospectus.
ERISA Considerations................... The acquisition of an Offered Certificate by a pension or other employee
benefit plan (a 'Plan') subject to the Employee Retirement Income Security
Act of 1974, as amended ('ERISA'), could, in some instances, result in a
prohibited transaction or other violation of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended (the 'Code').
Subject to the considerations and conditions described under 'ERISA
Considerations' herein, it is expected that the Senior Certificates (other
than the Class PO, Class X and Class A-R Certificates) may be purchased by
a Plan.
Any Plan fiduciary considering whether to purchase any Offered
Certificates on behalf of a Plan should consult with its counsel regarding
the applicability of the provisions of ERISA and the Code. See 'ERISA
Considerations' herein.
Legal Investment....................... The Senior Certificates and the Class Certificates will constitute
'mortgage related securities' for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA') so long as they are rated in one
of the two highest rating categories by at least one nationally recognized
statistical rating organization and, as such, are legal investments for
certain entities to the extent provided for in SMMEA.
It is anticipated that the Class and Class Certificates will not be
rated in one of the two highest rating categories by a nationally
recognized statistical rating organization and, therefore, will not
constitute 'mortgage related securities' for purposes of SMMEA.
Institutions whose investment activities are subject to review by federal
or state regulatory authorities should consult with their counsel or the
applicable authorities to determine whether an investment in the Offered
Certificates complies with applicable guidelines, policy statements or
restrictions. See 'Legal Investment' in the Prospectus.
Ratings................................ It is a condition to the issuance of the Senior Certificates that they be
rated by (' ') and by
(' ' and, together with , the 'Rating Agencies').
See 'Ratings' herein. It is a condition to the issuance of the Class ,
Class and Class Certificates that they be rated at least , and
, respectively, by . The ratings of the Offered Certificates of
any Class should be evaluated independently from similar ratings on other
types of securities. A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by
either of the Rating Agencies. See 'Ratings' herein.
</TABLE>
S-7
<PAGE>
<PAGE>
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans from [Countrywide] pursuant
to the Pooling and Servicing Agreement dated as of the Cut-off Date among
[Countrywide], as Seller and Master Servicer, the Depositor and the Trustee (the
'Agreement') and will cause the Mortgage Loans to be assigned to the Trustee for
the benefit of the holders of the Certificates (the 'Certificateholders').
Under the Agreement, the Seller will make certain representations,
warranties and covenants to the Depositor relating to, among other things, the
due execution and enforceability of the Agreement and certain characteristics of
the Mortgage Loans and, subject to the limitations described below under
' -- Assignment of the Mortgage Loans,' will be obligated to repurchase or
substitute a similar mortgage loan for any Mortgage Loan as to which there
exists deficient documentation or an uncured material breach of any such
representation, warranty or covenant. The Seller will represent and warrant to
the Depositor in the Agreement that the Mortgage Loans were selected from among
the outstanding one- to four-family mortgage loans in the Seller's portfolio as
to which the representations and warranties set forth in the Agreement can be
made and that such selection was not made in a manner that would adversely
affect the interests of the Certificateholders. See 'Mortgage Loan
Program -- Representations by Sellers; Repurchases' in the Prospectus. Under the
Agreement, the Depositor will assign all its right, title and interest in and to
such representations, warranties and covenants (including the Seller's
repurchase obligation) to the Trustee for the benefit of Certificateholders. The
Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute Mortgage
Loans with deficient documentation or which are otherwise defective.
[Countrywide] is selling the Mortgage Loans without recourse and will have no
obligation with respect to the Certificates in its capacity as Seller other than
the repurchase obligation described above. The obligations of [Countrywide], as
Master Servicer, with respect to the Certificates are limited to the Master
Servicer's contractual servicing obligations under the Agreement.
Certain information with respect to the Mortgage Loans expected to be
included in the Mortgage Pool is set forth below. Prior to the Closing Date,
Mortgage Loans may be removed from the Mortgage Pool and other Mortgage Loans
may be substituted therefor. The Depositor believes that the information set
forth herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented herein expressed as a percentage (other than rates of
interest) are approximate percentages based on the Stated Principal Balances of
the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ (the 'Cut-off
Date Pool Principal Balance'). The Mortgage Loans provide for the amortization
of the amount financed over a series of substantially equal monthly payments.
All the Mortgage Loans provide for payments due as of the first day of each
month (the 'Due Date'). At origination, substantially all of the Mortgage Loans
had stated terms to maturity of 30 years. Scheduled monthly payments made by the
Mortgagors on the Mortgage Loans ('Scheduled Payments') either earlier or later
than the scheduled Due Dates thereof will not affect the amortization schedule
or the relative application of such payments to principal and interest. The
Mortgagors may prepay their Mortgage Loans at any time without penalty.
Each Mortgage Loan was originated after .
The latest stated maturity date of any Mortgage Loan is . The
earliest stated maturity date of any Mortgage Loan is .
As of the Cut-off Date, no Mortgage Loan was delinquent more than 30 days.
[No] Mortgage Loan will be subject to a buydown agreement. [No] Mortgage
Loan provides for deferred interest or negative amortization.
As of the Cut-off Date, Mortgage Loans, representing approximately %
of the Cut-off Date Pool Principal Balance, were originated as adjustable rate
mortgage loans but converted to fixed rate Mortgage Loans prior to their
inclusion in the Mortgage Pool.
No Mortgage Loan had a Loan-to-Value Ratio at origination of more than 95%.
Each Mortgage Loan with a Loan-to-Value Ratio at origination of greater than 80%
is covered by a primary mortgage guaranty insurance
S-8
<PAGE>
<PAGE>
policy issued by a mortgage insurance company acceptable to the Federal National
Mortgage Association ('FNMA') or the Federal Home Loan Mortgage Corporation
('FHLMC'), which policy provides coverage in an amount equal to the excess of
the original principal balance of the related Mortgage Loan over 75% of the
value of the related Mortgaged Property, plus accrued interest thereon and
related foreclosure expenses. With respect to Mortgage Loans with
Loan-to-Value Ratios at origination of greater than 80%, the lender (rather than
the borrower) acquired the primary mortgage guaranty insurance and charged the
related borrower an interest premium equal to the lender's cost of obtaining
such insurance (such Mortgage Loans, the 'Lender PMI Mortgage Loans'). Except
with respect to the Lender PMI Mortgage Loans, no such primary mortgage guaranty
insurance policy will be required with respect to any such Mortgage Loan after
the date on which the related Loan-to-Value Ratio is 80% or less or, based on a
new appraisal, the principal balance of such Mortgage Loan represents 80% or
less of the new appraised value. With respect to the Lender PMI Mortgage Loans,
the primary mortgage guaranty insurance policy will be maintained for the life
of such Mortgage Loans.
The 'Loan-to-Value Ratio' of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property or its appraised value at the time of sale, or
[(b) in the case of a refinance, the appraised value of the Mortgaged Property
at the time of such refinance, except in the case of a Mortgage Loan
underwritten pursuant to [Countrywide's] Streamlined Refinance Documentation
Program (the 'Streamlined Documentation Program') as described herein under
' -- Underwriting Standards.' With respect to Mortgage Loans originated pursuant
to the Streamlined Documentation Program (a) if the loan-to-value ratio at the
time of the origination of the mortgage loan being refinanced was 60% or less,
the 'Loan-to-Value Ratio' will be the ratio of the principal amount of the
Mortgage Loan outstanding at the date of determination divided by the appraised
value of the related mortgaged property at the time of the origination of the
mortgage loan being refinanced or (b) if the loan-to-value ratio at the time of
the origination of the mortgage loan being refinanced was greater than 60%, then
the 'Loan-to-Value Ratio' will be the ratio of the principal amount of the
Mortgage Loan outstanding at the date of determination divided by the appraised
value as determined by an appraisal at the time of the origination of such
Mortgage Loan.] See ' -- Underwriting Standards' herein. No assurance can be
given that the value of any Mortgaged Property has remained or will remain at
the level that existed on the appraisal or sales date. If residential real
estate values generally or in a particular geographic area decline, the
Loan-to-Value Ratios might not be a reliable indicator of the rates of
delinquencies, foreclosures and losses that could occur with respect to such
Mortgage Loans.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
S-9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ---------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING POOL
- ---------------------------------------------------------------
<S> <C> <C> <C>
6.250.................. $ %
6.750..................
6.875..................
7.000..................
7.125..................
7.250..................
7.375..................
7.500..................
7.625..................
7.750..................
7.875..................
8.000..................
8.125..................
8.250..................
8.375..................
8.500..................
8.625..................
8.750..................
8.875..................
9.000..................
9.125..................
9.250..................
9.375..................
9.500..................
9.875..................
10.000..................
-- --------------- ----------
Totals.................. 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) The Lender PMI Mortgage Loans are shown at the Mortgage
Rates net of the interest premium charged by the related lenders. As of the
Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans (as
so adjusted) is expected to be approximately %. Without such adjustment,
the weighted average Mortgage Rate of the Mortgage Loans is expected to be
approximately % per annum.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- -----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING POOL
- -----------------------------------------------------------------
<S> <C> <C> <C>
50.00 and below........ $ %
50.01 to 55.00.........
55.01 to 60.00.........
60.01 to 65.00.........
65.01 to 70.00.........
70.01 to 75.00.........
75.01 to 80.00.........
80.01 to 85.00.........
85.01 to 90.00.........
90.01 to 95.00.........
-- --------------- ----------
Totals................. 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) The weighted average original Loan-to-Value Ratio of the
Mortgage Loans is expected to be approximately %.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- --------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
CURRENT MORTGAGE MORTGAGE BALANCE MORTGAGE
LOAN AMOUNTS LOANS OUTSTANDING POOL
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 0 - $ 50,000... $ %
$ 50,001 - $ 100,000...
$100,001 - $ 150,000...
$150,001 - $ 200,000...
$200,001 - $ 250,000...
$250,001 - $ 300,000...
$300,001 - $ 350,000...
$350,001 - $ 400,000...
$400,001 - $ 450,000...
$450,001 - $ 500,000...
$500,001 - $ 550,000...
$550,001 - $ 600,000...
$600,001 - $ 650,000...
$650,001 - $ 750,000...
$750,001 - $1,000,000..
-- --------------- ----------
Totals................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the average current Mortgage Loan
principal balance is expected to be approximately $ .
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM FOR MORTGAGE LOANS
- -----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING POOL
- -----------------------------------------------------------------
<S> <C> <C> <C>
Full................... $ %
Alternative............
Reduced................
Streamlined............
-- --------------- ----------
Totals................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
- ---------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING POOL
- ---------------------------------------------------------------
<S> <C> <C> <C>
Single Family........... $ %
Condominium.............
Two- to Four- Family....
Planned Unit
Development............
-- --------------- ----------
Totals.................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- -----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPE LOANS OUTSTANDING POOL
- -----------------------------------------------------------------
<S> <C> <C> <C>
Primary Residence...... $ %
Investor Property......
Second Residence.......
-- --------------- ----------
Totals................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) Based upon representations of the related mortgagors at the time
of origination.
S-10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
- -----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING POOL
- -----------------------------------------------------------------
<S> <C> <C> <C>
Arizona................ $ %
California.............
Colorado...............
Florida................
Georgia................
Hawaii.................
Illinois...............
Maryland...............
Massachusetts..........
New Jersey.............
New York...............
Pennsylvania...........
Texas..................
Utah...................
Washington.............
Other (less than 2%)...
-- --------------- ----------
Totals................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) Other includes other states with under [2]% concentrations
individually. No more than approximately % of the Mortgage Loans will be
secured by Mortgaged Properties located in any one postal zip code area.
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- ----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING POOL
- ----------------------------------------------------------------
<S> <C> <C> <C>
Purchase................ $ %
Refinance (rate/term)...
Refinance (cash out)....
-- --------------- ----------
Totals.................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
<TABLE>
<CAPTION>
REMAINING TERMS TO MATURITY(1)
- -----------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
REMAINING TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING POOL
- -----------------------------------------------------------------
<S> <C> <C> <C>
360.................... $ %
359....................
358....................
357....................
356....................
355....................
354....................
353....................
352....................
351....................
349....................
348....................
347....................
345....................
344....................
343....................
342....................
341....................
338....................
335....................
334....................
333....................
332....................
328....................
326....................
325....................
321....................
320....................
319....................
318....................
314....................
297....................
293....................
259....................
240....................
238....................
237....................
-- --------------- ----------
Totals................. $ 100.00%
-- --------------- ----------
-- --------------- ----------
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the weighted average remaining term to
maturity of the Mortgage Loans is expected to be approximately months.
S-11
<PAGE>
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the Trustee
in trust for the benefit of the Certificateholders all right, title and interest
of the Depositor in and to each Mortgage Loan and all right, title and interest
in and to all other assets included in the Trust Fund, including all principal
and interest received on or with respect to the Mortgage Loans, exclusive of
principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
or cause to be delivered to the Trustee, or a custodian for the Trustee, among
other things, the original promissory note (the 'Mortgage Note') (and any
modification or amendment thereto) endorsed in blank without recourse, the
original instrument creating a first lien on the related Mortgaged Property (the
'Mortgage') with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and Mortgage
(except for any such documents not returned from the public recording office,
which will be delivered to the Trustee as soon as the same is available to the
Depositor) (collectively, the 'Mortgage File'). Assignments of the Mortgage
Loans to the Trustee (or its nominee) will be recorded in the appropriate public
office for real property records, except in states such as California where in
the opinion of counsel such recording is not required to protect the Trustee's
interests in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller.
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee (or within
such longer period not to exceed 720 days after the Closing Date as provided in
the Agreement in the case of missing documents not returned from the public
recording office), the Seller will be obligated to repurchase the related
Mortgage Loan from the Trust Fund. Rather than repurchase the Mortgage Loan as
provided above, the Seller may remove such Mortgage Loan (a 'Deleted Mortgage
Loan') from the Trust Fund and substitute in its place another mortgage loan (a
'Replacement Mortgage Loan'); however, such substitution is permitted only
within two years of the Closing Date and may not be made unless an opinion of
counsel is provided to the Trustee to the effect that such substitution will not
disqualify the REMIC or result in a prohibited transaction tax under the Code.
Any Replacement Mortgage Loan generally will, on the date of substitution, among
other characteristics set forth in the Agreement, (i) have a principal balance,
after deduction of all Scheduled Payments due in the month of substitution, not
in excess of, and not more than 10% less than, the Stated Principal Balance of
the Deleted Mortgage Loan (the amount of any shortfall to be deposited by the
Seller in the Certificate Account and held for distribution to the
Certificateholders on the related Distribution Date (a 'Substitution Adjustment
Amount')), (ii) have a Mortgage Rate not lower than, and not more than 1% per
annum higher than, that of the Deleted Mortgage Loan, (iii) have a Loan-to-Value
Ratio not higher than that of the Deleted Mortgage Loan, (iv) have a remaining
term to maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan, and (v) comply with all of the representations and
warranties set forth in the Agreement as of the date of substitution. This cure,
repurchase or substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for omission of, or a material defect in, a
Mortgage Loan document.
UNDERWRITING STANDARDS
[All mortgage loans must meet credit, appraisal and underwriting standards
acceptable to Countrywide. Such underwriting standards are applied to evaluate
the prospective borrower's credit standing and repayment ability and the value
and adequacy of the mortgaged property as collateral. These standards are
applied in accordance with applicable federal and state laws and regulations.
Such underwriting procedures are generally consistent with those identified
under 'Mortgage Loan Program -- Underwriting Standards' in the Prospectus except
as otherwise provided herein.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's assets, liabilities, income, credit
history, employment history and other personal information. In addition, each
applicant is required to have sufficient cash resources to pay the downpayment
and closing costs. Countrywide requires a credit report on each applicant from a
credit reporting company. The report typically contains information relating to
such matters as credit history with local and national merchants and lenders,
S-12
<PAGE>
<PAGE>
installment debt payments and any record of defaults, bankruptcy, dispossession,
suits or judgments. All adverse information in the credit report is required to
be explained by the prospective borrower to the satisfaction of the lending
officer. Self-employed individuals are generally required to submit their two
most recent federal income tax returns. In determining whether a prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations relating to the proposed mortgage loan (including property
taxes, hazard insurance premiums, and where applicable, primary mortgage
guaranty insurance premiums and homeowners' association dues) and (ii) to meet
monthly housing expenses described in clause (i) above and other financial
obligations of the borrower (including consumer and installment debt),
Countrywide generally applies ratios with respect to fixed rate mortgage loans
of up to 33% and 38%, respectively, of the proposed borrower's acceptable stable
monthly gross income. Exceptions to the underwriting standards described herein
are made in certain circumstances where compensating factors are demonstrated by
a prospective borrower.
Except as described below with respect to its Streamlined Documentation
Program, Countrywide's underwriting standards generally allow Loan-to-Value
Ratios at origination of up to 95% for mortgage loans with original principal
balances of up to $300,000, up to 90% for mortgage loans with original principal
balances of up to $400,000, up to 80% for mortgage loans with original principal
balances of up to $500,000, up to 75% for Mortgage Loans with original principal
balances of up to $650,000, up to 70% for mortgage loans with original principal
balances of up to $750,000 and up to 60% for mortgage loans with original
principal balances of up to $1,000,000. Countrywide generally does not originate
cash-out refinance mortgage loans with original principal balances in excess of
$650,000. A refinance mortgage loan is classified as a cash-out refinance
mortgage loan by Countrywide if the borrower retains greater than 1.0% of the
entire amount of the proceeds from the refinancing of the existing mortgage
loan.
Except as described below with respect to its Streamlined Documentation
Program, Countrywide obtains appraisals from independent appraisers or appraisal
services for properties that are to secure mortgage loans. Such appraisers
inspect and appraise the subject property and verify that such property is in
acceptable condition. Following each appraisal, the appraiser prepares a report
which includes a market data analysis based on recent sales of comparable homes
in the area and, when deemed appropriate, a replacement cost analysis based on
the current cost of constructing a similar home. All appraisals are required to
conform to FNMA or FHLMC appraisal standards then in effect. Every independent
appraisal is reviewed by a Countrywide underwriter before the loan is funded.
Countrywide requires title insurance on all of its mortgage loans secured
by liens on real property. Countrywide also requires that fire and extended
coverage casualty insurance be maintained on the secured property in an amount
at least equal to the principal balance of the related single-family loan or the
replacement cost of the property, whichever is less.
Countrywide also originates or acquires mortgage loans pursuant to
alternative sets of underwriting criteria under its Alternative Documentation
Loan Program (the 'Alternative Documentation Program'), its Reduced
Documentation Loan Program (the 'Reduced Documentation Program') and its
Streamlined Documentation Program. The Alternative Documentation Program permits
a borrower to provide W-2 forms instead of tax returns covering the most recent
two years, permits bank statements in lieu of verifications of deposits and
permits alternative methods of employment verification. Under the Reduced
Documentation Program, relatively more emphasis is placed on property
underwriting than on credit underwriting and certain credit underwriting
documentation concerning income and employment verification therefore is waived.
However, under the Reduced Documentation Program, Countrywide obtains from
prospective borrowers either a verification of deposits or bank statements for
the most recent two-month period preceding the loan application. Mortgage loans
underwritten under the Reduced Documentation Program generally are limited to
self-employed borrowers with credit histories that demonstrate an established
ability to repay indebtedness in a timely fashion. Permitted maximum
Loan-to-Value Ratios (including secondary financing) under the Reduced
Documentation Program, which range up to 70%, are more restrictive than under
Countrywide's standard underwriting criteria. Mortgage loans underwritten
pursuant to the Reduced Documentation Program generally must be secured by
owner-occupied primary residences. The Streamlined Documentation Program allows
a borrower to refinance an existing Countrywide mortgage loan provided that,
among other things, such mortgage loan has not been more than 30 days delinquent
in payment during the previous twelve-month period. Under the Streamlined
Documentation Program, appraisals are obtained only if the loan being refinanced
had a loan-to-value ratio at the time of origination in excess of 60%. In
addition, under the Streamlined Documentation Program, a credit
S-13
<PAGE>
<PAGE>
report is obtained but only a limited credit review is conducted, no income or
asset verification is required, and telephonic verification of employment is
permitted. Permitted maximum Loan-to-Value Ratios under the Streamlined
Documentation Program range up to 100%.
Countrywide does not maintain separate records regarding the delinquency or
foreclosure rates of mortgage loans underwritten under any of the Alternative
Documentation Program, the Reduced Documentation Program or the Streamlined
Documentation Program, as compared to mortgage loans underwritten pursuant to
its standard underwriting criteria. However, Countrywide does not believe that
there are material differences regarding the delinquency and foreclosure rates
of mortgage loans underwritten under the Alternative Documentation Program, the
Reduced Documentation Program and the Streamlined Documentation Program as
compared to mortgage loans underwritten under its standard underwriting
criteria.]
SERVICING OF MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Agreement. The Master Servicer may perform any of its
obligations under the Agreement through one or more subservicers.
Notwithstanding any such subservicing arrangement, the Master Servicer will
remain liable for its servicing duties and obligations under the Agreement as if
the Master Servicer alone were servicing the Mortgage Loans.
THE MASTER SERVICER
[Countrywide Home Loans, Inc. (formerly known as Countrywide Funding
Corporation) ('Countrywide'), a New York corporation and a subsidiary of
Countrywide Credit Industries, Inc., will act as Master Servicer for the
Mortgage Loans pursuant to the Agreement. Countrywide is engaged primarily in
the mortgage banking business, and as such, originates, purchases, sells and
services mortgage loans. Countrywide originates mortgage loans through a retail
branch system and through mortgage loan brokers and correspondents nationwide.
Countrywide's mortgage loans are principally first-lien, fixed or adjustable
rate mortgage loans secured by single-family residences.
At , [Countrywide] provided servicing for approximately
$ billion aggregate principal amount of mortgage loans, substantially all of
which are being serviced for unaffiliated persons.
The principal executive offices of [Countrywide are located at 155 North
Lake Avenue, Pasadena, California 91101-7139.]
Countrywide initially services substantially all of the mortgage loans it
originates or acquires. In addition, Countrywide maintains a program of
purchasing in bulk the rights to service mortgage loans originated by other
lenders. Servicing includes collecting and remitting loan payments, accounting
for principal and interest, holding escrow (impound) funds for payment of taxes
and insurance, making inspections as required of the mortgaged premises,
contacting delinquent mortgagors, supervising foreclosures in the event of
unremedied defaults and generally administering the loans, for which Countrywide
receives servicing fees. Countrywide has in the past and may in the future sell
to other mortgage bankers a portion of its portfolio of loan servicing rights.
In addition, see 'The Pooling and Servicing Agreement -- Evidence as to
Compliance' in the Prospectus for a description of the annual servicing report
and the report of the independent public accountants required to be provided by
Countrywide in its capacity as Master Servicer under the Agreement.]
MORTGAGE LOAN PRODUCTION
The following table sets forth, by number and dollar amount of mortgage
loans, [Countrywide's] residential mortgage loan production for the periods
indicated.
S-14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
-------------------------------------------------------------
--------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT AVERAGE LOAN BALANCE)
<S> <C> <C> <C> <C> <C>
FHA/VA Loans
Number of Loans..............................
Volume of Loans.............................. $ $ $ $ $
Conventional Loans
Number of Loans..............................
Volume of Loans.............................. $ $ $ $ $
Total Loans
Number of Loans..............................
Volume of Loans.............................. $ $ $ $ $
Average Loan Balance.............................. $ $ $ $ $
</TABLE>
FORECLOSURE AND DELINQUENCY EXPERIENCE
Historically, a variety of factors, including the appreciation of real
estate values, have limited the Master Servicer's loss and delinquency
experience on its portfolio of serviced mortgage loans. There can be no
assurance that factors beyond the Master Servicer's control, such as national or
local economic conditions or downturns in the real estate markets of its lending
areas, will not result in increased rates of delinquencies and foreclosure
losses in the future.
Over the last several years, there has been a general deterioration of the
real estate market and weakening of the economy in many regions of the country,
including California. The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and economy
continue to decline, the Master Servicer may experience an increase in
delinquencies on the loans it services and higher net losses on liquidated
loans.
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of conventional mortgage loans serviced or
master serviced by the Master Servicer. The delinquency and foreclosure
percentages may be affected by the size and relative lack of seasoning of the
servicing portfolio which increased from approximately $ billion at
to approximately $ billion at and to
approximately $ billion at . Accordingly, the
information should not be considered as a basis for assessing the likelihood,
amount or severity of delinquency or losses on the Mortgage Loans and no
assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
<TABLE>
<CAPTION>
--------------------------------------------
AT FEBRUARY 28 (29),
--------------------------------------------
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent Mortgage Loans and Pending Foreclosures at Period End(1):
30-59 days...................................................... % % % % %
60-89 days......................................................
90 days or more (excluding pending foreclosures)................
---- ---- ---- ---- ----
Total of delinquencies..................................... % % % % %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Foreclosures pending................................................. % % % % %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Total delinquencies and foreclosures pending......................... % % % % %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- ------------
(1) As a percentage of the total number of loans serviced.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Pool are payable out of the
interest payments on each Mortgage Loan. The Expense Fees will be % per
annum of the Stated Principal Balance of each Mortgage
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Loan. The Expense Fees consist of (a) servicing compensation payable to the
Master Servicer in respect of its master servicing activities (the 'Master
Servicing Fee') and (b) fees payable to the Trustee in respect of its activities
as trustee under the Agreement. The Master Servicing Fee will be % per annum
of the Stated Principal Balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Agreement and such amounts will be paid by the Master Servicer out of the
Master Servicing Fee. The amount of the Master Servicing Fee is subject to
adjustment with respect to prepaid Mortgage Loans, as described herein under
' -- Adjustment to Master Servicing Fee in Connection with Certain Prepaid
Mortgage Loans.' The Master Servicer is also entitled to receive, as additional
servicing compensation, all late payment fees, assumption fees and other similar
charges and all reinvestment income earned on amounts on deposit in the
Certificate Account and Distribution Account. The Net Mortgage Rate of a
Mortgage Loan is the Mortgage Rate thereof minus the Expense Fees with respect
to such Mortgage Loan (expressed as a per annum percentage of the Stated
Principal Balance thereof).
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Except with respect to the month of the Cut-off Date,
principal prepayments by borrowers received by the Master Servicer from the
first day through the fifteenth day of a calendar month will be distributed to
Certificateholders on the Distribution Date in the same month in which such
prepayments are received and, accordingly, no shortfall in the amount of
interest to be distributed to Certificateholders with respect to the prepaid
Mortgage Loans results. Conversely, principal prepayments by borrowers received
by the Master Servicer from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of a calendar
month will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt and, accordingly, a shortfall in the amount
of interest to be distributed to Certificateholders with respect to such prepaid
Mortgage Loans would result. Pursuant to the Agreement, the Master Servicing Fee
for any month will be reduced, but not by more than [one-half] of such Master
Servicing Fee, by an amount sufficient to pass through to Certificateholders the
full amount of interest to which they would be entitled in respect of each such
prepaid Mortgage Loan on the related Distribution Date. If shortfalls in
interest as a result of prepayments in any Prepayment Period exceed an amount
equal to one-half of the Master Servicing Fee otherwise payable on the related
Distribution Date, the amount of interest available to be distributed to
Certificateholders will be reduced by the amount of such excess. See
'Description of the Certificates -- Interest' herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds or funds in the
Certificate Account that do not constitute Available Funds for such Distribution
Date, an amount equal to the aggregate of payments of principal and interest on
the Mortgage Loans (net of the Master Servicing Fee with respect to the related
Mortgage Loans) which were due on the related Due Date and which were delinquent
on the related Determination Date, together with an amount equivalent to
interest on each Mortgage Loan as to which the related Mortgaged Property has
been acquired by the Trust Fund through foreclosure or deed-in-lieu of
foreclosure ('REO Property') (any such advance, an 'Advance').
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan to the
extent that such Advances are, in its reasonable judgment, recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to Certificateholders on the related Distribution Date. Any failure
by the Master Servicer to make an Advance as required under the Agreement with
respect to the Certificates will constitute an Event of Default thereunder, in
which case the Trustee or the successor master servicer will be obligated to
make any such Advance, in accordance with the terms of the Agreement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series will consist of the
Class A- , Class , Class PO, Class X and Class A-R Certificates
(collectively, the 'Senior Certificates') and the Class B- , Class and Class
Certificates (collectively, the 'Subordinated Certificates'). The Senior
Certificates and Subordinated Certificates are collectively referred to herein
as the 'Certificates.' Only the Classes of Certificates listed on the cover page
hereof (collectively, the 'Offered Certificates') are offered hereby. The
Classes of Offered Certificates will have the respective initial Class
Certificate Balances or initial Notional Amounts (subject to the permitted
variance) and Pass-Through Rates set forth or described on the cover hereof.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof (A) reduced
by the sum of (i) all amounts previously distributed to holders of Certificates
of such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Class of Subordinated Certificates, any amounts allocated to such Class in
reduction of its Class Certificate Balance in respect of payments of Class PO
Deferred Amounts, as described below under ' -- Allocation of Losses'. In
addition, the Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation will
be reduced if and to the extent that the aggregate of the Class Certificate
Balances of all Classes of Certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the Pool Principal
Balance as of the Due Date occurring in the month of such Distribution Date. The
Notional Amount Certificates do not have principal balances and are not entitled
to any distributions in respect of principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans with respect to such Distribution Date. The initial
Notional Amount of the Class X Certificates will be equal to the aggregate of
the Stated Principal Balance of the Non-Discount Mortgage Loans as of the
Cut-off Date.
The Senior Certificates will have an initial aggregate principal balance of
approximately $ and will evidence in the aggregate an initial
beneficial ownership interest of approximately % in the Trust Fund. The
Class B- , Class and Class Certificates will each evidence in the
aggregate an initial beneficial ownership interest of approximately %,
%, %, %, %, and %, respectively, in the Trust Fund.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form. The
Physical Certificates (other than Class A-R Certificates) offered hereby will be
issued in minimum dollar denominations of $25,000 and integral multiples of
$1,000 in excess thereof. A single Certificate of each such Class may be issued
in an amount different than described above. The Class A-R Certificates will be
issued as a single Certificate in a denomination of $1,000.
SEPARATE REMIC STRUCTURE
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, each of which will be treated as a separate REMIC. The assets of
the Subsidiary REMIC will generally consist of the Mortgage Loans. The assets of
the Master REMIC will generally consist of uncertified regular interests issued
by the Subsidiary REMIC, which in the aggregate will correspond to the
Certificates.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the 'Depository'). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the
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book-entry facilities of the Depository, as described herein. Investors may hold
such beneficial interests in the Book-Entry Certificates in minimum
denominations representing an original principal amount of $25,000 and integral
multiples of $1,000 in excess thereof. One investor of each Class of Book-Entry
Certificates may hold a beneficial interest therein that is not an integral
multiple of $1,000. The Depositor has been informed by the Depository that its
nominee will be CEDE & Co. ('CEDE'). Accordingly, CEDE is expected to be the
holder of record of the Book-Entry Certificates. Except as described in the
Prospectus under 'Description of the Certificates -- Book-Entry Certificates,'
no person acquiring a Book-Entry Certificate (each, a 'beneficial owner') will
be entitled to receive a physical certificate representing such Certificate (a
'Definitive Certificate').
Unless and until Definitive Certificates are issued, it is anticipated that
the only 'Certificateholder' of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Agreement. Beneficial
owners are only permitted to exercise the rights of Certificateholders
indirectly through Financial Intermediaries and the Depository. Monthly and
annual reports on the Trust Fund provided to CEDE, as nominee of the Depository,
may be made available to beneficial owners upon request, in accordance with the
rules, regulations and procedures creating and affecting the Depository, and to
the Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such beneficial owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see 'Description of the Certificates -- Book-Entry Certificates'
in the Prospectus.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the 'Certificate Account'), which will be maintained in trust for the
benefit of the Certificateholders. Funds credited to the Certificate Account may
be invested for the benefit and at the risk of the Master Servicer in Permitted
Investments, as defined in the Agreement, that are scheduled to mature on or
prior to the business day preceding the next Distribution Date. On or prior to
the business day immediately preceding each Distribution Date, the Master
Servicer will withdraw from the Certificate Account the amount of Available
Funds and will deposit such Available Funds in an account established and
maintained with the Trustee on behalf of the Certificateholders (the
'Distribution Account').
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the 25th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in 199 (each, a 'Distribution Date'), to the
persons in whose names such Certificates are registered at the close of business
on the last business day of the month preceding the month of such Distribution
Date (the 'Record Date').
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $1,000,000 or more or who holds an Interest Only
Certificate and who has so notified the Trustee in writing in accordance with
the Agreement, by wire transfer in immediately available funds to the account of
such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentment and surrender of such Certificates at the Corporate Trust Office of
the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Distribution Date from Available Funds in the following order of priority: (i)
to interest on each interest bearing Class of Senior Certificates; (ii) to
principal on the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set forth
herein under ' -- Principal,' in each case in an aggregate amount up to the
maximum amount of principal to be distributed on such Classes on such
Distribution Date; (iii) to any Class PO Deferred Amounts with respect to the
Class PO Certificates, but only from amounts that would otherwise be distributed
on such Distribution Date as principal of the Subordinated Certificates; and
(iv) to interest on and then principal of each Class of Subordinated
Certificates, in the order of their numerical Class designations,
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beginning with the Class Certificates, in each case subject to the
limitations set forth herein under 'Description of the Certificates --
Principal.'
'Available Funds' with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the Master Servicer's normal servicing procedures
(collectively, 'Insurance Proceeds') and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ('Liquidation Proceeds') during the calendar month
preceding the month of such Distribution Date (in each case, net of unreimbursed
expenses incurred in connection with a liquidation or foreclosure and
unreimbursed Advances, if any); (iii) all partial or full prepayments received
during the month preceding the month of such Distribution Date; and (iv) amounts
received with respect to such Distribution Date as the Substitution Adjustment
Amount or purchase price in respect of a Deleted Mortgage Loan or a Mortgage
Loan repurchased by the Seller or the Master Servicer as of such Distribution
Date, reduced by amounts in reimbursement for Advances previously made and other
amounts as to which the Master Servicer is entitled to be reimbursed from the
Certificate Account pursuant to the Agreement.
INTEREST
The Classes of Offered Certificates will have the respective Pass-Through
Rates set forth or described on the cover hereof.
The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Net Mortgage Rates of
the Non-Discount Mortgage Loans, weighted on the basis of the Stated Principal
Balances thereof, over (b) % per annum. The Pass-Through Rate for the Class
X Certificates for the first Distribution Date is expected to be approximately
% per annum. The Net Mortgage Rate for each Mortgage Loan is the Mortgage
Rate thereof (net of the interest premium charged by the related lenders with
respect to the Lender PMI Mortgage Loans) less the Expense Fee Rate for such
Mortgage Loan.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the 'Interest Distribution
Amount') with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest bearing Class will be equal to the sum of
(i) interest at the applicable Pass-Through Rate on the related Class
Certificate Balance or Notional Amount, as the case may be, and (ii) the sum of
the amounts, if any, by which the amount described in clause (i) above on each
prior Distribution Date exceeded the amount actually distributed as interest on
such prior Distribution Dates and not subsequently distributed ('Unpaid Interest
Amounts'). The Class PO Certificates are Principal Only Certificates and will
not bear interest.
With respect to each Distribution Date, the 'Interest Accrual Period' for
each interest bearing Class of Certificates will be the calendar month preceding
the month of such Distribution Date.
The interest entitlement described above for each Class of Certificates for
any Distribution Date will be reduced by the amount of 'Net Interest Shortfalls'
for such Distribution Date. With respect to any Distribution Date, the 'Net
Interest Shortfall' is equal to (i) the amount of interest that would otherwise
have been received with respect to any Mortgage Loan that was the subject of (x)
a Relief Act Reduction or (y) a Special Hazard Loss, Fraud Loss, Debt Service
Reduction or Deficient Valuation, after the exhaustion of the respective amounts
of coverage provided by the Subordinated Certificates for such types of losses
and (ii) any Net Prepayment Interest Shortfalls with respect to such
Distribution Date. A 'Relief Act Reduction' is a reduction in the amount of
monthly interest payment on a Mortgage Loan pursuant to the Soldiers' and
Sailors' Civil Relief Act of 1940. See 'Certain Legal Aspects of the Mortgage
Loans -- Soldiers' and Sailors' Civil Relief Act' in the Prospectus. With
respect to any Distribution Date, a 'Net Prepayment Interest Shortfall' is the
amount by which the aggregate of Prepayment Interest Shortfalls during the
calendar month preceding the month of such Distribution Date exceeds the
aggregate amount payable on such Distribution Date by the Master Servicer as
described under 'Servicing of Mortgage Loans -- Adjustment to Master Servicing
Fee in Connection with Certain Prepaid
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Mortgage Loans.' A 'Prepayment Interest Shortfall' is the amount by which
interest paid by a borrower in connection with a prepayment of principal on a
Mortgage Loan is less than one month's interest at the related Mortgage Rate on
the Stated Principal Balance of such Mortgage Loan. Each Class' pro rata share
of such Net Interest Shortfalls will be based on the amount of interest such
Class otherwise would have been entitled to receive on such Distribution Date.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Certificate Balance or Notional Amount, as
applicable, immediately prior to such Distribution Date. Interest will be
calculated and payable on the basis of a 360-day year divided into twelve 30-day
months.
In the event that, on a particular Distribution Date, Available Funds in
the Certificate Account applied in the order described above under ' -- Priority
of Distributions Among Certificates' are not sufficient to make a full
distribution of the interest entitlement on the Certificates, interest will be
distributed on each Class of Certificates of equal priority based on the amount
of interest each such Class would otherwise have been entitled to receive in the
absence of such shortfall. Any Unpaid Interest Amount will be carried forward
and added to the amount holders of each such Class of Certificates will be
entitled to receive on the next Distribution Date. Such a shortfall could occur,
for example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any Unpaid Interest Amount so carried
forward will not bear interest.
PRINCIPAL
General. All payments and other amounts received in respect of principal of
the Mortgage Loans will be allocated between (i) the Senior Certificates (other
than the Notional Amount Certificates and the Class PO Certificates) and the
Subordinated Certificates and (ii) the Class PO Certificates, in each case based
on the applicable Non-PO Percentage and the applicable PO Percentage,
respectively, of such amounts.
The Non-PO Percentage with respect to any Mortgage Loan with a Net Mortgage
Rate ('NMR') less than % (each such Mortgage Loan, a 'Discount Mortgage
Loan') will be equal to NMR [div] %. The Non-PO Percentage with respect to
any Mortgage Loan with a Net Mortgage Rate equal to or greater than % (each
such Mortgage Loan, a 'Non-Discount Mortgage Loan') will be 100%. The PO
Percentage with respect to any Discount Mortgage Loan will be equal to
( % - NMR) [div] %. The PO Percentage with respect to any Non-Discount
Mortgage Loan will be 0%.
Non-PO Formula Principal Amount. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates) and the Subordinated Certificates, to the extent of the amount
available from Available Funds for the distribution of principal on such
respective Classes, as described below.
The Non-PO Formula Principal Amount for any Distribution Date will equal
the sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Due Date, (b) the principal
portion of the purchase price of each Mortgage Loan that was repurchased by the
Seller or another person pursuant to the Agreement as of such Distribution Date,
(c) the Substitution Adjustment Amount in connection with any Deleted Mortgage
Loan received with respect to such Distribution Date, (d) any Insurance Proceeds
or Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of the Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan and (f) all
partial and full principal prepayments by borrowers received during the related
Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date prior to
the Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Senior Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the following Classes of
Senior Certificates in the following order of priority:
(i) to the Class A-R Certificates until the Class Certificate Balance
thereof has been reduced to zero;
(ii) concurrently, to the Class and Class Certificates, pro rata
based on their respective Class Certificate Balances, until the Class
Certificate Balances thereof have been reduced to zero;
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(iii) sequentially, to the Class Certificates, in that order, until
the respective Class Certificate Balance thereof has been reduced to zero;
(iv) sequentially, to the Class and Class Certificates, in that
order, until the respective Class Certificate Balance has been reduced to
zero; and
(v) to the Class Certificates until the Class Certificate Balance
thereof has been reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates), pro
rata, in accordance with their respective Class Certificate Balances immediately
prior to such Distribution Date.
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of 'Non-PO
Formula Principal Amount' for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage or (B)
if an Excess Loss was sustained with respect to such Liquidated Mortgage Loan
during such preceding calendar month, the Senior Percentage of the applicable
Non-PO Percentage of the amount of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of amounts described
in clause (f) of the definition of 'Non-PO Formula Principal Amount' for such
Distribution Date; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Mortgage Loan that is not a
Liquidated Mortgage Loan, the Senior Principal Distribution Amount will be
reduced on the related Distribution Date by the Senior Percentage of the
applicable Non-PO Percentage of the principal portion of such Bankruptcy Loss.
'Stated Principal Balance' means as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial prepayments and
Liquidation Proceeds received and to the payment of principal due on such Due
Date and irrespective of any delinquency in payment by the related Mortgagor.
The Pool Principal Balance with respect to any Distribution Date equals the
aggregate of the Stated Principal Balances of the Mortgage Loans outstanding on
the Due Date in the month preceding the month of such Distribution Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the Class
PO Certificates) immediately prior to such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates,
other than the Class PO Certificates, immediately prior to such date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates which receive these unscheduled payments of principal (other than
the Class PO Certificates) while, in the absence of Realized Losses, increasing
the interest in the Pool Principal Balance evidenced by the Subordinated
Certificates. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the fifth anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the second year thereafter, the Senior Percentage plus 60%
of the Subordinated Percentage for such Distribution Date; for any Distribution
Date in the third year thereafter, the Senior Percentage plus 40% of the
Subordinated
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Percentage for such Distribution Date; for any Distribution Date in the fourth
year thereafter, the Senior Percentage plus 20% of the Subordinated Percentage
for such Distribution Date; and for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage will occur if (i) the outstanding principal balance of all
Mortgage Loans delinquent 60 days or more (averaged over the preceding six month
period), as a percentage of the aggregate principal balance of the Subordinated
Certificates (averaged over the preceding six month period), is equal to or
greater than 50%, or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to the Distribution Date on the fifth
anniversary of the first Distribution Date, 30% of the aggregate of the
principal balances of the Subordinated Certificates as of the Cut-off Date (the
'Original Subordinated Principal Balance'), (b) with respect to the Distribution
Date on the sixth anniversary of the first Distribution Date, 35% of the
Original Subordinated Principal Balance, (c) with respect to the Distribution
Date on the seventh anniversary of the first Distribution Date, 40% of the
Original Subordinated Principal Balance, (d) with respect to the Distribution
Date on the eighth anniversary of the first Distribution Date, 45% of the
Original Subordinated Principal Balance, and (e) with respect to the
Distribution Date on the ninth anniversary of the first Distribution Date, 50%
of the Original Subordinated Principal Balance. The Subordinated Prepayment
Percentage as of any Distribution Date will be calculated as the difference
between 100% and the Senior Prepayment Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal of full and partial
principal prepayments and other amounts in the percentage required above would
reduce the outstanding Class Certificate Balance of such Class below zero, the
distribution to such Class of Certificates of the Senior Prepayment Percentage
of such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount, up
to the amount of the Subordinated Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the Subordinated
Certificates. Except as provided in the next paragraph, each Class of
Subordinated Certificates will be entitled to receive its pro rata share of the
Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of the
Subordinated Certificates will be made sequentially to the Classes of
Subordinated Certificates in the order of their numerical Class designations,
beginning with the Class Certificates, until the respective Class Certificate
Balances thereof are reduced to zero. The Subordinated Percentage for any
Distribution Date will be calculated as the difference between 100% and the
Senior Percentage.
With respect to each Class of Subordinated Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of such
Class and all Classes of Subordinated Certificates which have higher numerical
Class designations than such Class (the 'Applicable Credit Support Percentage')
is less than the Applicable Credit Support Percentage for such Class on the date
of issuance of the Certificates (the 'Original Applicable Credit Support
Percentage'), no distribution of partial principal prepayments and principal
prepayments in full will be made to any such Classes (the 'Restricted Classes')
and the amount of partial principal prepayments and principal prepayments in
full otherwise distributable to the Restricted Classes will be allocated among
the remaining Classes of Subordinated Certificates, pro rata, based upon their
respective Class Certificate Balances, and distributed in the sequential order
described above.
The Class Subordination Percentage with respect to any Distribution Date
and each Class of Subordinated Certificates, will equal the fraction (expressed
as a percentage) the numerator of which is the Class Certificate Balance of such
Class of Subordinated Certificates immediately prior to such Distribution Date
and the denominator of which is the aggregate of the Class Certificate Balances
of all Classes of Certificates immediately prior to such Distribution Date.
S-22
<PAGE>
<PAGE>
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates on the date of issuance of the Certificates are
expected to be as follows:
<TABLE>
<S> <C>
Class ....................................................................... %
Class ....................................................................... %
Class ....................................................................... %
Class ....................................................................... %
Class ....................................................................... %
Class ....................................................................... %
</TABLE>
The Subordinated Principal Distribution Amount for any Distribution Date
will equal (A) the sum of (i) the Subordinated Percentage of the applicable
Non-PO Percentage of all amounts described in clauses (a) through (d) of the
definition of 'Non-PO Formula Principal Amount' for such Distribution Date, (ii)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the applicable
Non-PO Percentage of the Liquidation Proceeds allocable to principal received
with respect to such Mortgage Loan, after application of such amounts pursuant
to clause (ii) of the definition of Senior Principal Distribution Amount, up to
the Subordinated Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of such Mortgage Loan and (iii) the Subordinated Prepayment
Percentage of the applicable Non-PO Percentage of the amounts described in
clause (f) of the definition of 'Non-PO Formula Principal Amount' for such
Distribution Date reduced by (B) the amount of any payments in respect of Class
PO Deferred Amounts on the related Distribution Date.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions of
interest and principal as described above, on each Distribution Date, the
holders of the Class A-R Certificates will be entitled to receive any Available
Funds remaining after payment of interest and principal on the Senior
Certificates and Class PO Deferred Amounts on the Class PO Certificates and
interest and principal on the Subordinated Certificates, as described above. It
is not anticipated that there will be any significant amounts remaining for any
such distribution.
Class PO Principal Distribution Amount. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount (the 'Class PO Principal Distribution Amount') equal to the lesser of (x)
the PO Formula Principal Amount for such Distribution Date and (y) the product
of (i) Available Funds remaining after distribution of interest on the Senior
Certificates and (ii) a fraction, the numerator of which is the PO Formula
Principal Amount and the denominator of which is the sum of the PO Formula
Principal Amount and the Senior Principal Distribution Amount.
If the Class PO Principal Distribution Amount on a Distribution Date is
calculated as provided in clause (y) above, principal distributions to holders
of the Senior Certificates (other than the Class PO Certificates) will be in an
amount equal to the product of (i) Available Funds remaining after distribution
of interest on the Senior Certificates and (ii) a fraction, the numerator of
which is the Senior Principal Distribution Amount and the denominator of which
is the sum of the Senior Principal Distribution Amount and the PO Formula
Principal Amount.
The PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable PO Percentage of (a) all monthly payments of principal due
on each Mortgage Loan on the related Due Date, (b) the principal portion of the
purchase price of each Mortgage Loan that was repurchased by the Seller or
another person pursuant to the Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan and (f) all
partial and full principal prepayments by borrowers received during the related
Prepayment Period; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Discount Mortgage Loan that is not a
Liquidated Mortgage Loan, the PO Formula Principal Amount will be reduced on the
related Distribution Date by the applicable PO Percentage of the principal
portion of such Bankruptcy Loss.
S-23
<PAGE>
<PAGE>
ALLOCATION OF LOSSES
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount Mortgage Loan will be allocated
to the Class PO Certificates until the Class Certificate Balance thereof is
reduced to zero. The amount of any such Realized Loss, other than an Excess
Loss, allocated on or prior to the Senior Credit Support Depletion Date will be
treated as a Class PO Deferred Amount. To the extent funds are available on such
Distribution Date or on any future Distribution Date from amounts that would
otherwise be allocable to the Subordinated Principal Distribution Amount, Class
PO Deferred Amounts will be paid on the Class PO Certificates prior to
distributions of principal on the Subordinated Certificates. Any distribution of
Available Funds in respect of unpaid Class PO Deferred Amounts will not further
reduce the Class Certificate Balance of the Class PO Certificates. The Class PO
Deferred Amounts will not bear interest. The Class Certificate Balance of the
Class of Subordinated Certificates then outstanding with the highest numerical
Class designation will be reduced by the amount of any payments in respect of
Class PO Deferred Amounts. After the Senior Credit Support Depletion Date, no
new Class PO Deferred Amounts will be created.
On each Distribution Date, the applicable Non-PO Percentage of any Realized
Loss, other than any Excess Loss, will be allocated first to the Subordinated
Certificates, in the reverse order of their numerical Class designations
(beginning with the Class of Subordinated Certificates then outstanding with the
highest numerical Class designation), in each case until the Class Certificate
Balance of the respective Class of Certificates has been reduced to zero, and
then to the Senior Certificates (other than the Notional Amount Certificates and
the Class PO Certificates) pro rata, based upon their respective Class
Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the Subordinated Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain Classes of Certificates
(other than the Class PO Certificates) before other Classes of Certificates,
holders of such Certificates that are entitled to receive principal later bear a
greater risk of being allocated Realized Losses on the Mortgage Loans than
holders of Classes that are entitled to receive principal earlier.
Realized Losses allocated to a Class of Certificates comprised of multiple
payment Components will be allocated pro rata among the Components of such Class
of Certificates based on their respective Component Balances.
In general, a 'Realized Loss' means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of Liquidation Proceeds applied to the principal balance
of the related Mortgage Loan. 'Excess Losses' are (i) Special Hazard Losses in
excess of the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in
excess of the Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess
of the Fraud Loss Coverage Amount. 'Bankruptcy Losses' are losses that are
incurred as a result of Debt Service Reductions and Deficient Valuations.
'Special Hazard Losses' are Realized Losses in respect of Special Hazard
Mortgage Loans. 'Fraud Losses' are losses sustained on a Liquidated Mortgage
Loan by reason of a default arising from fraud, dishonesty or misrepresentation.
See 'Credit Enhancement -- Subordination of Certain Classes' herein.
A 'Liquidated Mortgage Loan' is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A 'Special Hazard Mortgage Loan' is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under 'Credit
Enhancement -- Special Hazard Insurance Policies.' See 'Credit
Enhancement -- Subordination of Certain Classes' herein.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional
S-24
<PAGE>
<PAGE>
assumptions (collectively, the 'Structuring Assumptions'): (i) the Mortgage Pool
consists of Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
PRINCIPAL NET TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) LOAN AGE
- --------------- ------------- ------------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ % %
$ % %
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant percentages of SPA,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in 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, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated such
that each Mortgage Loan will amortize in amounts sufficient to repay the current
balance of such Mortgage Loan by its respective remaining term to maturity,
(viii) the initial Class Certificate Balance or Notional Amount, as applicable,
of each Class of Certificates is as set forth on the cover page hereof and under
'Summary of Terms -- Certificates other than the Offered Certificates', (ix)
interest accrues on each interest bearing Class of Certificates at the
applicable interest rate set forth or described on the cover hereof and as
described herein, (x) distributions in respect of the Certificates are received
in cash on the day of each month commencing in the calendar month following
the Closing Date, (xi) the closing date of the sale of the Offered Certificates
is the date set forth under 'Summary of Terms -- Closing Date,' (xii) the Seller
is not required to repurchase or substitute for any Mortgage Loan, (xiii) the
Master Servicer does not exercise the option to repurchase the Mortgage Loans
described herein under ' -- Optional Purchase of Defaulted Loans' and
' -- Optional Termination' and (xiv) no Class of Certificates becomes a
Restricted Class. While it is assumed that each of the Mortgage Loans prepays at
the specified constant percentages of SPA, this is not likely to be the case.
Moreover, discrepancies may exist between the characteristics of the actual
Mortgage Loans which will be delivered to the Trustee and characteristics of the
Mortgage Loans used in preparing the tables herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Standard Prepayment Assumption ('SPA'), which represents an assumed rate of
prepayment each month of the then outstanding principal balance of a pool of new
mortgage loans. SPA does not purport to be either a historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. 100% SPA assumes prepayment rates of 0.2% per annum of the then
unpaid principal balance of such pool of mortgage loans in the first month of
the life of such mortgage loans and an additional 0.2% per annum in each month
thereafter (for example, 0.4% per annum in the second month) until the 30th
month. Beginning in the 30th month and in each month thereafter during the life
of such mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per
annum. Multiples may be calculated from this prepayment rate sequence. For
example, % SPA assumes prepayment rates will be % per annum in month one,
% per annum in month two, and increasing by % in each succeeding month
until reaching a rate of % per annum in month 30 and remaining constant at
% per annum thereafter. 0% SPA assumes no prepayments. There is no assurance
that prepayments will occur at any SPA rate or at any other constant rate.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage Rate
from the date through which interest was last paid by the related mortgagor or
advanced (and not reimbursed) to the first day of the month in which such amount
is to be distributed.
S-25
<PAGE>
<PAGE>
OPTIONAL TERMINATION
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect early
retirement of the Certificates, subject to the Pool Principal Balance of such
Mortgage Loans and REO Properties at the time of repurchase being less than or
equal to 10% of the Cut-off Date Pool Principal Balance. In the event the Master
Servicer exercises such option, the purchase price distributed with respect to
each Certificate will be 100% of its then outstanding principal balance plus any
Class PO Deferred Amounts in the case of the Class PO Certificates and, in the
case of an interest bearing Certificate, any unpaid accrued interest thereon at
the applicable Pass-Through Rate (in each case subject to reduction as provided
in the Agreement if the purchase price is based in part on the appraised value
of any REO Properties and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loans). Distributions on the Certificates in
respect of any such optional termination will first be paid to the Senior
Certificates and then to the Subordinated Certificates. The proceeds from any
such distribution may not be sufficient to distribute the full amount to which
each Class of Certificates is entitled if the purchase price is based in part on
the appraised value of any REO Property and such appraised value is less than
the Stated Principal Balance of the related Mortgage Loan.
THE TRUSTEE
The Bank of New York will be the Trustee under the Agreement. The Depositor
and the Master Servicer may maintain other banking relationships in the ordinary
course of business with The Bank of New York. Offered Certificates may be
surrendered at the Corporate Trust Office of the Trustee located at 101 Barclay
Street, 12W, New York, New York 10286, Attention: Corporate Trust Administration
or at such other addresses as the Trustee may designate from time to time.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on transfer
described in the Prospectus under 'Certain Federal Income Tax
Consequences -- REMIC Certificates -- Tax-Related Restrictions on Transfers of
Residual Certificates -- Disqualified Organizations,' ' -- Noneconomic Residual
Interests' and ' -- Foreign Investors.' The Agreement provides that the Class
A-R Certificates (in addition to certain other Classes of Certificates) may not
be acquired by an ERISA Plan. See 'ERISA Considerations' herein. Each Class A-R
Certificate will contain a legend describing the foregoing restrictions.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of the interest bearing Certificates
will be lower than the yield otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the day (or, if such day is not a business day, the following business
day) of the month following the month in which interest accrues on the Mortgage
Loans (without any additional distribution of interest or earnings thereon in
respect of such delay).
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinated Certificates, in the reverse order of their
numerical Class designations, and then by the Senior Certificates. If, as a
result of such shortfalls, the aggregate of the Class Certificate Balances of
all Classes of Certificates exceeds the Pool Principal Balance, the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
such excess.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinated Certificates, in the reverse order of their numerical Class
designations (either directly or through distributions in respect of Class PO
Deferred Amounts on the Class PO Certificates), Excess Losses will be borne by
all Classes of Certificates (other than the Notional Amount
S-26
<PAGE>
<PAGE>
Certificates) on a pro rata basis. Moreover, since the Subordinated Principal
Distribution Amount for each Distribution Date will be reduced by the amount of
any distributions on such Distribution Date in respect of Class PO Deferred
Amounts, the amount distributable as principal on each such Distribution Date to
each Class of Subordinated Certificates then entitled to a distribution of
principal will be less than it otherwise would be in the absence of such Class
PO Deferred Amounts. As a result, the yields on the Offered Certificates will
depend on the rate and timing of Realized Losses, including Excess Losses.
Excess Losses could occur at a time when one or more Classes of Subordinated
Certificates are still outstanding and otherwise available to absorb other types
of Realized Losses.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity of
the Offered Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of principal prepayments (including for this purpose
prepayments resulting from refinancing, liquidations of the Mortgage Loans due
to defaults, casualties, condemnations and repurchases by the Seller or Master
Servicer). The Mortgage Loans may be prepaid by the Mortgagors at any time
without a prepayment penalty. The Mortgage Loans are subject to the
'due-on-sale' provisions included therein. See 'The Mortgage Pool' herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described herein) will result in
distributions on the Offered Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal of the Mortgage Loans will depend on future
events and a variety of factors, no assurance can be given as to such rate or
the rate of principal prepayments. The extent to which the yield to maturity of
a Class of Offered Certificates may vary from the anticipated yield will depend
upon the degree to which such Offered Certificate is purchased at a discount or
premium, and the degree to which the timing of payments thereon is sensitive to
prepayments, liquidations and purchases of the Mortgage Loans. Further, an
investor should consider the risk that, in the case of the Principal Only
Certificates and any other Offered Certificate purchased at a discount, a slower
than anticipated rate of principal payments (including prepayments) on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of the Interest Only Certificates
and any other Offered Certificate purchased at a premium, a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. Investors in the Interest
Only Certificates should carefully consider the risk that a rapid rate of
principal payments on the Mortgage Loans could result in the failure of such
investors to recover their initial investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary signifiantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. In addition, Countrywide's
Streamlined Documentation Program may affect the rate of prepayments on the
Mortgage Loans. In general, if prevailing interest rates were to fall
significantly below the Mortgage Rates on the Mortgage Loans, the Mortgage Loans
could be subject to higher prepayment rates than if prevailing interest rates
were to remain at or above the Mortgage Rates on the Mortgage Loans. Conversely,
if prevailing interest rates were to rise significantly, the rate of prepayments
on the Mortgage Loans would generally be expected to decrease. No assurances can
be given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.
As described herein under 'Description of the Certificates -- Principal,'
the Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of such principal prepayments being distributed to
holders of such Classes of Senior Certificates and none (or less than their pro
rata share) of such principal prepayments being distributed to holders of the
Subordinated Certificates during the periods of time described in the definition
of 'Senior Prepayment Percentage.'
S-27
<PAGE>
<PAGE>
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be offset
by a subsequent like decrease (or increase) in the rate of principal payments.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain Classes of Certificates to various
constant percentages of SPA. The yields set forth in the tables were calculated
by determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the applicable Classes of Certificates,
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed aggregate purchase prices of such Classes and converting
such monthly rates to corporate bond equivalent rates. Such calculations do not
take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
such Certificates and consequently do not purport to reflect the return on any
investment in any such Class of Certificate when such reinvestment rates are
considered.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES
AS INDICATED IN THE TABLE BELOW, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE NON-DISCOUNT MORTGAGE LOANS (PARTICULARLY THOSE WITH HIGH
NET MORTGAGE RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF
THE ASSUMPTIONS DESCRIBED BELOW, THE YIELD TO MATURITY ON THE CLASS X
CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT A
CONSTANT RATE OF APPROXIMATELY % SPA. IF THE ACTUAL PREPAYMENT RATE OF THE
NON-DISCOUNT MORTGAGE LOANS WERE TO EXCEED THE FOREGOING LEVEL FOR AS LITTLE AS
ONE MONTH WHILE EQUALING SUCH LEVEL FOR THE REMAINING MONTHS, THE INVESTORS IN
THE CLASS X CERTIFICATES WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
As described above under 'Description of the Certificates -- General,' the
Pass-Through Rate of the Class X Certificates in effect from time to time is
calculated by reference to the Net Mortgage Rates of the Non-Discount Mortgage
Loans. The Non-Discount Mortgage Loans will have higher Net Mortgage Rates (and
higher Mortgage Rates) than the other Mortgage Loans. In general, mortgage loans
with higher mortgage rates tend to prepay at higher rates than mortgage loans
with relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Non-Discount Mortgage Loans may prepay at
higher rates, thereby reducing the Pass-Through Rate and Notional Amount of the
Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the purchase
price of the Class X Certificates (expressed as a percentage of initial Notional
Amount) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
- ------------------------------------ ------
<S> <C>
Class X............................. %
</TABLE>
- ------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table below.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
SPA PREPAYMENT ASSUMPTION
--------------------------------------------------------
CLASS 0% % % % % %
- ----------------------------------- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Class X............................ % % % % % %
</TABLE>
It is unlikely that the Non-Discount Mortgage Loans will have the precise
characteristics described herein or that the Non-Discount Mortgage Loans will
all prepay at the same rate until maturity or that all of the Non-Discount
Mortgage Loans will prepay at the same rate or time. As a result of these
factors, the pre-tax yields on the Class X Certificates are likely to differ
from those shown in the table above, even if all of the Mortgage Loans prepay at
the indicated percentages of SPA. No representation is made as to the actual
rate of principal
S-28
<PAGE>
<PAGE>
payments on the Mortgage Loans for any period or over the lives of the Class X
Certificates or as to the yield on the Class X Certificates. Investors must make
their own decisions as to the appropriate prepayment assumptions to be used in
deciding whether to purchase the Class X Certificates.
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES
THE CLASS PO CERTIFICATES WILL BE 'PRINCIPAL ONLY' CERTIFICATES AND WILL
NOT BEAR INTEREST. AS INDICATED IN THE TABLE BELOW, A LOWER THAN ANTICIPATED
RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE DISCOUNT MORTGAGE
LOANS WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO INVESTORS IN THE PRINCIPAL
ONLY CERTIFICATES.
As described above under 'Description of the Certificates -- Principal,'
the Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market interest
rates. As a result, the Discount Mortgage Loans may prepay at lower rates,
thereby reducing the rate of payment of principal and the resulting yield of the
Class PO Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage of
initial Class Certificate Balance) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE
- ------------------------------------ ------
<S> <C>
Class PO............................ %
</TABLE>
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
SPA PREPAYMENT ASSUMPTION
------------------------------------------------
CLASS 0% % % % % %
- ----------------------------------------- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class PO................................. % % % % % %
</TABLE>
It is unlikely that the Discount Mortgage Loans will have the precise
characteristics described herein or that the Discount Mortgage Loans will all
prepay at the same rate until maturity or that all of such Discount Mortgage
Loans will prepay at the same rate or time. As a result of these factors, the
pre-tax yield on the Principal Only Certificates is likely to differ from those
shown in the table above, even if all of the Mortgage Loans prepay at the
indicated percentages of SPA. No representation is made as to the actual rate of
principal payments on the Mortgage Loans for any period or over the life of the
Principal Only Certificates or as to the yield on the Principal Only
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Principal
Only Certificates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Underwritten
Certificates with the Commission in a report on Form 8-K to be dated ,
19 . Such tables and materials were prepared by each Underwriter at the request
of certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, such prospective investors. Such tables
and assumptons may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifially requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the net reduction, if any, of the Class Certificate
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
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the aggregate amount of the net reductions in Class Certificate Balance of such
Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see ' -- Prepayment
Considerations and Risks' herein and 'Yield and Prepayment Considerations' in
the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates and the distribution of principal of
the Planned Principal Classes and the Targeted Principal Classes in accordance
with the Principal Balance Schedules herein. In particular, if the amount
available for distribution as principal of the Senior Certificates (other than
the Class PO Certificates) on any Distribution Date exceeds the amount required
to reduce the principal balances of the Planned Principal Classes and the
Targeted Principal Classes then entitled to receive a distribution of principal
to their respective scheduled balances as set forth in the Principal Balance
Schedules, such excess principal will be distributed on the remaining Classes of
Senior Certificates (other than the Class PO Certificates) on such Distribution
Date. Conversely, if the amount available for distribution of principal of the
Senior Certificates (other than the Class PO Certificates) on any Distribution
Date is less than the amount so required to reduce the Planned Principal Classes
and the Targeted Principal Classes then entitled to receive a distribution of
principal to their respective scheduled balances, no principal will be
distributed on such other Classes of Senior Certificates on such Distribution
Date. Accordingly, the rate of principal payments on the Mortgage Loans is
expected to have a greater effect on the weighted average life of the Support
Classes and under certain prepayment scenarios, the weighted average lives of
the Targeted Principal Classes, than on the weighted average lives of the
Planned Principal Classes.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant percentages of SPA, see the
Decrement Tables below.
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DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Notional Amount Certificates) that would be outstanding after each of the dates
shown at various constant percentages of SPA and the corresponding weighted
average lives of such Classes. The tables have been prepared on the basis of the
Structuring Assumptions. It is not likely that (i) the Mortgage Loans will have
the precise characteristics described herein or (ii) all of the Mortgage Loans
will prepay at a constant percentage of SPA. Moreover, the diverse remaining
terms to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the tables, which have been prepared using the
specified constant percentages of SPA, even if the remaining term to maturity of
the Mortgage Loans is consistent with the remaining terms to maturity of the
Mortgage Loans specified in the Structuring Assumptions.
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A- CLASS
DISTRIBUTION ------------------------------------------------ -------------------------------------------------
DATE 0% % % % % % 0% % % % % %
- ---------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............... % % % % % % % % % % % %
19 ...............
19 ...............
19 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
20 ...............
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(in years)**.........
</TABLE>
- ------------
* Rounded to the nearest whole percentage.
** Determined as specified under 'Weighted Average Lives of the Offered
Certificates' herein.
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LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the Distribution Date in , 20 , which is the Distribution Date in the
month following the latest scheduled maturity date for any of the
Mortgage Loans. Since the rate of distributions in reduction of the Class
Certificate Balance or Notional Amount of each Class of Offered Certificates
will depend on the rate of payment (including prepayments) of the Mortgage
Loans, the Class Certificate Balance or Notional Amount of any such Class could
be reduced to zero significantly earlier or later than the Last Scheduled
Distribution Date. The rate of payments on the Mortgage Loans will depend on
their particular characteristics, as well as on prevailing interest rates from
time to time and other economic factors, and no assurance can be given as to the
actual payment experience of the Mortgage Loans. See 'Yield, Prepayment and
Maturity Considerations -- Prepayment Considerations and Risks' and
' -- Weighted Average Lives of the Offered Certificates' herein and 'Yield and
Prepayment Considerations' in the Prospectus.
THE SUBORDINATED CERTIFICATES
The weighted average life of, and the yield to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. In general, the earlier a loss occurs, the greater the
effect on an investor's yield to maturity. Realized Losses on the Mortgage Loans
will reduce the Class Certificate Balances of the applicable Class of
Subordinated Certificates to the extent of any losses allocated thereto (as
described under 'Description of the Certificates -- Allocation of Losses'),
without the receipt of cash attributable to such reduction. In addition,
shortfalls in cash available for distributions on the Subordinated Certificates
will result in a reduction in the Class Certificate Balance of the Class of
Subordinated Certificates then outstanding with the highest numerical Class
designation if and to the extent that the aggregate of the Class Certificate
Balances of all Classes of Certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the Pool Principal
Balance as of the Due Date occurring in the month of such Distribution Date. As
a result of such reductions, less interest will accrue on such Class of
Subordinated Certificates than otherwise would be the case. The yield to
maturity of the Subordinated Certificates will also be affected by the
disproportionate allocation of principal prepayments to the Senior Certificates,
Net Interest Shortfalls, other cash shortfalls in Available Funds and
distribution of funds to Class PO Certificateholders otherwise available for
distribution on the Subordinated Certificates to the extent of reimbursement for
Class PO Deferred Amounts. See 'Description of the Certificates -- Allocation of
Losses' herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinated Certificates
will be allocated solely to such Class and all other Classes of Subordinated
Certificates with lower numerical Class designations, thereby accelerating the
amortization thereof relative to that of the Restricted Classes and reducing the
weighted average lives of such Classes of Subordinated Certificates receiving
such distributions. Accelerating the amortization of the Classes of Subordinated
Certificates with lower numerical Class designations relative to the other
Classes of Subordinated Certificates is intended to preserve the availability of
the subordination provided by such other Classes.
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinated Certificates (other than the Class B-1
Certificates) to receive such distributions will be further subordinated to such
rights of the Class or Classes of Subordinated Certificates with
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lower numerical Class designations, in each case only to the extent described
herein. The subordination of the Subordinated Certificates to the Senior
Certificates and the subordination of the Classes of Subordinated Certificates
with higher numerical Class designations to those with lower numerical Class
designations is intended to increase the likelihood of receipt, respectively, by
the Senior Certificateholders and the holders of Subordinated Certificates with
lower numerical Class designations of the maximum amount to which they are
entitled on any Distribution Date and to provide such holders protection against
Realized Losses, other than Excess Losses. In addition, the Subordinated
Certificates will provide limited protection against Special Hazard Losses,
Bankruptcy Losses and Fraud Losses up to the Special Hazard Loss Coverage
Amount, Bankruptcy Loss Coverage Amount and Fraud Loss Coverage Amount,
respectively, as described below. The applicable Non-PO Percentage of Realized
Losses, other than Excess Losses, will be allocated to the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation. In
addition, the Class Certificate Balance of such Class of Subordinated
Certificates will be reduced by the amount of distributions on the Class PO
Certificates in reimbursement for Class PO Deferred Amounts.
The Subordinated Certificates will provide limited protection to the
Classes of Certificates of higher relative priority against (i) Special Hazard
Losses in an initial amount expected to be up to approximately $ (the
'Special Hazard Loss Coverage Amount'), (ii) Bankruptcy Losses in an initial
amount expected to be up to approximately $ (the 'Bankruptcy Loss
Coverage Amount') and (iii) Fraud Losses in an initial amount expected to be up
to approximately $ (the 'Fraud Loss Coverage Amount').
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) the greatest
of (i) 1% of the aggregate of the principal balances of the Mortgage Loans, (ii)
twice the principal balance of the largest Mortgage Loan and (iii) the aggregate
principal balances of the Mortgage Loans secured by Mortgaged Properties located
in the single California postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Coverage Amount as of the Closing Date less the amount, if any, of losses
attributable to Special Hazard Mortgage Loans incurred since the Closing Date.
All principal balances for the purpose of this definition will be calculated as
of the first day of the month preceding such Distribution Date after giving
effect to scheduled installments of principal and interest on the Mortgage Loans
then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows: (a) on the first, second, third and fourth anniversaries of the
Cut-off Date, to an amount equal to the lesser of (i) 1% of the then current
Pool Principal Balance and (ii) the excess of the Fraud Loss Coverage Amount as
of the preceding anniversary of the Cut-off Date over the cumulative amount of
Fraud Losses allocated to the Certificates since such preceding anniversary and
(b) on the fifth anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the then
current ratings of the Certificates assigned by the Rating Agencies are not
adversely affected thereby without regard to the guaranty provided by the
Policy. In addition, a reserve fund or other form of credit enhancement may be
substituted for the protection provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a 'Deficient Valuation' is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a 'Debt Service
Reduction') of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as
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the Master Servicer is pursuing any other remedies that may be available with
respect to the related Mortgage Loan and (i) such Mortgage Loan is not in
default with respect to payment due thereunder or (ii) scheduled monthly
payments of principal and interest are being advanced by the Master Servicer
without giving effect to any Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
separate REMIC. One REMIC (the 'Subsidiary REMIC') will issue several
uncertificated subclasses of nonvoting interests ('Subsidiary REMIC Regular
Interests'), which will be designated as the regular interests in the Subsidiary
REMIC. The assets of the Subsidiary REMIC will consist of the Mortgage Loans and
all other property in the Trust Fund except for the property in the Trust Fund
allocated to the second REMIC (the 'Master REMIC'). The Master REMIC will issue
the Regular Certificates, which will be designated as the regular interests in
the Master REMIC. The Class A-R Certificates will represent the beneficial
ownership of the residual interest in the Subsidiary REMIC and the residual
interest in the Master REMIC. The assets of the Master REMIC will consist of the
Subsidiary REMIC Regular Interests. Aggregate distributions on the Subsidiary
REMIC Regular Interests will equal the aggregate distributions on the Regular
Certificates issued by the Master REMIC. See 'Description of the
Certificates -- Separate REMIC Structure' herein.
The Regular Certificates generally will be treated as debt instruments
issued by the Master REMIC for federal income tax purposes. Income on the
Regular Certificates must be reported under an accrual method of accounting.
The Principal Only Certificates will be treated for federal income tax
purposes as having been issued with an amount of Original Issue Discount ('OID')
equal to the difference between their principal balance and their issue price.
Although the tax treatment is not entirely certain, Notional Amount Certificates
will be treated as having been issued with OID for federal income tax purposes
equal to the excess of all expected payments of interest on such Certificates
over their issue price. Although unclear, a holder of a Notional Amount
Certificate may be entitled to deduct a loss to the extent that its remaining
basis exceeds the maximum amount of future payments to which such
Certificateholder would be entitled if there were no further prepayments of the
Mortgage Loans. The remaining Classes of Regular Certificates, depending on
their respective issue prices (as described in the Prospectus under 'Certain
Federal Income Tax Consequences'), may be treated as having been issued with OID
for federal income tax purposes. For purposes of determining the amount and rate
of accrual of OID and market discount, the Trust Fund intends to assume that
there will be prepayments on the Mortgage Loans at a rate equal to % SPA (the
'Prepayment Assumption'). No representation is made as to whether the Mortgage
Loans will prepay at the foregoing rate or any other rate. See 'Yield,
Prepayment and Maturity Considerations' herein and 'Certain Federal Income Tax
Consequences' in the Prospectus. Computing accruals of OID in the manner
described in the Prospectus may (depending on the actual rate of prepayments
during the accrual period) result in the accrual of negative amounts of OID on
the Certificates issued with OID in an accrual period. Holders will be entitled
to offset negative accruals of OID only against future OID accrual on such
Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under 'Certain Federal Income Tax Consequences'
in the Prospectus, the Offered Certificates will represent qualifying assets
under Sections 856(c)(5)(A) and 7701(a)(19)(C) of the Code, and net interest
income attributable to the Offered Certificates will be 'interest on obligations
secured by mortgages on real property' within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund are assets
described in such sections. The Regular Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
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The holders of the Residual Certificates must include the taxable income of
each REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as 'excess inclusion' income, which with limited
exceptions, is subject to U.S federal income tax.
Prospective purchasers of a Residual Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See 'Certain Federal Income Tax Consequences -- REMIC
Certificates -- b. Residual Certificates' in the Prospectus. Specifically,
prospective holders of Residual Certificates should consult their tax advisors
regarding whether, at the time of acquisition, a Residual Certificate will be
treated as a 'noneconomic' residual interest, a 'non-significant value' residual
interest and a 'tax avoidance potential' residual interest. See 'Certain Federal
Income Tax Consequences -- Tax-Related Restrictions on Transfer of Residual
Certificates -- Noneconomic Residual Certificates -- Residual Certificates --
Mark to Market Rules -- Residual Certificates -- Excess Inclusions and
- -- Tax-Related Restrictions on Transfers of Residual Certificates -- Foreign
Investors' in the Prospectus. Additionally, for information regarding Prohibited
Transactions and Treatment of Realized Losses, see 'Certain Federal Income Tax
Consequences -- Prohibited Transactions and Other Taxes' and ' -- REMIC
Certificates -- a. Regular Certificates -- Treatment of Realized Losses' in the
Prospectus.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ('ERISA') and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See 'ERISA Considerations' in
the Prospectus. Section 406 of ERISA prohibits 'parties in interest' with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a 'Plan') from engaging in
certain transactions involving such Plan and its assets unless a statutory or
administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes on prohibited transactions involving Plans and
other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to (Prohibited Transaction
Exemption , Exemption Application No. D- , Fed. Reg. ( )
( ) (the 'Exemption') from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The Exemption applies to mortgage
loans such as the Mortgage Loans in the Trust Fund.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see 'ERISA Considerations' in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and holding
by Plans of the Senior Certificates (other than the Class , Class PO, Class X
and Class A-R Certificates) and that all conditions of the Exemption other than
those within the control of the investors will be met. In addition, as of the
date hereof,
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there is no single Mortgagor that is the obligor on five percent (5%) of the
Mortgage Loans included in the Trust Fund by aggregate unamortized principal
balance of the assets of the Trust Fund. BECAUSE THE CLASS , CLASS PO AND
CLASS X CERTIFICATES ARE NOT BEING PURCHASED BY EITHER UNDERWRITER, SUCH CLASSES
OF CERTIFICATES DO NOT CURRENTLY MEET THE REQUIREMENTS OF THE EXEMPTION OR ANY
COMPARABLE INDIVIDUAL ADMINISTRATIVE EXEMPTION GRANTED TO EITHER UNDERWRITER.
CONSEQUENTLY, THE SALE OR EXCHANGE OF THE CLASS , CLASS PO AND CLASS X
CERTIFICATES MAY BE MADE ONLY UNDER THE CONDITIONS SET FORTH FOR THE CLASS B- ,
CLASS B- AND CLASS B- CERTIFICATES BELOW.
BECAUSE THE CHARACTERISTICS OF THE CLASS B- , CLASS B- , CLASS B- AND
CLASS A-R CERTIFICATES MAY NOT MEET THE REQUIREMENTS OF PTCE 83-1, THE EXEMPTION
OR ANY OTHER ISSUED EXEMPTION UNDER ERISA, THE PURCHASE AND HOLDING OF THE CLASS
B- , CLASS B- , CLASS B- AND CLASS A-R CERTIFICATES BY A PLAN OR BY INDIVIDUAL
RETIREMENT ACCOUNTS OR OTHER PLANS SUBJECT TO SECTION 4975 OF THE CODE MAY
RESULT IN PROHIBITED TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL
PENALTIES. CONSEQUENTLY, TRANSFERS OF THE CLASS B- , CLASS B- , CLASS B- AND
CLASS A-R CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE
RECEIVES: (i) A REPRESENTATION FROM THE TRANSFEREE OF SUCH CERTIFICATE,
ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION
406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION 4975 OF THE CODE, NOR A
PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR ARRANGEMENT NOR USING THE ASSETS OF
ANY SUCH PLAN OR ARRANGEMENT TO EFFECT SUCH TRANSFER; (ii) IF THE PURCHASER IS
AN INSURANCE COMPANY, A REPRESENTATION THAT THE PURCHASER IS AN INSURANCE
COMPANY WHICH IS PURCHASING SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN
'INSURANCE COMPANY GENERAL ACCOUNT' (AS SUCH TERM IS DEFINED IN SECTION V(e) OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ('PTCE 95-60')) AND THAT THE
PURCHASE AND HOLDING OF SUCH CERTIFICATES ARE COVERED UNDER PTCE 95-60; OR (iii)
AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING
OF SUCH CERTIFICATE BY A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN OR USING
SUCH PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF THE TRUST FUND BEING DEEMED
TO BE 'PLAN ASSETS' AND SUBJECT TO THE PROHIBITED TRANSACTION REQUIREMENTS OF
ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE TO ANY OBLIGATION IN
ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT. SUCH REPRESENTATION AS DESCRIBED
ABOVE SHALL BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE TRANSFEREE'S
ACCEPTANCE OF A CLASS B- , CLASS B- OR CLASS B- CERTIFICATE. IN THE EVENT
THAT SUCH REPRESENTATION IS VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN OR
PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS IS ATTEMPTED
WITHOUT SUCH OPINION OF COUNSEL, SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL BE
VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in any of the
Offered Certificates. Moreover, each Plan fiduciary should determine whether
under the general fiduciary standards of investment prudence and
diversification, an investment in any of 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.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriters, the Depositor has agreed to sell to
the Underwriters, and each Underwriter has agreed to purchase from the Depositor
the respective Classes of Underwritten Certificates indicated on the cover page
hereof to be purchased by it. Distribution of the Underwritten Certificates will
be made by the respective Underwriters in each case from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. In connection with the sale of the Underwritten Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has any
obligation to do so. There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it will continue
or that it will provide Certificateholders with a sufficient level of liquidity
of investment.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Class X and Class PO Certificates may be offered by the Depositor from
time to time directly or through underwriters or agents (either of which may
include Countrywide Securities Corporation, an affiliate of the Depositor and
the Master Servicer) in one or more negotiated transactions, or otherwise, at
varying prices to
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be determined at the time of sale, in one or more separate transactions at
prices to be negotiated at the time of each sale. Proceeds to the Depositor from
any sale of the Class X or Class PO Certificates will equal the purchase price
paid by the purchaser thereof, net of any expenses payable by the Depositor and
any compensation payable to any such underwriter or agent. Any underwriters or
agents that participate in the distribution of the Class X or Class PO
Certificates may be deemed to be 'underwriters' within the meaning of the
Securities Act of 1933 and any profit on the sale of such Certificates by them
and any discounts, commissions, concessions or other compensation received by
any such underwriter or agent may be deemed to be underwriting discounts and
commissions under such Act.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York. Stroock & Stroock & Lavan, New York, New
York, will pass upon certain legal matters on behalf of the Underwriters.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated by (' ') and, by
(' ' and, together with , the 'Rating Agencies').
It is a condition to the issuance of the Class B- , Class B- and Class B-
Certificates that they be rated at least , and , respectively,
by .
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. 's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. ratings on such certificates do
not, however, constitute a statement regarding frequency of payments of the
mortgage loans.
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. 's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make payments
required by such certificates. 's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other rating
agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-37
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SUBJECT TO COMPLETION, DATED MAY 2, 1997
PROSPECTUS
CWMBS, INC.
Depositor
Mortgage Pass-Through Certificates
(Issuable in Series)
------------------------------
This Prospectus relates to Mortgage Pass-Through Certificates (the
'Certificates'), which may be sold from time to time in one or more Series
(each, a 'Series') by CWMBS, Inc. (the 'Depositor') on terms determined at the
time of sale and described in this Prospectus and the related Prospectus
Supplement. The Certificates of a Series will evidence beneficial ownership of a
trust fund (a 'Trust Fund'). As specified in the related Prospectus Supplement,
the Trust Fund for a Series of Certificates will include certain mortgage
related assets (the 'Mortgage Assets') consisting of (i) first lien mortgage
loans (or participation interests therein) secured by one- to four-family
residential properties ('Mortgage Loans'), (ii) mortgage pass-through securities
(the 'Agency Securities') issued or guaranteed by the Government National
Mortgage Association ('GNMA'), the Federal National Mortgage Association
('FNMA') or the Federal Home Loan Mortgage Corporation ('FHLMC') or (iii)
Private Mortgage-Backed Securities (defined herein). The Mortgage Assets will be
acquired by the Depositor, either directly or indirectly, from one or more
institutions (each, a 'Seller'), which may be affiliates of the Depositor, and
conveyed by the Depositor to the related Trust Fund. A Trust Fund also may
include insurance policies, cash accounts, reinvestment income, guaranties,
letters of credit or other assets to the extent described in the related
Prospectus Supplement.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right of payment
to one or more other classes of Certificates of such Series. One or more classes
of Certificates of a Series may be entitled to receive distributions of
principal, interest or any combination thereof prior to one or more other
classes of Certificates of such Series or after the occurrence of specified
events, in each case as specified in the related Prospectus Supplement.
Distributions to holders of Certificates (the 'Certificateholders') will be
made monthly, quarterly, semi-annually or at such other intervals and on the
dates specified in the related Prospectus Supplement. Distributions on the
Certificates of a Series will be made from the assets of the related Trust Fund
or Funds or other assets pledged for the benefit of the Certificateholders as
specified in the related Prospectus Supplement.
The Certificates of any Series will not be insured or guaranteed by any
governmental agency or instrumentality or, unless otherwise specified in the
related Prospectus Supplement, by any other person. Unless otherwise specified
in the related Prospectus Supplement, the only obligations of the Depositor with
respect to a Series of Certificates will be to obtain certain representations
and warranties from each Seller and to assign to the Trustee for the related
Series of Certificates the Depositor's rights with respect to such
representations and warranties. The principal obligations of the Master Servicer
named in the related Prospectus Supplement with respect to the related Series of
Certificates will be limited to obligations pursuant to certain representations
and warranties and to its contractual servicing obligations, including any
obligation it may have to advance delinquent payments on the Mortgage Assets in
the related Trust Fund.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. A Trust
Fund 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 the related Trust Fund or specified portions thereof as a 'real estate
mortgage investment conduit' ('REMIC') for federal income tax purposes. See
'Certain Federal Income Tax Consequences' herein.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
Prior to issuance there will have been no market for the Certificates of any
Series, and there can be no assurance that a secondary market for any
Certificates will develop or, if it does develop, that it will continue. This
Prospectus may not be used to consummate sales of a Series of Certificates
unless accompanied by a Prospectus Supplement.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
'Method of Distribution' herein and in the related Prospectus Supplement.
May , 1997
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.
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UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Certificates of each Series to be
offered hereunder will, among other things, set forth with respect to such
Certificates, as appropriate: (i) a description of the class or classes of
Certificates and the related Pass-Through Rate or method of determining the
amount of interest, if any, to be passed through to each such class; (ii) the
initial aggregate Certificate Balance of each class of Certificates included in
such Series, Distribution Dates relating to such Series and, if applicable, the
initial and final scheduled Distribution Dates for each class; (iii) information
as to the assets comprising the Trust Fund, including the general
characteristics of the Mortgage Assets included therein and, if applicable, the
insurance, surety bonds, guaranties, letters of credit or other instruments or
agreements included in the Trust Fund, and the amount and source of any Reserve
Fund; (iv) the circumstances, if any, under which the Trust Fund may be subject
to early termination; (v) the method used to calculate the amount of principal
to be distributed with respect to each class of Certificates; (vi) the order of
application of distributions to each of the classes within such Series, whether
sequential, pro rata, or otherwise; (vii) the Distribution Dates with respect to
such Series; (viii) additional information with respect to the plan of
distribution of such Certificates; (ix) whether one or more REMIC elections will
be made and designation of the regular interests and residual interests; (x) the
aggregate original percentage ownership interest in the Trust Fund to be
evidenced by each class of Certificates; (xi) information as to the nature and
extent of subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (xii) information as to
the Seller, the Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
New York Regional Office, Seven World Trade Center, New York, New York 10048.
The Commission maintains an Internet Web site that contains reports, 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).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust Fund 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 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 Trustee on behalf of any Trust Fund 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 the Corporate
Trust Office of the Trustee specified in the accompanying Prospectus Supplement.
2
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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 with respect to the Series offered thereby. The Prospectus Supplement
for each Series will specify the extent (if any) to which the terms of such
Series or the related Trust Fund vary from the description of the Certificates
and Trust Funds in general that is contained in this Prospectus.
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Title of Securities....................... Mortgage Pass-Through Certificates (the 'Certificates'), issuable in
series (each, a 'Series'). Each Series will be issued under a
separate pooling and servicing agreement (each, an 'Agreement') to be
entered into with respect to each such Series.
Depositor................................. CWMBS, Inc., a Delaware corporation (the 'Depositor').
Trustee................................... The trustee (the 'Trustee') for each Series of Certificates will be
specified in the related Prospectus Supplement. See 'The Pooling and
Servicing Agreement' herein for a description of the Trustee's rights
and obligations.
Master Servicer........................... The entity or entities named as master servicer (the 'Master
Servicer') in the related Prospectus Supplement, which may be an
affiliate of the Depositor. See 'The Pooling and Servicing
Agreement -- Certain Matters Regarding the Master Servicer and the
Depositor' herein.
Seller.................................... The entity or entities named as seller (the 'Seller') in the related
Prospectus Supplement, which may be an affiliate of the Depositor.
Closing Date.............................. The date (the 'Closing Date') of initial issuance of a Series of
Certificates, as specified in the related Prospectus Supplement.
Trust Fund................................ The trust fund for a Series of Certificates (each, a 'Trust Fund')
will include certain mortgage related assets (the 'Mortgage Assets')
consisting of (a) first lien mortgage loans (or participation
interests therein) secured by one- to four-family residential
properties (the 'Mortgage Loans'), (b) mortgage pass-through
securities issued or guaranteed by the Government National Mortgage
Association ('GNMA'), the Federal National Mortgage Association
('FNMA') or the Federal Home Loan Mortgage Corporation ('FHLMC') (the
'Agency Securities') or (c) other mortgage pass-through certificates
or collateralized mortgage obligations (the 'Private Mortgage-Backed
Securities'), 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.
A. Mortgage Loans......................... Unless otherwise specified in the related Prospectus Supplement,
Mortgage Loans will be secured by first mortgage liens on one- to
four-family residential properties (each, a 'Mortgaged Property'). If
so specified, the Mortgage Loans may include cooperative apartment
loans ('Cooperative Loans') secured by security interests in shares
issued by private, nonprofit, cooperative housing corporations
('Cooperatives') and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling
units in such Cooperatives' buildings. If so specified in the related
Prospectus Supplement, the Mortgage Assets of the related Trust Fund
may include mortgage participation
</TABLE>
3
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<TABLE>
<S> <C>
certificates evidencing interests in mortgage loans. Such mortgage
loans may be conventional loans (i.e., loans that are not insured or
guaranteed by any governmental agency), insured by the Federal
Housing Authority ('FHA') or partially guaranteed by the Veterans'
Administration ('VA') as specified in the related Prospectus
Supplement.
B. General Attributes of
Mortgage Loans......................... The payment terms of the Mortgage Loans to be included in a Trust
Fund will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or
other features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in
the related Prospectus Supplement), a rate that is fixed for a
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. 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 loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. The loan agreement or promissory note (the 'Mortgage
Note') in respect of a Mortgage Loan may provide for the payment
of interest at a rate lower than the interest rate (the 'Mortgage
Rate') specified in such Mortgage Note for a period of time or
for the life of the loan, and the amount of any difference may be
contributed from funds supplied by a third party.
(b) Principal may be payable on a level debt service basis to fully
amortize the 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 ('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 loan, may increase over a specified period of time 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) The Mortgage Loans generally may be prepaid at any time without
payment of any prepayment fee. If so specified in the related
Prospectus Supplement, prepayments of principal may be subject to
a prepayment fee, which may be fixed for the life of any such
Mortgage Loan or may decline over time, and may be prohibited for
the life of any such Mortgage Loan or for
</TABLE>
4
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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 transfers of the related
Mortgaged Property. Other Mortgage Loans may be assumable by
persons meeting the then applicable underwriting standards of the
Seller.
(e) The real property constituting security for repayment of a
Mortgage Loan may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of
the United States. Unless otherwise specified in the related
Prospectus Supplement, all of the Mortgage Loans will be covered
by standard hazard insurance policies insuring against losses due
to fire and various other causes. The Mortgage Loans will be
covered by primary mortgage insurance policies to the extent
provided in the related Prospectus Supplement.
All Mortgage Loans will have been purchased by the Depositor, either
directly or through an affiliate, from one or more Sellers.
C. Agency Securities...................... The Agency Securities evidenced by a Series of Certificates will
consist of (i) mortgage participation certificates issued and
guaranteed as to timely payment of interest and, unless otherwise
specified in the related Prospectus Supplement, ultimate payment of
principal by the Federal Home Loan Mortgage Corporation ('FHLMC
Certificates'), (ii) certificates ('Guaranteed Mortgage Pass-Through
Certificates') issued and guaranteed as to timely payment of
principal and interest by the Federal National Mortgage Association
('FNMA Certificates'), (iii) fully modified pass-through
mortgage-backed certificates guaranteed as to timely payment of
principal and interest by the Government National Mortgage
Association ('GNMA Certificates'), (iv) stripped mortgage-backed
securities representing an undivided interest in all or a part of
either the principal distributions (but not the interest
distributions) or the interest distributions (but not the principal
distributions) or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain
FHLMC, FNMA or GNMA Certificates and, unless otherwise specified in
the related Prospectus Supplement, guaranteed to the same extent as
the underlying securities, (v) another type of pass-through
certificate issued or guaranteed by GNMA, FNMA or FHLMC and described
in the related Prospectus Supplement or (vi) a combination of such
Agency Securities. All GNMA Certificates will be backed by the full
faith and credit of the United States. No FHLMC or FNMA Certificates
will be backed, directly or indirectly, by the full faith and credit
of the United States.
The Agency Securities may consist of pass-through securities issued
under FHLMC's Cash or Guarantor Program, the GNMA I
</TABLE>
5
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Program, the GNMA II Program or another program specified in the
related Prospectus Supplement. The payment characteristics of the
mortgage loans underlying the Agency Securities will be described in
the related Prospectus Supplement.
D. Private Mortgage-Backed Securities..... Private Mortgage-Backed Securities may include (a) mortgage pass-
through certificates representing beneficial interests in certain
mortgage loans or (b) collateralized mortgage obligations secured by
such mortgage loans. Private Mortgage-Backed Securities may include
stripped mortgage-backed securities representing an undivided
interest in all or a part of any of the principal distributions (but
not the interest distributions) or the interest distributions (but
not the principal distributions) or in some specified portion of the
principal and interest distributions (but not all of such
distributions) on certain 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. Unless otherwise specified in the related Prospectus
Supplement relating to a Series of Certificates, payments on the
Private Mortgage-Backed Securities will be distributed directly to
the Trustee as registered owner of such Private Mortgage-Backed
Securities. See 'The Trust Fund -- Private Mortgage-Backed
Securities' herein.
The related Prospectus Supplement for a Series will specify, among
other things, (i) the approximate aggregate principal amount and type
of any Private Mortgage-Backed Securities to be included in the Trust
Fund for such Series; (ii) certain characteristics of the mortgage
loans that comprise the underlying assets for 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 that are insured or
guaranteed by a governmental entity, (C) the servicing fee or range
of servicing fees with respect to the 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, surety bonds, letters of credit or
guaranties, relating to the mortgage loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed
Securities themselves; (ix) the terms on which underlying mortgage
loans for such Private Mortgage-Backed Securities may, or are
required to, be repurchased prior to stated maturity; and (x) the
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terms on which substitute mortgage loans may be delivered to replace
those initially deposited with the PMBS Trustee. See 'The Trust Fund'
herein.
Description of the Certificates........... Each Certificate will represent a beneficial ownership interest in a
Trust Fund created by the Depositor pursuant to an Agreement among
the Depositor, the Master Servicer and the Trustee for the related
Series. The Certificates of any Series may be issued in one or more
classes as specified in the related Prospectus Supplement. A Series
of Certificates may include one or more classes of senior
Certificates (collectively, the 'Senior Certificates') and one or
more classes of subordinate Certificates (collectively, the
'Subordinated Certificates'). Certain Series or classes of
Certificates may be covered by insurance policies or other forms of
credit enhancement, in each case as described herein and in the
related Prospectus Supplement.
One or more classes of Certificates of each Series (i) may be
entitled to receive distributions allocable only to principal, only
to interest or to any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of principal throughout the
lives of the Certificates or during specified periods; (iii) may 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 Certificates of
such Series throughout the lives of the Certificates or during
specified periods; (iv) may be entitled to receive such distributions
only after the occurrence of events specified in the related
Prospectus Supplement; (v) may be entitled 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 Fund; (vi) as to Certificates entitled to distributions
allocable to interest, may be entitled to receive interest at a fixed
rate or a rate that is subject to change from time to time; and (vii)
as to Certificates entitled to distributions allocable to interest,
may be entitled to distributions allocable to interest only after the
occurrence of events specified in the related Prospectus Supplement
and may accrue interest until such events occur, in each case as
specified in the related Prospectus Supplement. The timing and
amounts of such distributions may vary among classes, over time, or
otherwise as specified in the related Prospectus Supplement.
Distributions on the Certificates......... Distributions on the Certificates entitled thereto will be made
monthly, quarterly, semi-annually or at such other intervals and on
the dates specified in the related Prospectus Supplement (each, a
'Distribution Date') out of the payments received in respect of the
assets of the related Trust Fund or other assets pledged for the
benefit of the Certificates as specified in the related Prospectus
Supplement. The amount allocable to payments of principal and
interest on any Distribution Date will be determined as specified in
the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, all distributions will be made pro
rata to Certificateholders of the class entitled thereto.
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Unless otherwise specified in the related Prospectus Supplement, the
aggregate original balance of the Certificates (the 'Certificate
Balance') will equal the aggregate distributions allocable to
principal that such Certificates will be entitled to receive. If
specified in the related Prospectus Supplement, the Certificates will
have an aggregate original Certificate Balance equal to the aggregate
unpaid principal balance of the Mortgage Assets as of the first day
of the month of creation of the Trust Fund and will bear interest at
a rate (the 'Pass-Through Rate') equal to the interest rate borne by
the underlying Mortgage Loans, Agency Securities or Private
Mortgage-Backed Securities, net of the aggregate servicing fees and
any other amounts specified in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, the aggregate
original Certificate Balance of the Certificates and interest rates
on the classes of Certificates will be determined based on the cash
flow on the Mortgage Assets.
The rate at which interest will be passed through to holders of each
class of Certificates entitled thereto may be a fixed rate or a rate
that is subject to change from time to time from the time and for the
periods, in each case, as specified in the related Prospectus
Supplement. Any such rate may be calculated on a loan-by-loan,
weighted average or other basis, in each case as described in the
related Prospectus Supplement.
Credit Enhancement........................ The assets in a Trust Fund or the Certificates of one or more classes
in the related Series may have the benefit of one or more types of
credit enhancement as described in the related Prospectus Supplement.
The protection against losses afforded by any such credit support may
be limited. The type, characteristics and amount of credit
enhancement will be determined based on the characteristics of the
Mortgage Loans underlying or comprising the Mortgage Assets and other
factors and will be established on the basis of requirements of each
Rating Agency rating the Certificates of such Series. See 'Credit
Enhancement' herein.
A. Subordination.......................... A Series of Certificates may consist of one or more classes of Senior
Certificates and one or more classes of Subordinated Certificates.
The rights of the holders of the Subordinated Certificates of a
Series (the 'Subordinated Certificateholders') to receive
distributions with respect to the assets in the related Trust Fund
will be subordinated to such rights of the holders of the Senior
Certificates of the same Series (the 'Senior Certificateholders') to
the extent described in the related Prospectus Supplement. This
subordination is intended to enhance the likelihood of regular
receipt by Senior Certificateholders of the full amount of their
scheduled monthly payments of principal and interest. The protection
afforded to the Senior Certificateholders of a Series by means of the
subordination feature will be accomplished by (i) the preferential
right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates, the amounts
of principal and interest due them on each Distribution Date out of
the funds available for distribution on such date in the related
Certificate Account and, to the extent described in the related
Prospectus Supplement, by the right of such holders
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to receive future distributions on the assets in the related Trust
Fund that would otherwise have been payable to the Subordinated
Certificateholders; (ii) reducing the ownership interest of the
related Subordinated Certificates; (iii) a combination of clauses (i)
and (ii) above; or (iv) as otherwise described in the related
Prospectus Supplement. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain
types of losses not covered by other forms of credit support, such as
hazard losses not covered by standard hazard insurance policies or
losses due to the bankruptcy or fraud of the borrower. The related
Prospectus Supplement will set forth information concerning, among
other things, the amount of subordination of a class or classes of
Subordinated Certificates in a Series, the circumstances in which
such subordination will be applicable and the manner, if any, in
which the amount of subordination will decrease over time.
B. Reserve Fund........................... One or more reserve funds (the 'Reserve Fund') may be established and
maintained for each Series. The related Prospectus Supplement will
specify whether or not any such Reserve Fund will be included in the
corpus of the Trust Fund for such Series and will also specify the
manner of funding the related Reserve Fund and the conditions under
which the amounts in any such Reserve Fund will be used to make
distributions to holders of Certificates of a particular class or
released from the related Trust Fund.
C. Mortgage Pool
Insurance Policy....................... A mortgage pool insurance policy or policies (the 'Mortgage Pool
Insurance Policy') may be obtained and maintained for a Series, which
shall be limited in scope, covering defaults on the related Mortgage
Loans in an initial amount equal to a specified percentage of the
aggregate principal balance of all Mortgage Loans included in the
Mortgage Pool as of the first day of the month of issuance of the
related Series of Certificates or such other date as is specified in
the related Prospectus Supplement (the 'Cut-off Date').
D. Special Hazard Insurance
Policy................................. A special hazard insurance policy or policies (the 'Special Hazard
Insurance Policy'), may be obtained and maintained for a Series,
covering certain physical risks that are not otherwise insured
against by standard hazard insurance policies. Each Special Hazard
Insurance Policy will be limited in scope and will cover losses
pursuant to the provisions of each such Special Hazard Insurance
Policy as described in the related Prospectus Supplement.
E. Bankruptcy Bond........................ A bankruptcy bond or bonds (the 'Bankruptcy Bonds') may be obtained
to cover certain losses resulting from action that may be taken by a
bankruptcy court in connection with a Mortgage Loan. The level of
coverage and the limitations in scope of each Bankruptcy Bond will be
specified in the related Prospectus Supplement.
F. FHA Insurance and VA
Guaranty............................... All or a portion of the Mortgage Loans in a Mortgage Pool may be
insured by FHA insurance ('FHA Insurance') and may be partially
guaranteed by the VA (a 'VA Guaranty').
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G. Cross Support.......................... If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may
be evidenced by separate classes of the related Series of
Certificates. In such case, credit support may be provided by a
cross-support feature which requires that distributions be made with
respect to Certificates evidencing beneficial ownership of one or
more asset groups prior to distributions to Subordinated Certificates
evidencing a beneficial ownership interest in other asset groups
within the same Trust Fund.
H. Other Arrangements..................... Other arrangements as described in the related Prospectus Supplement
including, but not limited to, one or more letters of credit, surety
bonds, other insurance or third party guaranties, may be used to
provide coverage for certain risks of default or various types of
losses.
Advances.................................. Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and, if applicable, each mortgage servicing
institution that services a Mortgage Loan in a Mortgage Pool on
behalf of the Master Servicer (each, a 'Sub-Servicer') will be
obligated to advance amounts (each, an 'Advance') corresponding to
delinquent principal and interest payments on such Mortgage Loan
(including, in the case of Cooperative Loans, unpaid maintenance fees
or other charges under the related proprietary lease) until the first
day of the month following the date on which the related Mortgaged
Property is sold at a foreclosure sale or the related Mortgage Loan
is otherwise liquidated. Any obligation to make Advances may be
subject to limitations as specified in the related Prospectus
Supplement. Advances will be reimbursable to the extent described
herein and in the related Prospectus Supplement.
Optional Termination...................... The Master Servicer or, if specified in the related Prospectus
Supplement, the holder of the residual interest in a REMIC may have
the option to effect early retirement of a Series of Certificates
through the purchase of the Mortgage Assets and other assets in the
related Trust Fund under the circumstances and in the manner
described in 'The Pooling and Servicing Agreement -- Termination;
Optional Termination' herein.
Legal Investment.......................... The Prospectus Supplement for each Series of Certificates will
specify which, if any, of the classes of Certificates offered thereby
will constitute 'mortgage related securities' for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA'). Classes
of Certificates that qualify as 'mortgage related securities' will be
legal investments for certain types of institutional investors to the
extent provided in SMMEA, subject, in any case, to any other
regulations that may govern investments by such institutional
investors. Institutions whose investment activities are subject to
review by federal or state authorities should consult with their
counsel or the applicable authorities to determine whether an
investment in a particular class of Certificates (whether or not such
class constitutes a 'mortgage related security') complies with
applicable guidelines, policy statements or restrictions. See 'Legal
Investment' herein.
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Certain Federal Income Tax Consequences... The federal income tax consequences to Certificateholders will vary
depending on whether one or more elections are made to treat the
Trust Fund or specified portions thereof as a 'real estate mortgage
investment conduit' ('REMIC') under the provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'). The Prospectus
Supplement for each Series of Certificates will specify whether such
an election will be made. See 'Certain Federal Income Tax
Consequences' herein and in the related Prospectus Supplement.
ERISA Considerations...................... A fiduciary of any employee benefit plan or other retirement plan or
arrangement subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or the Code should carefully review with
its legal advisors whether the purchase or holding of Certificates
could give rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See 'ERISA Considerations'
herein and in the related Prospectus Supplement. Certain classes of
Certificates may not be transferred unless the Trustee and the
Depositor are furnished with a letter of representation or an opinion
of counsel to the effect that such transfer will not result in a
violation of the prohibited transaction provisions of ERISA and the
Code and will not subject the Trustee, the Depositor or the Master
Servicer to additional obligations. See 'Description of the
Certificates -- General' and 'ERISA Considerations' herein and in the
related Prospectus Supplement.
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THE TRUST FUND*
The Trust Fund for each Series will be held by the Trustee for the benefit
of the related Certificateholders. Each Trust Fund will consist of certain
mortgage-related assets (the 'Mortgage Assets') consisting of (A) a mortgage
pool (a 'Mortgage Pool') comprised of Mortgage Loans, (B) Agency Securities or
(C) Private Mortgage-Backed Securities, 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 Certificates will be entitled to payment from the assets of the related
Trust Fund or other assets pledged for the benefit of the holders of such
Certificates (the 'Certificateholders') as specified in the related Prospectus
Supplement and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Assets of any Trust Fund will
consist of Mortgage Loans, Agency Securities or Private Mortgage-Backed
Securities but not a combination thereof.
The Mortgage Assets may be acquired by the Depositor, either directly or
through affiliates, from originators or sellers that may be affiliates of the
Depositor (the 'Sellers') and conveyed by the Depositor to the related Trust
Fund. Mortgage Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria specified below under 'Mortgage Loan
Program -- Underwriting Standards' or as otherwise described in a related
Prospectus Supplement.
The following is a brief description of the Mortgage Assets expected to be
included in the Trust Funds. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Certificates initially is
offered, more general information of the nature described below will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Certificates (the
'Detailed Description'). A schedule of the Mortgage Assets relating to such
Series will be attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
THE MORTGAGE LOANS -- GENERAL
For purposes hereof, the real property that secures repayment of the
Mortgage Loans is referred to collectively as 'Mortgaged Properties'. The
Mortgaged Properties may be located in any one of the fifty states, the District
of Columbia, Guam, Puerto Rico or any other territory of the United States.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a 'Primary Mortgage Insurance Policy'). The existence,
extent and duration 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 Mortgage Pool will have monthly payments due on the first
day of each month. The payment terms of the Mortgage Loans to be included in a
Trust Fund 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 adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a 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. 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 loan for such periods and under such circumstances as
may be specified in the related Prospectus Supplement. A Mortgage Note may
provide for
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* Whenever the terms 'Mortgage Pool' and 'Certificates' are used in this
Prospectus, such terms will be deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single trust fund (the
'Trust Fund') consisting primarily of the Mortgage Assets in such Mortgage
Pool. Similarly, the term 'Pass-Through Rate' will refer to the Pass-Through
Rate borne by the Certificates of one specific Series and the term 'Trust
Fund' will refer to one specific Trust Fund.
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the payment of interest at a rate lower than the Mortgage Rate specified in
such Mortgage Note for a period of time or for the life of the loan, and
the amount of any difference may be contributed from funds supplied by the
seller of the Mortgaged Property or another source.
(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 or
may change from period to period. The terms of a Mortgage Loan 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) The Mortgage Loans generally may be prepaid at any time without
the payment of any prepayment fee. If so specified in the related
Prospectus Supplement, some prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of any such Mortgage Loan
or may decline over time, and may be prohibited for the life of such
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 loans may include 'due-on-sale' clauses that permit the
mortgagee to demand payment of the entire Mortgage Loan in connection with
the sale or certain transfers of the related Mortgaged Property. Other
Mortgage Loans may be assumable by persons meeting the then applicable
underwriting standards of the Seller.
A Trust Fund may contain certain Mortgage Loans ('Buydown Loans') that
include provisions whereby a third party partially subsidizes the monthly
payments of the obligors on such Mortgage Loans (each, a 'Mortgagor') during the
early years of such Mortgage Loans, the difference to be made up from a fund (a
'Buydown Fund') contributed by such third party at the time of origination of
the Mortgage Loan. A Buydown Fund will be in an amount equal either to the
discounted value or full aggregate amount of future payment subsidies. The
underlying assumption of buydown plans is that the income of the Mortgagor will
increase during the buydown period as a result of normal increases in
compensation and inflation, so that the Mortgagor will be able to meet the full
mortgage payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the Mortgagor initially, on annual increases in the
interest rate and on the length of the buydown period.
Each Prospectus Supplement 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 Mortgage
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 type of property securing the Mortgage Loans (e.g., separate
residential properties, individual units in condominium apartment buildings or
in buildings owned by Cooperatives, vacation and second homes, or other real
property), (iii) the original terms to maturity of the Mortgage Loans, (iv) the
largest principal balance and the smallest principal balance of any of the
Mortgage Loans, (v) the earliest origination date and latest maturity date of
any of the Mortgage Loans, (vi) the aggregate principal balance of Mortgage
Loans having Loan-to-Value Ratios at origination exceeding 80%, (vii) the
maximum and minimum per annum Mortgage Rates and (viii) the geographical
distribution of the Mortgage Loans. If specific information respecting the
Mortgage Loans is not known to the Depositor at the time the related
Certificates are initially offered, more general information of the nature
described above will be provided in the Detailed Description.
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 original
principal balance of the related Mortgage Loan and the denominator of which is
the Collateral Value of the related Mortgaged Property. Unless otherwise
specified in the related Prospectus Supplement, the 'Collateral Value' of a
Mortgaged Property is the lesser of (a) the
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appraised value determined in an appraisal obtained by the originator at
origination of such Mortgage Loan and (b) the sales price for such property.
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, and any secondary financing on the Mortgaged
Properties, in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by Mortgagors of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. To the extent that
such losses are not covered by subordination provisions or alternative
arrangements, such losses will be borne, at least in part, by the holders of the
Certificates of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the Certificateholders of the related Series. The Master Servicer
named in the related Prospectus Supplement will service the Mortgage Loans,
either directly or through other mortgage servicing institutions
('Sub-Servicers'), pursuant to a Pooling and Servicing Agreement (each, an
'Agreement'), and will receive a fee for such services. See 'Mortgage Loan
Program' and 'The Pooling and Servicing Agreement' herein. With respect to
Mortgage Loans serviced by the Master Servicer through a Sub-Servicer, the
Master Servicer will remain liable for its servicing obligations under the
related Agreement as if the Master Servicer alone were servicing such Mortgage
Loans.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Certificates will be to
obtain certain representations and warranties from the Sellers and to assign to
the Trustee for such Series of Certificates the Depositor's rights with respect
to such representations and warranties. See 'The Pooling and Servicing
Agreement -- Assignment of Mortgage Assets' herein. The obligations of the
Master Servicer with respect to the Mortgage Loans will consist principally of
its contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the Sub-Servicers or Sellers, or both,
as more fully described herein under 'Mortgage Loan Program -- Representations
by Sellers; Repurchases' and its obligation to make certain cash advances (each,
an 'Advance') in the event of delinquencies in payments on or with respect to
the Mortgage Loans in the amounts described herein under 'Description of the
Certificates -- Advances'. The obligations of the Master Servicer to make
Advances may be subject to limitations, to the extent provided herein and in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, Mortgage
Loans will consist of mortgage loans, deeds of trust or participations or other
beneficial interests therein, secured by first liens on one- to four-family
residential properties. If so specified, the Mortgage Loans may include
cooperative apartment loans ('Cooperative Loans') secured by security interests
in shares issued by private, non-profit, cooperative housing corporations
('Cooperatives') and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings. If so specified in the related Prospectus Supplement,
the Mortgage Assets of the related Trust Fund may include mortgage participation
certificates evidencing interests in Mortgage Loans. Such loans may be
conventional loans (i.e., loans that are not insured or guaranteed by any
governmental agency) or loans insured by the FHA or partially guaranteed by the
VA, as specified in the related Prospectus Supplement.
The Mortgaged Properties relating to Mortgage Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments and certain other dwelling units. Such
Mortgaged Properties may include vacation and second homes, investment
properties and leasehold interests. In the case of leasehold interests, the term
of the leasehold will exceed the scheduled maturity of the Mortgage Loan by at
least five years, unless otherwise specified in the related Prospectus
Supplement.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States with the United States Department of
Housing and Urban Development. Section 306(g) of Title II
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of the National Housing Act of 1934, as amended (the 'Housing Act'), authorizes
GNMA to guarantee the timely payment of the principal of and interest on
certificates (the 'GNMA Certificates') that represent an interest in a pool of
mortgage loans insured by the FHA under the Housing Act or Title V of the
Housing Act of 1949 ('FHA Loans'), or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of Title 38,
United States Code ('VA Loans').
Section 306(g) of the Housing Act provides that 'the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection.' In order to meet
its obligations under any such guaranty, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an unlimited amount which
is at any time sufficient to enable GNMA to perform its obligations under its
guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which may
be issued under either the GNMA I program (each such certificate, a 'GNMA I
Certificate') or the GNMA II program (each such certificate, a 'GNMA II
Certificate')) will be a 'fully modified pass-through' mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern ('GNMA Issuer') approved by GNMA or by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA Certificates will
consist of FHA Loans and/or VA Loans. Each such mortgage loan is secured by a
one-to four-family or multifamily residential property. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a 'Guaranty Agreement') between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate
if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guaranty fee, which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Trustee or its nominee, as registered holder of
the GNMA Certificates held in a Trust Fund, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements relating to
such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA I Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on such GNMA I Certificate
will equal the interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA I Certificate, less one-half percentage
point per annum of the unpaid principal balance of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
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Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate are due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loans will be passed through to
the Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
Buydown Loans for which funds will have been provided (and deposited into escrow
accounts) for application to the payment of a portion of the borrowers' monthly
payments during the early years of such mortgage loan. Payments due the
registered holders of GNMA Certificates backed by pools containing Buydown Loans
will be computed in the same manner as payments derived from other GNMA
Certificates and will include amounts to be collected from both the borrower and
the related escrow account. The graduated payment mortgage loans will provide
for graduated interest payments that, during the early years of such mortgage
loans, will be less than the amount of stated interest on such mortgage loans.
The interest not so paid will be added to the principal of such graduated
payment mortgage loans and, together with interest thereon, will be paid in
subsequent years. The obligations of GNMA and of a GNMA Issuer will be the same
irrespective of whether the GNMA Certificates are backed by graduated payment
mortgage loans or Buydown Loans. No statistics comparable to the FHA's
prepayment experience on level payment, non-'buydown' mortgage loans are
available in respect of graduated payment or Buydown Loans. GNMA Certificates
related to a Series of Certificates may be held in book-entry form.
The GNMA Certificates included in a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
Federal Home Loan Mortgage Corporation. FHLMC is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the 'FHLMC Act'). The common
stock of FHLMC is owned by the Federal Home Loan Banks and its preferred stock
is owned by stockholders of the Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans and the sale of
the mortgage loans or participations so purchased in the form of mortgage
securities, primarily FHLMC Certificates. FHLMC is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a 'FHLMC Certificate group'). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Mortgage loans underlying the FHLMC Certificates held by a Trust Fund will
consist of mortgage loans with original terms to maturity of between 10 and 40
years. Each such mortgage loan must meet the applicable standards set forth in
the FHLMC Act. A FHLMC Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and/or
participations comprising another FHLMC Certificate group. Under the Guarantor
Program, any such FHLMC Certificate group may include only whole loans or
participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable certificate interest rate on the registered holder's pro rata share
of the unpaid principal balance outstanding on the underlying mortgage loans in
the FHLMC Certificate group represented by such FHLMC Certificate, whether or
not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate collection by such holder of all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related Prospectus Supplement for a Series of Certificates,
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guarantee the timely payment of scheduled principal. Under FHLMC's Gold PC
Program, FHLMC guarantees the timely payment of principal based on the
difference between the pool factor published in the month preceding the month of
distribution and the pool factor published in such month of distribution.
Pursuant to its guaranties, FHLMC indemnifies holders of FHLMC Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. FHLMC may remit the amount due on account of its
guaranty of collection of principal at any time after default on an underlying
mortgage loan, but not later than (i) 30 days following foreclosure sale, (ii)
30 days following payment of the claim by any mortgage insurer or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC reserves
the right to exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans that it has purchased but not sold. The length
of time necessary for FHLMC to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
FHLMC has not adopted standards which require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guaranty are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to the interest rate of the mortgage loans and participations
purchased results in the yield (expressed as a percentage) required by FHLMC.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance. The range of
interest rates on the mortgage loans and participations in a FHLMC Certificate
group under the Cash Program will vary since mortgage loans and participations
are purchased and assigned to a FHLMC Certificate group based upon their yield
to FHLMC rather than on the interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of such FHLMC Certificate. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended. FNMA was
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originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage Pass-Through
Certificates representing fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates held by a Trust Fund will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 40 years. The original maturities of substantially all of the
fixed rate, level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or each other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than is its annual pass-through rate and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. If specified
in the related Prospectus Supplement, FNMA Certificates may be backed by
adjustable rate mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guaranties are obligations solely of FNMA and are not backed by, or entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.
The FNMA Certificates included in a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
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Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA or GNMA
Certificates. The underlying securities will be held under a trust agreement by
FHLMC, FNMA or GNMA, each as trustee, or by another trustee named in the related
Prospectus Supplement. FHLMC, FNMA or GNMA will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
backing such stripped Agency Security, unless otherwise specified in the related
Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA or FHLMC. The characteristics of any such
mortgage pass-through certificates will be described in such Prospectus
Supplement. If so specified, a combination of different types of Agency
Securities may be held in a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
Private Mortgage-Backed Securities may consist of (a) mortgage pass-through
certificates or participation certificates evidencing an undivided interest in a
pool of mortgage loans or (b) collateralized mortgage obligations secured by
mortgage loans. Private Mortgage-Backed Securities may include stripped
mortgage-backed securities representing an undivided interest in all or a part
of either the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain mortgage loans. Private Mortgage-Backed
Securities will have been issued pursuant to a pooling and servicing agreement,
an indenture or similar agreement (a 'PMBS Agreement'). Unless otherwise
specified in the related Prospectus Supplement, the seller/servicer of the
underlying mortgage loans will have entered into the PMBS Agreement with the
trustee under such PMBS Agreement (the 'PMBS Trustee'). 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 a servicer (the 'PMBS Servicer') directly or by one
or more subservicers who may be subject to the supervision of the PMBS Servicer.
The issuer of the Private Mortgage-Backed Securities (the 'PMBS Issuer')
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose 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 related Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Depositor. 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 Fund. Unless otherwise specified in the
related Prospectus Supplement, the PMBS Issuer will not have guaranteed any of
the assets conveyed to the related Trust Fund 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
secured by single family property or multifamily property or by an assignment of
the proprietary lease or occupancy agreement relating to a specific dwelling
within a Cooperative and the related shares issued by such Cooperative.
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The Prospectus Supplement for a Series for which the Trust Fund includes
Private Mortgage-Backed Securities will specify (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
that comprise the underlying assets for 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 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, surety bonds,
letters of credit or guaranties 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 mortgage loans may be substituted for
those originally underlying the Private Mortgage-Backed Securities.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Mortgage Asset or
in the event the documentation with respect to any Mortgage Asset is determined
by the Trustee to be incomplete. The period during which such substitution will
be permitted generally will be indicated in the related Prospectus Supplement.
The related Prospectus Supplement will describe any other conditions upon which
Mortgage Assets may be substituted for Mortgage Assets initially included in the
Trust Fund.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Mortgage Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
Certificates in Series from time to time, but the timing and amount of offerings
of Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
THE DEPOSITOR
CWMBS, Inc., a Delaware corporation (the 'Depositor'), was organized on May
27, 1993 for the limited purpose of acquiring, owning and transferring Mortgage
Assets and selling interests therein or bonds secured thereby. The Depositor is
a subsidiary of Countrywide Credit Industries, Inc., a Delaware corporation. The
Depositor maintains its principal office at 155 North Lake Avenue, Pasadena,
California 91101-7139. Its telephone number is (818) 584-3547.
Neither the Depositor nor any of the Depositor's affiliates will ensure or
guarantee distributions on the Certificates of any Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from Sellers. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Loans so acquired by the Depositor
will have been originated in accordance with the underwriting criteria specified
below under 'Underwriting Standards'.
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UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent and warrant that the origination, underwriting and
collection practices used by such Seller with respect to each Mortgage Loan
originated and/or sold by it to the Depositor or one of its affiliates have been
in all respects legal, prudent and customary in the mortgage lending and
servicing business. As to any Mortgage Loan insured by the FHA or partially
guaranteed by the VA, the Seller will represent that it has complied with
underwriting policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer), which verification reports the length of employment with that
organization, the borrower's current salary and whether it is expected that the
borrower will continue such employment in the future. If a prospective borrower
is self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on the
basis of the monthly payments due in the year of origination) and other expenses
related to the mortgaged property (such as property taxes and hazard insurance)
and (ii) to meet monthly housing expenses and other financial obligations and
monthly living expenses. The underwriting standards applied by Sellers,
particularly with respect to the level of loan documentation and the mortgagor's
income and credit history, may be varied in appropriate cases where factors such
as low Loan-to-Value Ratios or other favorable credit exist.
In the case of a Mortgage Loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, the Seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least as long as the remaining term on the Mortgage Note.
Certain of the types of Mortgage Loans that may be included in a Trust Fund
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Mortgage Loans may
provide for escalating or variable payments by the Mortgagor. These types of
Mortgage Loans are underwritten on the basis of a judgment that the Mortgagors
have the ability to make the monthly payments required initially. In some
instances, however, a Mortgagor's income may not be sufficient to permit
continued loan payments as such payments increase. These types of Mortgage Loans
may also be underwritten primarily upon the basis of Loan-to-Value Ratios or
other favorable credit factors.
QUALIFICATIONS OF SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be required to satisfy the qualifications set forth herein. Each
Seller must be an institution experienced in originating and servicing mortgage
loans of the type contained in the related Mortgage Pool in accordance with
accepted practices and prudent guidelines, and must maintain satisfactory
facilities to originate and service those mortgage loans. Each Seller must be a
seller/servicer approved by either FNMA or FHLMC. Each Seller must be a
mortgagee approved by the FHA or an institution the deposit accounts in which
are insured by the Federal Deposit Insurance Corporation.
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REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
Mortgage Loans sold by such Seller and evidenced by a Series of Certificates.
Such representations and warranties unless otherwise provided in the related
Prospectus Supplement 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) and
any required hazard insurance policy and Primary Mortgage Insurance Policy were
effective at the origination of each Mortgage Loan other than Cooperative Loans,
and that each policy (or certificate of title as applicable) remained in effect
on the date of purchase of the Mortgage Loan from the Seller by or on behalf of
the Depositor; (ii) that the Seller had good title to each such Mortgage Loan
and such Mortgage Loan was subject to no offsets, defenses, counterclaims or
rights of rescission except to the extent that any buydown agreement described
herein may forgive certain indebtedness of a Mortgagor; (iii) that each Mortgage
Loan constituted a valid first lien on, or a first perfected security interest
with respect to, 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 31 days delinquent at any time during the twelve months prior to the
Cut-off Date; and (vi) that each Mortgage Loan was made in compliance with, and
is enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Mortgage Loan will be made not as of
the Cut-off Date but as of the date on which such Seller sold the Mortgage Loan
to the Depositor or one of its affiliates. Under such circumstances, a
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of a Seller do not
address events that may occur following the sale of a Mortgage Loan by such
Seller, its repurchase obligation described below will not arise if the relevant
event that would otherwise have given rise to such an obligation with respect to
a Mortgage Loan occurs after the date of sale of such Mortgage Loan by such
Seller to the Depositor or its affiliates. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any Series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties of a Seller will not be accurate and
complete in all material respects in respect of such Mortgage Loan as of the
date of initial issuance of the related Series of Certificates. If the Master
Servicer is also a Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made by the Master Servicer in its capacity as the Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by it in respect of a Mortgage Loan that materially and adversely
affects the interests of the Certificateholders in such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, if such Seller cannot
cure such breach within 90 days after notice from the Master Servicer or the
Trustee, as the case may be, then such Seller will be obligated to repurchase
such Mortgage Loan from the Trust Fund at a price (the 'Purchase Price') equal
to 100% of the outstanding principal balance thereof as of the date of the
repurchase plus accrued interest thereon to the first day of the month in which
the Purchase Price is to be distributed at the Mortgage Rate (less any
unreimbursed Advances or amount payable as related servicing compensation if the
Seller is the Master Servicer with respect to such Mortgage Loan). If a REMIC
election is to be made with respect to a Trust Fund, unless otherwise provided
in the related Prospectus Supplement, the Master Servicer or a holder of the
related residual certificate will be obligated to pay any prohibited transaction
tax that may arise in connection with any such repurchase. The Master Servicer,
unless otherwise specified in the related Prospectus Supplement, will be
entitled to reimbursement for any such payment from the assets of the related
Trust Fund or from any holder of the related residual certificate. See
'Description of the Certificates -- General' herein and in the related
Prospectus Supplement. Except in those cases in which the Master Servicer is the
Seller, the Master Servicer will be required under the applicable Agreement to
enforce this obligation for the benefit of the Trustee and the
Certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. This repurchase
obligation will constitute the sole remedy available to Certificateholders or
the Trustee for a breach of representation by a Seller.
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Neither the Depositor nor the Master Servicer (unless the Master Servicer
is the Seller) will be obligated to purchase a Mortgage Loan if a Seller
defaults on its obligation to do so, and no assurance can be given that Sellers
will carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of a representation and warranty of
a Seller may also constitute a breach of a representation made by the Master
Servicer, the Master Servicer may have a repurchase obligation as described
below under 'The Pooling and Servicing Agreement -- Assignment of Mortgage
Assets'.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement, dated
as of the related Cut-off Date, among the Depositor, the Master Servicer and the
Trustee for the benefit of the holders of the Certificates of such Series. The
provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund. A
form of an Agreement is an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions that
may appear in each Agreement. The Prospectus Supplement for a Series of
Certificates will describe any provision of the Agreement relating to such
Series that materially differs from the description 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 Certificates 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 record of a Certificate of such Series addressed to CWMBS, Inc., 155 North
Lake Avenue, Pasadena, California 91101-7139, Attention: Secretary.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in either fully registered or book-entry form in
the authorized denominations specified in the related Prospectus Supplement,
will evidence specified beneficial ownership interests in the related Trust Fund
created pursuant to the related Agreement and will not be entitled to payments
in respect of the assets included in any other Trust Fund established by the
Depositor. The Certificates will not represent obligations of the Depositor or
any affiliate of the Depositor. The Mortgage Assets will not be insured or
guaranteed by any governmental entity or other person, unless otherwise
specified in the related Prospectus Supplement. Each Trust Fund will consist of,
to the extent provided in the related Agreement, (i) the Mortgage Assets that
from time to time are subject to the related Agreement (exclusive of any amounts
specified in the related Prospectus Supplement (the 'Retained Interest')); (ii)
such assets as from time to time are required to be deposited in the related
Certificate Account; (iii) property that secured a Mortgage Loan and that is
acquired on behalf of the Certificateholders by foreclosure or deed in lieu of
foreclosure; and (iv) any Primary Mortgage Insurance Policies, FHA Insurance and
VA Guaranties, and any other insurance policies or other forms of credit
enhancement required to be maintained pursuant to the related Agreement. If so
specified in the related Prospectus Supplement, a Trust Fund may also include
one or more of the following: reinvestment income on payments received on the
Mortgage Assets, a reserve fund, a mortgage pool insurance policy, a special
hazard insurance policy, a bankruptcy bond, one or more letters of credit, a
surety bond, guaranties or similar instruments or other agreements.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right to payment
to one or more other classes of Certificates of such Series. Certain Series or
classes of Certificates may be covered by insurance policies, surety bonds or
other forms of credit enhancement, in each case as described herein and in the
related Prospectus Supplement. One or more classes of Certificates of a Series
may be entitled to receive distributions of principal, interest or any
combination thereof. Distributions on one or more classes of a Series of
Certificates 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 Fund, 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.
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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 Certificates will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the Prospectus Supplement) in
proportion to the percentages specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the dates specified in the related
Prospectus Supplement (each, a 'Record Date'). Distributions will be made by
check or money order mailed to the persons entitled thereto at the address
appearing in the register maintained for holders of Certificates (the
'Certificate Register') or, if specified in the related Prospectus Supplement,
in the case of Certificates that are of a certain minimum denomination, upon
written request by the Certificateholder, by wire transfer or by such other
means as are described therein; provided, however, that the final distribution
in retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency of the Trustee or other
person specified in the notice to Certificateholders of such final distribution.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code of certain classes of Certificates may result in 'prohibited
transactions' within the meaning of ERISA and the Code. See 'ERlSA
Considerations' herein. Unless otherwise specified in the related Prospectus
Supplement, transfer of such Certificates will not be registered unless the
transferee (i) represents that it is not, and is not purchasing on behalf of,
any such plan, account or arrangement or (ii) provides an opinion of counsel
satisfactory to the Trustee and the Depositor that the purchase of such
Certificates by or on behalf of such plan, account or arrangement is permissible
under applicable law and will not subject the Trustee, the Master Servicer or
the Depositor to any obligation or liability in addition to those undertaken in
the Agreement.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof as a 'real estate mortgage investment conduit' or
'REMIC' as defined in the Code. The related Prospectus Supplement will specify
whether a REMIC election is to be made. Alternatively, the Agreement for a
Series may provide that a REMIC election may be made at the discretion of the
Depositor or the Master Servicer and may be made only if certain conditions are
satisfied. As to any such Series, the terms and provisions applicable to the
making of a REMIC election, as well as any material federal income tax
consequences to Certificateholders not otherwise described herein, will be set
forth in the related Prospectus Supplement. If such an election is made with
respect to a Series, one of the classes will be designated as evidencing the
sole class of 'residual interests' in the related REMIC, as defined in the Code.
All other classes of Certificates in such a Series will constitute 'regular
interests' in the related REMIC, as defined in the Code. As to each Series with
respect to which a REMIC election is to be made, the Master Servicer or a holder
of the related residual certificate will be obligated to take all actions
required in order to comply with applicable laws and regulations and will be
obligated to pay any prohibited transaction taxes. The Master Servicer, unless
otherwise specified in the related Prospectus Supplement, will be entitled to
reimbursement for any such payment from the assets of the Trust Fund or from any
holder of the related residual certificate.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of credit
support, if any, that is used with respect to such Series. See 'Credit
Enhancement' herein and in the related Prospectus Supplement. Set forth below
are descriptions of various methods that may be used to determine the amount of
distributions on the Certificates of a particular Series. The Prospectus
Supplement for each Series of Certificates will describe the method to be used
in determining the amount of distributions on the Certificates of such Series.
Distributions allocable to principal of and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any
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Reserve Fund. As between Certificates of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments and scheduled payments of principal) and interest,
distributions made on any Distribution Date will be applied as specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, distributions to any class of Certificates will be made
pro rata to all Certificateholders of that class.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds, in accordance with
the terms described in the related Prospectus Supplement and specified in the
Agreement. Unless otherwise provided in the related Prospectus Supplement,
'Available Funds' for each Distribution Date will generally equal the amount on
deposit in the related Certificate Account on such Distribution Date (net of
related fees and expenses payable by the related Trust Fund) other than amounts
to be held therein for distribution on future Distribution Dates.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate Certificate Balance
(or, in the case of Certificates entitled only to distributions allocable to
interest, the aggregate notional amount) of each class of Certificates (the
'Class Certificate Balance') entitled to interest at the Pass-Through Rate
(which may be a fixed rate or a rate adjustable as specified in such Prospectus
Supplement) from the date and for the periods specified in such Prospectus
Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each class of Certificates entitled to interest
(other than a class of Certificates that provides for interest that accrues, but
is not currently payable, referred to hereafter as 'Accrual Certificates') will
be distributable on the Distribution Dates specified in the related Prospectus
Supplement until the Class Certificate Balance of such class has been
distributed in full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate notional amount of such
Certificates is reduced to zero or for the period of time designated in the
related Prospectus Supplement. The original Certificate Balance of each
Certificate will equal the aggregate distributions allocable to principal to
which such Certificate is entitled. Unless otherwise specified in the related
Prospectus Supplement, distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will be calculated
based on the notional amount of such Certificate. The notional amount of a
Certificate 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 Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the Class
Certificate Balance of such class of Certificates on that Distribution Date.
Unless otherwise specified in the related Prospectus Supplement, distributions
of interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement and, prior to
such time, the beneficial ownership interest of such class of Accrual
Certificates in the Trust Fund, as reflected in the Class Certificate Balance of
such class of Accrual Certificates, will increase on each Distribution Date by
the amount of interest that accrued on such class of Accrual Certificates during
the preceding interest accrual period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the related
Prospectus Supplement, the Class Certificate Balance of any class of
Certificates entitled to distributions of principal will be the original Class
Certificate Balance of such class of Certificates specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Certificates as allocable to principal and (i) in the case of Accrual
Certificates, unless otherwise specified in the related Prospectus Supplement,
increased by all interest accrued but not then distributable on such Accrual
Certificates and (ii) in the case of adjustable rate Certificates, unless
otherwise specified in the related Prospectus Supplement, subject to the effect
of negative amortization. The related Prospectus Supplement will specify the
method by which the amount of principal to be distributed on the Certificates on
each Distribution Date will be calculated and the manner in which such amount
will be allocated among the classes of Certificates entitled to distributions of
principal.
If so provided in the related Prospectus Supplement, one or more classes of
Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that 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
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circumstances or for the periods specified in such Prospectus Supplement. Any
such allocation of Principal Prepayments to such class or classes of
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by the Subordinated
Certificates in the Trust Fund. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
See 'Credit Enhancement -- Subordination' herein and 'Credit
Enhancement -- Subordination of the Subordinated Certificates' in the related
Prospectus Supplement.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Mortgage Assets,
the Trustee or the Master Servicer determines that the funds available or
anticipated to be available from the Certificate Account and, if applicable, any
Reserve Fund, may be insufficient to make required distributions on the
Certificates on such Distribution Date. Unless otherwise specified in the
related Prospectus Supplement, the amount of any such unscheduled distribution
that is allocable to principal will not exceed the amount that would otherwise
have been required to be distributed as principal on the Certificates on the
next Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, all unscheduled distributions will include interest at the
applicable Pass-Through Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified in
such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Certificates would have been made on the next Distribution Date, and with
respect to Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
ADVANCES
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Certificate
Account for future distributions to Certificateholders), an amount equal to the
aggregate of payments of principal and interest that were delinquent on the
related Determination Date, subject to the Master Servicer's determination that
such advances will be recoverable out of late payments by obligors on the
Mortgage Assets, Liquidation Proceeds, Insurance Proceeds or otherwise. In the
case of Cooperative Loans, the Master Servicer also will be required to advance
any unpaid maintenance fees and other charges under the related proprietary
leases as specified in the related Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to Certificateholders, rather
than to guarantee or insure against losses. If Advances are made by the Master
Servicer from cash being held for future distribution to Certificateholders, the
Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Certificate Account on such
Distribution Date would be less than the amount required to be available for
distributions to Certificateholders on such date. Any Advances will be
reimbursable to the Master Servicer out of recoveries on the specific Mortgage
Assets with respect to which such Advances were made (e.g., late payments made
by the related obligors, any related Insurance Proceeds, Liquidation Proceeds or
proceeds of any Mortgage Loan repurchased by the Depositor, a Sub-Servicer or a
Seller pursuant to the related Agreement). In addition, Advances by the Master
Servicer (and any advances by a Sub-Servicer) also will be reimbursable to the
Master Servicer (or Sub-Servicer) from cash otherwise distributable to
Certificateholders (including Senior Certificateholders) to the extent that the
Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described in the immediately preceding sentence. The
Master Servicer also will be obligated to make Advances, to the extent
recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Master Servicer to the
extent permitted by the Agreement. If specified in the related Prospectus
Supplement, the obligations of the Master Servicer to make Advances may be
supported by a
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cash advance reserve fund, a surety bond or other arrangement, in each case as
described in such Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date and
except as otherwise set forth in an applicable Prospectus Supplement, the Master
Servicer or the Trustee will furnish to each Certificateholder of record of the
related Series a statement setting forth, to the extent applicable to such
Series of Certificates, among other things:
(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 Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) withdrawn from the
Reserve Fund, if any, that is included in the amounts distributed to the
Certificateholders;
(v) the Class Certificate Balance or notional amount of each class of
the related Series after giving effect to the distribution of principal on
such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Assets
(excluding prepayments), if any, which each such class will be entitled to
receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments with respect to the
Mortgage Assets, if any, which each such class will be entitled to receive
on the following Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Certificate Account by the Master Servicer, and the
amount of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30 days,
(2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in
foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to
90 days and (4) 91 or more days, as of the close of business on the last
day of the calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the Pass-Through Rate, if adjusted from the date of the last
statement, of any such class expected to be applicable to the next
distribution to such class;
(xii) if applicable, the amount remaining in the Reserve Fund at the
close of business on the Distribution Date;
(xiii) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant class having the Percentage
Interest specified in the related Prospectus Supplement. The report to
Certificateholders for any Series of Certificates 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
Certificateholder 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 Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and
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(b) such other customary information as may be deemed necessary or desirable for
Certificateholders to prepare their tax returns.
CATEGORIES OF CLASSES OF CERTIFICATES
In general, classes of pass-through certificates fall into different
categories. The following chart identifies and generally defines certain of the
more typical categories. The Prospectus Supplement for a series of Certificates
may identify the classes which comprise such Series by reference to the
following categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
PRINCIPAL TYPES
Accretion Directed............ A class that receives principal payments from the accreted interest from
specified Accrual Classes. An Accretion Directed Class also may receive principal
payments from principal paid on the underlying Mortgage Assets or other assets of
the Trust Fund for the related Series.
Component Certificates........ A class consisting of 'Components.' The Components of a class of Component
Certificates may have different principal and/or interest payment characteristics
but together constitute a single class. Each Component of a class of Component
Certificates may be identified as falling into one or more of the categories in
this chart.
Notional Amount
Certificates................ A class having no principal balance and bearing interest on the related notional
amount. The notional amount is used for purposes of the determination of interest
distributions.
Planned Principal Class (also
sometimes referred to as
'PACs')..................... A class that is designed to receive principal payments using a predetermined
principal balance schedule derived by assuming two constant prepayment rates for
the underlying Mortgage Assets. These two rates are the endpoints for the
'structuring range' for the Planned Principal Class. The Planned Principal
Classes in any Series of Certificates may be subdivided into different categories
(e.g., Primary Planned Principal Classes, Secondary Planned Principal Classes and
so forth) having different effective structuring ranges and different principal
payment priorities. The structuring range for the Secondary Planned Principal
Class of a Series of Certificates will be narrower than that for the Primary
Planned Principal Class of such Series.
Scheduled Principal Class..... A class that is designed to receive principal payments using a predetermined
principal balance schedule but is not designated as a Planned Principal Class or
Targeted Principal Class. In many cases, the schedule is derived by assuming two
constant prepayment rates for the underlying Mortgage Assets. These two rates are
the endpoints for the 'structuring range' for the Scheduled Principal Class.
Sequential Pay................ Classes that receive principal payments in a prescribed sequence, that do not
have predetermined principal balance schedules and that under all circumstances
receive payments of principal continuously from the first Distribution Date on
which they receive principal until they are retired. A single class that receives
principal payments before or after all other classes in the same Series of
Certificates may be identified as a Sequential Pay Class.
Strip......................... A class that receives a constant proportion, or 'strip,' of the principal
payments on the underlying Mortgage Assets or other assets of the Trust Fund.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
Support Class (also sometimes
referred to as 'companion
classes')................... A class that receives principal payments on any Distribution Date only if
scheduled payments have been made on specified Planned Principal Classes,
Targeted Principal Classes and/or Scheduled Principal Classes.
Targeted Principal Class (also
sometimes referred to as
'TACs')..................... A class that is designed to receive principal payments using a predetermined
principal balance schedule derived by assuming a single constant prepayment rate
for the underlying Mortgage Assets.
INTEREST TYPES
Fixed Rate.................... A class with an interest rate that is fixed throughout the life of the class.
Floating Rate................. A class with an interest rate that resets periodically based upon a designated
index and that varies directly with changes in such index.
Inverse Floating Rate......... A class with an interest rate that resets periodically based upon a designated
index and that varies inversely with changes in such index.
Variable Rate................. A class with an interest rate that resets periodically and is calculated by
reference to the rate or rates of interest applicable to specified assets or
instruments (e.g., the Mortgage Rates borne by the underlying Mortgage Loans).
Interest Only................. A class that receives some or all of the interest payments made on the underlying
Mortgage Assets or other assets of the Trust Fund and little or no principal.
Interest Only Classes have either a nominal principal balance or a notional
amount. A nominal principal balance represents actual principal that will be paid
on the class. It is referred to as nominal since it is extremely small compared
to other classes. A notional amount is the amount used as a reference to
calculate the amount of interest due on an Interest Only Class that is not
entitled to any distributions in respect of principal.
Principal Only................ A class that does not bear interest and is entitled to receive only distributions
in respect of principal.
Partial Accrual............... A class that accretes a portion of the amount of accrued interest thereon, which
amount will be added to the principal balance of such class on each applicable
Distribution Date, with the remainder of such accrued interest to be distributed
currently as interest on such class. Such accretion may continue until a
specified event has occurred or until such Partial Accrual Class is retired.
Accrual....................... A class that accretes the amount of accrued interest otherwise distributable on
such class, which amount will be added as principal to the principal balance of
such class on each applicable Distribution Date. Such accretion may continue
until some specified event has occurred or until such Accrual Class is retired.
</TABLE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date for each class of Certificates of a Series as to which
the applicable interest rate is determined by reference to an index denominated
as LIBOR, the Person designated in the related Agreement (the 'Calculation
Agent') will determine LIBOR by reference to the quotations, as set forth on the
Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumptions and Provisions for
Swaps, 1986 Edition), offered by the principal London office of each of the
designated reference banks meeting the criteria set forth herein (the 'Reference
Banks') for making one-month United States dollar deposits in
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leading banks in the London Interbank market, as of 11:00 a.m. (London time) on
such LIBOR Determination Date. In lieu of relying on the quotations for those
Reference Banks that appear at such time on the Reuters Screen LIBO Page, the
Calculation Agent will request each of the Reference Banks to provide such
offered quotations at such time.
LIBOR will be established by the Calculation Agent on each LIBOR
Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The 'Reserve Interest Rate' shall be the rate per annum
which the Calculation Agent determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar lending rates that New York City banks
selected by the Calculation Agent are quoting, on the relevant LIBOR
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Calculation Agent being so made, or (ii) in the event that the Calculation
Agent can determine no such arithmetic mean, the lowest one-month United
States dollar lending rate which New York City banks selected by the
Calculation Agent are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the 'Eleventh District'). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ('FHLBSF') to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: (i) savings deposits, (ii)
time deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all
other borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, the Eleventh
District Cost of Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index, which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury Bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds
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Index may not necessarily reflect the prevailing market interest rates on new
liabilities of similar maturities. Moreover, as stated above, the Eleventh
District Cost of Funds Index is designed to represent the average cost of funds
for Eleventh District savings institutions for the month prior to the month in
which it is due to be published. Additionally, the Eleventh District Cost of
Funds Index may not necessarily move in the same direction as market interest
rates at all times, since as longer term deposits or borrowings mature and are
renewed at prevailing market interest rates, the Eleventh District Cost of Funds
Index is influenced by the differential between the prior and the new rates on
those deposits or borrowings. In addition, movements of the Eleventh District
Cost of Funds Index, as compared to other indices tied to specific interest
rates, may be affected by changes instituted by the FHLBSF in the method used to
calculate the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month 'will be announced on or near the last
working day' of the following month and also has stated that it 'cannot
guarantee the announcement' of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Certificates of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a class of 'COFI Certificates') for the Interest
Accrual Period commencing in such second following month will be based on the
Eleventh District Cost of Funds Index for the second preceding month. If
publication is delayed beyond such tenth day, such interest rate will be based
on the Eleventh District Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Certificates the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the 'National Cost of Funds Index') published by the Office of
Thrift Supervision (the 'OTS') for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest Accrual
Period commences the most recently published National Cost of Funds Index
relates to a month prior to the fourth preceding month, the applicable index for
such Interest Accrual Period and each succeeding Interest Accrual Period will be
based on LIBOR, as determined by the Calculation Agent in accordance with the
Agreement relating to such Series of Certificates. A change of index from the
Eleventh District Cost of Funds Index to an alternative index will result in a
change in the index level, and, particularly if LIBOR is the alternative index,
could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
Treasury Index
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date for each class of Certificates of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as a Treasury Index, the Calculation Agent will ascertain the
Treasury Index for Treasury securities of the maturity and for the period (or,
if applicable, date) specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Treasury Index for
any period means the average of the yield for each business day during the
period specified therein (and for any date means the yield for such date),
expressed as a per annum percentage rate, on (i) U.S. Treasury securities
adjusted to the 'constant maturity' (as further described below) specified in
such Prospectus Supplement or (ii) if no 'constant maturity' is so specified,
U.S. Treasury securities trading on the secondary market having the maturity
specified
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in such Prospectus Supplement, in each case as published by the Federal Reserve
Board in its Statistical Release No. H.15 (519). Statistical Release No. H.15
(519) is published on Monday or Tuesday of each week and may be obtained by
writing or calling the Publications Department at the Board of Governors of the
Federal Reserve System, 21st and C Streets, Washington, D.C. 20551 (202)
452-3244. If the Calculation Agent has not yet received Statistical Release No.
H.15 (519) for such week, then it will use such Statistical Release from the
immediately preceding week.
Yields on U.S. Treasury securities at 'constant maturity' are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Certificates. The Calculation Agent's determination of the Treasury Index, and
its calculation of the rates of interest for the applicable classes for the
related Interest Accrual Period shall (in the absence of manifest error) be
final and binding.
Prime Rate
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date for each class of Certificates of a Series as to
which the applicable interest rate is determined by reference to an index
denominated as the Prime Rate, the Calculation Agent will ascertain the Prime
Rate for the related Interest Accrual Period. Unless otherwise specified in the
related Prospectus Supplement, the Prime Rate for an Interest Accrual Period
will be the 'Prime Rate' as published in the 'Money Rates' section of The Wall
Street Journal (or if not so published, the 'Prime Rate' as published in a
newspaper of general circulation selected by the Calculation Agent in its sole
discretion) on the related Prime Rate Determination Date. If a prime rate range
is given, then the average of such range will be used. In the event that the
Prime Rate is no longer published, a new index based upon comparable data and
methodology will be designated in accordance with the Agreement relating to the
particular Series of Certificates. The Calculation Agent's determination of the
Prime Rate and its calculation of the rates of interest for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
BOOK-ENTRY CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of the Certificates of any Series (each, a class of 'Book-Entry Certificates')
may be initially issued through the book-entry facilities of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the 'Depository'). Each class of Book-Entry Certificates of a Series will be
issued in one or more certificates which equal the aggregate initial Class
Certificate Balance (as defined herein) of each such class and which will be
held by a nominee of the Depository. Unless otherwise provided in the related
Prospectus Supplement, the following generally describes the procedures that
will be applicable to any class of Book-Entry Certificates.
Beneficial interests in the Book-Entry Certificates of a Series will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations representing an original
principal amount of $1,000 and integral multiples in excess thereof.
Accordingly, the Depository or its nominee is expected to be the holder of
record of the Book-Entry Certificates. Except as described below, no person
acquiring a Book-Entry Certificate (each, a 'beneficial owner') will be entitled
to receive a physical certificate representing such Certificate (a 'Definitive
Certificate').
The beneficial owner's ownership of a Book-Entry Certificate 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 Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in true be recorded on the records
of the Depository, if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
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Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.
In accordance with its normal procedures, the Depository is expected to
record the positions held by each Depository participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing the Depository and
Depository participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing such
payments to the beneficial owners of the Book-Entry Certificates 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 Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since payments will be
forwarded by the Trustee to the Depository or its nominee, as the case may be,
as holder of record of the Book-Entry Certificates. Because the Depository can
act only on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Unless and until Definitive Certificates are issued, it is anticipated that
the only 'Certificateholder' of the Book-Entry Certificates will be the
Depository or its nominee. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term will be used in the Agreement relating
to such series of Certificates. Beneficial owners are only permitted to exercise
the rights of Certificateholders indirectly through Financial Intermediaries and
the Depository. Monthly and annual reports on the related Trust Fund provided to
the Depository or its nominee, as the case may be, as holder of record of the
Book-Entry Certificates, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
Unless otherwise specified in the related Prospectus Supplement, unless and
until Definitive Certificates are issued, the Depository will take any action
permitted to be taken by the holders of the Book-Entry Certificates of a
particular Series under the related Agreement only at the direction of one or
more Financial Intermediaries to whose Depository accounts such Book-Entry
Certificates are credit to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry Certificates.
Unless otherwise specified in the related Prospectus Supplement, Definitive
Certificates will be issued to beneficial owners of Book-Entry Certificates, or
their nominees, rather than to the Depository, only if (a) the Depository or the
Depositor advises the Trustee in writing that the Depository is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Certificates and the Depositor or
the Trustee is unable to locate a qualified successor; (b) the Depositor, at its
sole option, elects to terminate the book-entry system through the Depository;
or (c) after the occurrence of an Event of Default, beneficial owners of
Certificates representing not less than 51% of the aggregate Percentage
Interests evidenced by each class of Certificates of the related Series issued
as Book-Entry Certificates advise the Trustee and the Depository through the
Financial Intermediaries in writing that the continuation of a book-entry system
through the Depository (or a successor thereto) is no longer in the best
interests of the beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability of Definitive
Certificates. Upon surrender by the Depository of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue the Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement relating to such Series
of Certificates.
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CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Certificates or with respect to the Mortgage Assets in the related
Trust Fund. Credit enhancement may be in the form of a limited financial
guaranty policy issued by an entity named in the related Prospectus Supplement,
the subordination of one or more classes of the Certificates of such Series, the
establishment of one or more reserve funds, the use of a cross-support feature,
use of a mortgage pool insurance policy, bankruptcy bond, special hazard
insurance policy, surety bond, letter of credit, guaranteed investment contract
or other method of credit enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the related Prospectus Supplement, no credit enhancement will provide protection
against all risks of loss or guarantee repayment of the entire principal balance
of the Certificates and interest thereon. If losses occur which exceed the
amount covered by credit enhancement or which are not covered by the credit
enhancement, Certificateholders will bear their allocable share of any
deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, the rights of holders
of one or more classes of Subordinated Certificates (the 'Subordinated
Certificateholders') will be subordinate to the rights of holders of one or more
other classes of Senior Certificates (the 'Senior Certificateholders') of such
Series to distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise would have been
payable to holders of Subordinated Certificates under the circumstances and to
the extent specified in the related Prospectus Supplement. If specified in the
related Prospectus Supplement, delays in receipt of scheduled payments on the
Mortgage Assets and losses with respect to the Mortgage Assets will be borne
first by the various classes of Subordinated Certificates and thereafter by the
various classes of Senior Certificates, in each case under the circumstances and
subject to the limitations specified in such related Prospectus Supplement. The
aggregate distributions in respect of delinquent payments on the Mortgage Assets
over the lives of the Certificates or at any time, the aggregate losses in
respect of Mortgage Assets which must be borne by the Subordinated Certificates
by virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Certificateholders that will be distributable
to Senior Certificateholders on any Distribution Date may be limited as
specified in the related Prospectus Supplement. If aggregate distributions in
respect of delinquent payments on the Mortgage Assets or aggregate losses in
respect of such Mortgage Assets were to exceed the amount specified in the
related Prospectus Supplement, Senior Certificateholders would experience losses
on the Certificates.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other classes of Senior and
Subordinated Certificates, respectively, through a cross support mechanism or
otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Certificates, payments to Senior
Certificateholders on account of delinquencies or losses and payments to the
Reserve Fund will be allocated as specified in the related Prospectus
Supplement.
MORTGAGE POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement relating to a Mortgage
Pool, a separate mortgage pool insurance policy ('Mortgage Pool Insurance
Policy') will be obtained for the Mortgage Pool and issued by the insurer (the
'Pool Insurer') named in such Prospectus Supplement. Each Mortgage Pool
Insurance Policy will, subject to the limitations described below, cover loss by
reason of default in payment on Mortgage Loans in the Mortgage Pool in an amount
equal to a percentage specified in such Prospectus Supplement of the aggregate
principal balance of such Mortgage Loans on the Cut-off Date which are not
covered as to their entire outstanding principal balances by Primary Mortgage
Insurance Policies. As more fully described below, the Master Servicer will
present claims thereunder to the Pool Insurer on behalf of itself, the Trustee
and the Certificateholders. The Mortgage Pool Insurance Policies, however, are
not blanket policies against loss, since claims thereunder may be made only
respecting particular defaulted Mortgage Loans and only upon satisfaction
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of certain conditions precedent described below. Unless otherwise specified in
the related Prospectus Supplement, the Mortgage Pool Insurance Policies will not
cover losses due to a failure to pay or denial of a claim under a Primary
Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase the
Mortgaged Property at a price equal to the principal balance of the related
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of such purchase and certain expenses incurred by the Master Servicer on behalf
of the Trustee and Certificateholders or (b) to pay the amount by which the sum
of the principal balance of the defaulted Mortgage Loan plus accrued and unpaid
interest at the Mortgage Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Mortgaged Property, in either case net of certain amounts paid or assumed to
have been paid under the related Primary Mortgage Insurance Policy. If any
Mortgaged Property is damaged, and proceeds, if any, from the related hazard
insurance policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under the Mortgage Pool Insurance Policy, the Master Servicer will not
be required to expend its own funds to restore the damaged property unless it
determines that (i) such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) such expenses will be recoverable
by it through proceeds of the sale of the Mortgaged Property or proceeds of the
related Mortgage Pool Insurance Policy or any related Primary Mortgage Insurance
Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. A
failure of coverage attributable to one of the foregoing events might result in
a breach of the related Seller's representations described above and, in such
event, might give rise to an obligation on the part of such Seller to repurchase
the defaulted Mortgage Loan if the breach cannot be cured by such Seller. No
Mortgage Pool Insurance Policy will cover (and many Primary Mortgage Insurance
Policies do not cover) a claim in respect of a defaulted Mortgage Loan occurring
when the servicer of such Mortgage Loan, at the time of default or thereafter,
was not approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Mortgage Pool Insurance Policy will be
reduced over the life of the related Certificates by the aggregate dollar amount
of claims paid less the aggregate of the net amounts realized by the Pool
Insurer upon disposition of all foreclosed properties. The amount of claims paid
will include certain expenses incurred by the Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim,
unless otherwise specified in the related Prospectus Supplement. Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Mortgage Pool and will be
issued by the insurer (the 'Special Hazard Insurer') named in such Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described below, protect holders of the related Certificates from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage or as
otherwise specified in the related Prospectus Supplement) not insured against
under the standard form of hazard insurance policy for the respective states in
which the Mortgaged Properties are located or under a flood
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insurance policy if the Mortgaged Property is located in a federally designated
flood area and (ii) loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies. See 'The Pooling and Servicing
Agreement -- Hazard Insurance'. No Special Hazard Insurance Policy will cover
losses occasioned by fraud or conversion by the Trustee or Master Servicer, war,
insurrection, civil war, certain governmental action, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear or
chemical reaction, flood (if the Mortgaged Property is located in a federally
designated flood area), nuclear or chemical contamination and certain other
risks. The amount of coverage under any Special Hazard Insurance Policy will be
specified in the related Prospectus Supplement. Each Special Hazard Insurance
Policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan have been kept in
force and other protection and preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in the
related Prospectus Supplement, each Special Hazard Insurance Policy will provide
that where there has been damage to property securing a foreclosed Mortgage Loan
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the hazard insurance policy or flood insurance policy, if any,
maintained by the Mortgagor or the Master Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such property or
(ii) upon transfer of the property to the Special Hazard Insurer, the unpaid
principal balance of such Mortgage Loan at the time of acquisition of such
property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and certain expenses incurred by the Master
Servicer with respect to such property. If the unpaid principal balance of a
Mortgage Loan plus accrued interest and certain expenses is paid by the Special
Hazard Insurer, the amount of further coverage under the related Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair of such property
will further reduce coverage by such amount. So long as a Mortgage Pool
Insurance Policy remains in effect, the payment by the Special Hazard Insurer of
the cost of repair or of the unpaid principal balance of the related Mortgage
Loan plus accrued interest and certain expenses will not affect the total
insurance proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy
and Mortgage Pool Insurance Policy.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in a special trust account to provide protection in lieu
of or in addition to that provided by a Special Hazard Insurance Policy. The
amount of any Special Hazard Insurance Policy or of the deposit to the special
trust account in lieu thereof relating to such Certificates may be reduced so
long as any such reduction will not result in a downgrading of the rating of
such Certificates by any such rating agency.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a bankruptcy bond (the
'Bankruptcy Bond') to cover losses resulting from proceedings under the federal
Bankruptcy Code with respect to a Mortgage Loan will be issued by an insurer
named in such Prospectus Supplement. Each Bankruptcy Bond will cover, to the
extent specified in the related Prospectus Supplement, certain losses resulting
from a reduction by a bankruptcy court of scheduled payments of principal and
interest on a Mortgage Loan or a reduction by such court of the principal amount
of a Mortgage Loan and will cover certain unpaid interest on the amount of such
a principal reduction from the date of the filing of a bankruptcy petition. The
required amount of coverage under each Bankruptcy Bond will be set forth in the
related Prospectus Supplement. Coverage under a Bankruptcy Bond may be cancelled
or reduced by the Master Servicer if such cancellation or reduction would not
adversely affect the then current rating or ratings of the related Certificates.
See 'Certain Legal Aspects of the Mortgage Loans -- Anti-Deficiency Legislation
and Other Limitations on Lenders' herein.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in a special trust account to provide protection in lieu
of or in addition to that provided by a Bankruptcy Bond. The amount of any
Bankruptcy Bond or of the deposit to the special trust account in lieu thereof
relating to such Certificates may be reduced so long as any such reduction will
not result in a downgrading of the rating of such Certificates by any such
rating agency.
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RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of one
or more reserve funds (the 'Reserve Fund') for such Series. The related
Prospectus Supplement will specify whether or not a Reserve Fund will be
included in the Trust Fund for such Series.
The Reserve Fund for a Series will be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
related Prospectus Supplement, (ii) by the deposit therein from time to time of
certain amounts, as specified in the related Prospectus Supplement, to which the
Subordinated Certificateholders, if any, would otherwise be entitled or (iii) in
such other manner as may be specified in the related Prospectus Supplement.
Any amounts on deposit in the Reserve Fund and the proceeds of any other
instrument deposited therein upon maturity will be held in cash or will be
invested in 'Permitted Investments' which, unless otherwise specified in the
related Prospectus Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the Trustee,
such letter of credit will be irrevocable. Unless otherwise specified in the
related Prospectus Supplement, any instrument deposited therein will name the
Trustee, in its capacity as trustee for the Certificateholders, as beneficiary
and will be issued by an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such instruments deposited
in the Reserve Funds will be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Fund for distribution to the
Certificateholders for the purposes, in the manner and at the times specified in
the related Prospectus Supplement.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Certificates. In such case, credit
support may be provided by a cross support feature which requires that
distributions be made with respect to Certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund. The related
Prospectus Supplement for a Series that includes a cross support feature will
describe the manner and conditions for applying such cross support feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
related Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trust Funds.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, LETTERS OF CREDIT AND SIMILAR
INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may also
include insurance, guaranties, surety bonds, letters of credit or similar
arrangements for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the assets included in such Trust Fund,
(ii) paying administrative expenses or (iii) establishing a minimum reinvestment
rate on the payments made in respect of such assets or principal payment rate on
such assets. Such arrangements may include agreements under which
Certificateholders are entitled to receive amounts deposited in various accounts
held by the Trustee upon the terms specified in such Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the amount and timing of principal payments received on
or in respect of the Mortgage Assets included in the related Trust Fund. The
original terms to maturity of the underlying mortgage loans with respect to the
Mortgage Assets in a given Mortgage Pool will vary depending upon the type of
mortgage loans included
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therein, and each Prospectus Supplement will contain information with respect to
the type and maturities of such mortgage loans. Unless otherwise specified in
the related Prospectus Supplement, the mortgage loans may be prepaid without
penalty in full or in part at any time. The prepayment experience on the
underlying mortgage loans with respect to the Mortgage Assets will affect the
life of the related Series of Certificates.
A number of factors, including homeowner mobility, economic conditions, the
presence and enforceability of due-on-sale clauses, mortgage market interest
rates and the availability of mortgage funds, may affect the prepayment
experience of mortgage loans.
Unless otherwise provided in the related Prospectus Supplement, all
conventional Mortgage Loans will contain due-on-sale provisions permitting the
mortgagee to accelerate the maturity of the loan upon sale or certain transfers
by the Mortgagor of the underlying Mortgaged Property. Mortgage Loans insured by
the FHA and Mortgage Loans partially guaranteed by the VA are assumable with the
consent of the FHA and the VA, respectively. Thus, the rate of prepayments on
such Mortgage Loans may be lower than that on conventional Mortgage Loans
bearing comparable interest rates. 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 impair or threaten to
impair any recovery under any related insurance policy. See 'The Pooling and
Servicing Agreement -- Collection Procedures' and 'Certain Legal Aspects of the
Mortgage Loans' herein for a description of certain provisions of each Agreement
and certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, the 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, the 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.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is 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. Unless otherwise specified in the related
Prospectus Supplement, the effect of prepayments in full will be to reduce the
amount of interest passed through in the following month to Certificateholders
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment. 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. Unless otherwise specified in the related Prospectus
Supplement, both full and partial prepayments will not be passed through until
the month following receipt.
The effective yield to Certificateholders will be slightly lower than the
yield otherwise produced by the applicable Pass-Through Rate and purchase price
because while interest will accrue on each Mortgage Loan from the first day of
the month (unless otherwise provided in the related Prospectus Supplement), the
distribution of such interest will not be made earlier than the month following
the month of accrual.
Under certain circumstances, the Master Servicer or the holders of the
residual interests in a REMIC may have the option to purchase the assets of a
Trust Fund thereby effecting earlier retirement of the related Series of
Certificates. See 'The Pooling and Servicing Agreement -- Termination; Optional
Termination' herein.
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and over
the lives of the Certificates. The relative contribution 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 Certificates.
The Prospectus Supplement relating to a Series of Certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including Principal Prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
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THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of certain provisions of the Agreement which
are not described elsewhere in this Prospectus. Where particular provisions or
terms used in the Agreement are referred to, such provisions or terms are as
specified in the related Agreement.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans comprising
the related Trust Fund to be assigned to the Trustee, together with all
principal and interest received by or on behalf of the Depositor on or with
respect to such Mortgage Loans after the Cut-off Date, other than principal and
interest due on or before the Cut-off Date and other than any Retained Interest
specified in the related Prospectus Supplement. The Trustee will, concurrently
with such assignment, deliver the Certificates 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. 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, the Depositor will deliver or cause to be delivered to the
Trustee (or to the custodian hereinafter referred to) as to each Mortgage Loan,
among other things, (i) the Mortgage Note endorsed without recourse in blank or
to the order of the Trustee, (ii) the mortgage, deed of trust or similar
instrument (the 'Mortgage') with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will, unless otherwise specified in the related Prospectus
Supplement, deliver or cause to be delivered a copy of such Mortgage together
with a certificate that the original of such Mortgage was delivered to such
recording office), (iii) an assignment of the Mortgage to the Trustee, which
assignment will be in recordable form and (iv) such other security documents as
may be specified in the related Prospectus Supplement or the related Agreement.
Unless otherwise specified in the related Prospectus Supplement, the Depositor
will promptly cause the assignments of the related loans to be recorded in the
appropriate public office for real property records, except in states in which,
in the opinion of counsel acceptable to the Trustee, such recording is not
required to protect the Trustee's interest in such loans against the claim of
any subsequent transferee or any successor to or creditor of the Depositor or
the originator of such loans.
With respect to any Mortgage Loans that are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee the related original
cooperative note endorsed without recourse in blank or to the order of the
Trustee, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate, related blank stock powers and any other document
specified in the related Prospectus Supplement. The Depositor will cause to be
filed in the appropriate office an assignment and a financing statement
evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold such
documents in trust for the benefit of the Certificateholders. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found to
be missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Depositor, and the Master Servicer will
notify the related Seller. If the Seller cannot cure the omission or defect
within the time period specified in the related Prospectus Supplement after
receipt of such notice, the Seller will be obligated to purchase the related
Mortgage Loan from the Trustee at the Purchase Price or, if so specified in the
related Prospectus Supplement, replace such Mortgage Loan with another mortgage
loan that meets certain requirements set forth therein. There can be no
assurance that a Seller will fulfill this purchase obligation. Although the
Master Servicer may be obligated to enforce such obligation to the extent
described above under 'Mortgage Loan Program -- Representations by Sellers;
Repurchases,' neither the Master Servicer nor the Depositor will be obligated to
purchase such Mortgage Loan if the Seller defaults on its purchase obligation,
unless such breach also constitutes a breach of the representations or
warranties of the Master Servicer or the Depositor, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, this purchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for omission of, or a material defect in, a constituent document.
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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.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC election is to be made, unless the related Prospectus Supplement
otherwise provides, no purchase of a Mortgage Loan will be made if such purchase
would result in a prohibited transaction tax under the Code.
Assignment of Agency Securities. The Depositor will cause the Agency
Securities to be registered in the name of the Trustee or its nominee, and the
Trustee concurrently will execute, countersign and deliver the Certificates.
Each Agency Security will be identified in a schedule appearing as an exhibit to
the Agreement, which will specify as to each Agency Security the original
principal amount and outstanding principal balance as of the Cut-off Date, the
annual pass-through rate (if any) and the maturity date.
Assignment of Private Mortgage-Backed Securities. The Depositor will cause
the 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 Trust Fund -- 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 and certain other pertinent
information for each Private Mortgage-Backed Security conveyed to the Trustee.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO CERTIFICATE ACCOUNT
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Mortgage Assets in the
Trust Fund (the 'Certificate Account'), which unless otherwise specified in the
related Prospectus Supplement, must be either (i) maintained with a depository
institution the short-term unsecured debt obligations of which (or in the case
of a depository institution that is the principal subsidiary of a holding
company, the short-term debt obligations of which) are rated in the highest
short-term rating category by the nationally recognized statistical rating
organization(s) that rated one or more classes of the related Series of
Certificates (each, a 'Rating Agency'), (ii) an account or accounts the deposits
in which are insured by the FDIC or SAIF to the limits established by the FDIC
or the SAIF, and the uninsured deposits in which are otherwise secured such
that, as evidenced by an opinion of counsel, the Certificateholders have a claim
with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Certificate Account is maintained, (iii) a
trust account or accounts maintained with the trust department of a federal or a
state chartered depository institution or trust company, acting in a fiduciary
capacity or (iv) an account or accounts otherwise acceptable to each Rating
Agency. The collateral eligible to secure amounts in the Certificate Account is
limited to Permitted Investments. A Certificate Account may be maintained as an
interest bearing account or the funds held therein may be invested pending each
succeeding Distribution Date in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or its
designee will be entitled to receive any such interest or other income earned on
funds in the Certificate Account as additional compensation and will be
obligated to deposit in the Certificate Account the amount of any loss
immediately as realized. The Certificate Account may be maintained with the
Master Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided it meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund on a daily basis, to the extent
applicable and unless otherwise specified in the related Prospectus Supplement
and provided in the Agreement, the following payments and collections received
or Advances made by or on behalf of it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date and exclusive of any amounts
representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties, on the Mortgage Loans;
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(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ('Insured Expenses') incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the
extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, 'Insurance Proceeds') and all other
cash amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ('Liquidation Expenses') and unreimbursed
Advances, if any) received and retained in connection with the liquidation
of defaulted Mortgage Loans, by foreclosure or otherwise ('Liquidation
Proceeds'), together with any net proceeds received on a monthly basis with
respect to any properties acquired on behalf of the Certificateholders by
foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased by the Master Servicer, the Depositor or any Seller as described
under 'Mortgage Loan Program -- Representations by Sellers; Repurchases' or
'The Pooling and Servicing Agreement -- Assignment of Mortgage Assets'
above and all proceeds of any Mortgage Loan repurchased as described under
'The Pooling and Servicing Agreement -- Termination; Optional Termination'
below;
(v) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under ' -- Hazard Insurance' below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Certificate Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Certificate Account to withdraw funds
from the Certificate Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Certificate
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan being limited to amounts
received that represent late recoveries of payments of principal and/or
interest on such Mortgage Loan (or Insurance Proceeds or Liquidation
Proceeds with respect thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to pay to the Master Servicer, with respect to each Mortgage Loan
or property acquired in respect thereof that has been purchased by the
Master Servicer pursuant to the Agreement, all amounts received thereon and
not taken into account in determining the principal balance of such
repurchased Mortgage Loan;
(vii) to reimburse the Master Servicer or the Depositor for expenses
incurred and reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account upon termination
of the Agreement.
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In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Certificate
Account the amount of Available Funds, to the extent on deposit, for deposit in
an account maintained by the Trustee for the related Series of Certificates.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Mortgage
Loans and will, consistent with each Agreement and any Mortgage Pool Insurance
Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty and
Bankruptcy Bond or alternative arrangements, follow such collection procedures
as are customary with respect to mortgage loans that are comparable to the
Mortgage Loans. Consistent with the above, the Master Servicer may, in its
discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with the
coverage of such Mortgage Loan by a Mortgage Pool Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guaranty or Bankruptcy Bond or
alternative arrangements, if applicable, arrange with a Mortgagor a schedule for
the liquidation of delinquencies running for no more than 125 days after the
applicable due date for each payment. To the extent the Master Servicer is
obligated to make or to cause to be made Advances, such obligation will remain
during any period of such an arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a conventional Mortgage Loan has been, or is
about to be, conveyed by the Mortgagor, the Master Servicer will, to the extent
it has knowledge of such conveyance or proposed conveyance, exercise or cause to
be exercised its rights to accelerate the maturity of such Mortgage Loan under
any due-on-sale clause applicable thereto, but only if the exercise of such
rights is permitted by applicable law and will not impair or threaten to impair
any recovery under any related Primary Mortgage Insurance Policy. If these
conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law to enforce such due-on-sale clause or if such
Mortgage Loan is insured by the FHA or partially guaranteed by the VA, the
Master Servicer will enter into or cause to be entered 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 for repayment
of the Mortgage Loan and, to the extent permitted by applicable law, the
Mortgagor also remains liable thereon. Any fee collected by or on behalf of the
Master Servicer for entering into an assumption agreement will be retained by or
on behalf of the Master Servicer as additional servicing compensation. See
'Certain Legal Aspects of the Mortgage Loans -- Due-on-Sale Clauses' herein. In
connection with any such assumption, the terms of the related Mortgage Loan may
not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See 'Certain Legal Aspects of the
Mortgage Loans' herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
In general, a 'tenant-stockholder' (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a 'cooperative housing corporation' within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to those
years. In view of the
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significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Code Section 216(b)(1), the likelihood that such a failure
would be permitted to continue over a period of years appears remote.
HAZARD INSURANCE
The Master Servicer will require the Mortgagor on each Mortgage Loan to
maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary for
the type of Mortgaged Property in the state in which such Mortgaged Property is
located. Such coverage will be in an amount that is at least equal to the lesser
of (i) the maximum insurable value of the improvements securing such Mortgage
Loan or (ii) the greater of (y) the outstanding principal balance of the
Mortgage Loan and (z) an amount such that the proceeds of such policy shall be
sufficient to prevent the mortgagor and/or the mortgagee from becoming a
co-insurer. All amounts collected by the Master Servicer under any hazard policy
(except for amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures) will be deposited in the related Certificate
Account. In the event that the Master Servicer maintains a blanket policy
insuring against hazard losses on all the Mortgage Loans comprising part of a
Trust Fund, it will conclusively be deemed to have satisfied its obligation
relating to the maintenance of hazard insurance. Such blanket policy may contain
a deductible clause, in which case the Master Servicer will be required to
deposit from its own funds into the related Certificate Account the amounts that
would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Mortgage Loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans may have been
underwritten by different insurers under different state laws in accordance with
different applicable forms and therefore may not contain identical terms and
conditions, the basic terms thereof are dictated by the respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and mud
flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be all
inclusive. If the Mortgaged Property securing a Mortgage Loan is located in a
federally designated special flood area at the time of origination, the Master
Servicer will require the Mortgagor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a clause which in effect requires the insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the insured property in order to recover the full
amount of any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since the amount of hazard insurance the
Master Servicer may cause to be maintained on the improvements securing the
Mortgage Loans declines as the principal balances owing thereon decrease, and
since improved real estate generally has appreciated in value over time in the
past, the effect of this requirement in the event of partial loss may be that
hazard insurance proceeds will be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special hazard
insurance policy will be obtained to insure against certain of the uninsured
risks described above. See 'Credit Enhancement -- Special Hazard Insurance
Policies' herein and 'Credit Enhancements -- Insurance -- Special Hazard
Insurance Policy' in the related Prospectus Supplement.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such
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borrower's cooperative dwelling or such Cooperative's building could
significantly reduce the value of the collateral securing such Cooperative Loan
to the extent not covered by other credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Primary Mortgage Insurance Policies. The Master Servicer will maintain or
cause to be maintained, as the case may be, in full force and effect, to the
extent specified in the related Prospectus Supplement, a Primary Mortgage
Insurance Policy with regard to each Mortgage Loan for which such coverage is
required. The Master Servicer will not cancel or refuse to renew any such
Primary Mortgage Insurance Policy in effect at the time of the initial issuance
of a Series of Certificates that is required to be kept in force under the
applicable Agreement unless the replacement Primary Mortgage Insurance Policy
for such cancelled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of Certificates of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Mortgage Insurance Policy (the 'Primary Insurer'), (iv) claim
payments previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary Mortgage Insurance Policies
will not insure against, and exclude from coverage, a loss sustained by reason
of a default arising from or involving certain matters, including (i) fraud or
negligence in origination or servicing of the Mortgage Loans, including
misrepresentation by the originator, Mortgagor or other persons involved in the
origination of the Mortgage Loan; (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans; (iii)
physical damage to the Mortgaged Property; and (iv) the related Sub-Servicer not
being approved as a servicer by the Primary Insurer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to (i)
advance or discharge (a) all hazard insurance policy premiums and (b) as
necessary and approved in advance by the Primary Insurer, (1) real estate
property taxes, (2) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
Mortgaged Property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of any physical loss or damage to the Mortgaged Property, have the Mortgaged
Property restored and repaired to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear
excepted; and (iii) tender to the Primary Insurer good and merchantable title to
and possession of the Mortgaged Property.
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy, and will take such reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Primary Mortgage Insurance Policy and, when the
Mortgaged Property has not been restored, the hazard insurance policy, are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property to a condition sufficient to permit
recovery under the related Primary Mortgage Insurance Policy, if any, the Master
Servicer is not required to expend its own funds to restore the damaged
Mortgaged Property unless it determines (i) that such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
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If recovery on a defaulted Mortgage Loan under any related Primary Mortgage
Insurance Policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted Mortgage Loan is not covered by a Primary
Mortgage Insurance Policy, the Master Servicer will be obligated to follow or
cause to be followed such normal practices and procedures as it deems necessary
or advisable to realize upon the defaulted Mortgage Loan. If the proceeds of any
liquidation of the Mortgaged Property securing the defaulted Mortgage Loan are
less than the principal balance of such Mortgage Loan plus interest accrued
thereon that is payable to Certificateholders, the Trust Fund will realize a
loss in the amount of such difference plus the aggregate of expenses incurred by
the Master Servicer in connection with such proceedings that are reimbursable
under the Agreement. In the unlikely event that any such proceedings result in a
total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Mortgage Loan plus interest
accrued thereon that is payable to Certificateholders, the Master Servicer will
be entitled to withdraw or retain from the Certificate Account amounts
representing its normal servicing compensation with respect to such Mortgage
Loan and, unless otherwise specified in the related Prospectus Supplement,
amounts representing the balance of such excess, exclusive of any amount
required by law to be forwarded to the related Mortgagor, as additional
servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of a
Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
policy, it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust Fund may realize a loss up to
the amount so charged. Since Insurance Proceeds cannot exceed deficiency claims
and certain expenses incurred by the Master Servicer, no such payment or
recovery will result in a recovery to the Trust Fund that exceeds the principal
balance of the defaulted Mortgage Loan together with accrued interest thereon.
See 'Credit Enhancement' herein and in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement or the
related Agreement, the proceeds from any liquidation of a Mortgage Loan will be
applied in the following order of priority: first, to reimburse the Master
Servicer for any unreimbursed expenses incurred by it to restore the related
Mortgaged Property and any unreimbursed servicing compensation payable to the
Master Servicer with respect to such Mortgage Loan; second, to reimburse the
Master Servicer for any unreimbursed Advances with respect to such Mortgage
Loan; third, to accrued and unpaid interest (to the extent no Advance has been
made for such amount) on such Mortgage Loan; and fourth, as a recovery of
principal of such Mortgage Loan.
FHA Insurance; VA Guaranties. Mortgage Loans designated in the related
Prospectus Supplement as insured by the FHA will be insured by the FHA as
authorized under the United States Housing Act of 1937, as amended. Such
Mortgage Loans will be insured under various FHA programs including the standard
FHA 203(b) program to finance the acquisition of one-to four-family housing
units and the FHA 245 graduated payment mortgage program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. Mortgage Loans insured by the FHA generally require a minimum down
payment of approximately 5% of the original principal amount of the loan. No
FHA-insured Mortgage Loans relating to a Series may have an interest rate or
original principal amount exceeding the applicable FHA limits at the time of
origination of such loan.
The insurance premiums for Mortgage Loans insured by the FHA are collected
by lenders approved by the Department of Housing and Urban Development ('HUD')
or by the Master Servicer or any Sub-Servicers and are paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide that
insurance benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted Mortgage Loan to HUD. With respect to a defaulted FHA-insured
Mortgage Loan, the Master Servicer or any Sub-Servicer is limited in its ability
to initiate foreclosure proceedings. When it is determined, either by the Master
Servicer or any Sub-Servicer or HUD, that default was caused by circumstances
beyond the Mortgagor's control, the Master Servicer or any Sub-Servicer is
expected to make an effort to avoid foreclosure by entering, if feasible, into
one of a number of available forms of forbearance plans with the Mortgagor. Such
plans may involve the reduction or suspension of
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regular mortgage payments for a specified period, with such payments to be made
up on or before the maturity date of the mortgage, or the recasting of payments
due under the mortgage up to or beyond the maturity date. In addition, when a
default caused by such circumstances is accompanied by certain other criteria,
HUD may provide relief by making payments to the Master Servicer or any
Sub-Servicer in partial or full satisfaction of amounts due under the Mortgage
Loan (which payments are to be repaid by the Mortgagor to HUD) or by accepting
assignment of the loan from the Master Servicer or any Sub-Servicer. With
certain exceptions, at least three full monthly installments must be due and
unpaid under the Mortgage Loan and HUD must have rejected any request for relief
from the Mortgagor before the Master Servicer or any Sub-Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. The Master Servicer of any Sub-Servicer of each
FHA-insured Mortgage Loan will be obligated to purchase any such debenture
issued in satisfaction of such Mortgage Loan upon default for an amount equal to
the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or Sub-Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Mortgage Loan,
bears interest from a date 30 days after the Mortgagor's first uncorrected
failure to perform any obligation to make any payment due under the Mortgage
Loan and, upon assignment, from the date of assignment to the date of payment of
the claim, in each case at the same interest rate as the applicable HUD
debenture interest rate as described above.
Mortgage Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a 'VA Guaranty'). The
Serviceman's Readjustment Act of 1944, as amended, permits a veteran (or in
certain instances the spouse of a veteran) to obtain a mortgage loan guaranty by
the VA covering mortgage financing of the purchase of a one- to four-family
dwelling unit at interest rates permitted by the VA. The program has no mortgage
loan limits, requires no down payment from the purchaser and permits the
guarantee of mortgage loans of up to 30 years' duration. However, no Mortgage
Loan guaranteed by the VA will have an original principal amount greater than
five times the partial VA guaranty for such Mortgage Loan.
The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As of
January 1, 1990, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $46,000. The liability on the
guaranty is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guaranty
exceed the amount of the original guaranty. The VA may, at its option and
without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed Mortgage Loan, the Master
Servicer or Sub-Servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guaranty is submitted after liquidation
of the Mortgaged Property.
The amount payable under the guaranty will be the percentage of the
VA-insured Mortgage Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guaranty will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of
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the Mortgaged Property. The amount payable under the guaranty may in no event
exceed the amount of the original guaranty.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Mortgage Loan, and such compensation will be retained
by it from collections of interest on such Mortgage Loan in the related Trust
Fund (the 'Master Servicing Fee'). Unless otherwise specified in the related
Prospectus Supplement, as compensation for its servicing duties, a Sub-Servicer
or, if there is no Sub-Servicer, the Master Servicer will be entitled to a
monthly servicing fee as described in the related Prospectus Supplement. In
addition, the Master Servicer or a Sub-Servicer will retain all prepayment
charges, assumption fees and late payment charges, to the extent collected from
Mortgagors, and any benefit that may accrue as a result of the investment of
funds in the applicable Certificate Account (unless otherwise specified in the
related Prospectus Supplement).
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation,
payment of any fee or other amount payable in respect of any credit enhancement
arrangements, payment of the fees and disbursements of the Trustee, any
custodian appointed by the Trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers
under certain limited circumstances. In addition, as indicated in the preceding
section, the Master Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with any defaulted Mortgage Loan as to
which it has determined that all recoverable Liquidation Proceeds and Insurance
Proceeds have been received (a 'Liquidated Mortgage'), and in connection with
the restoration of Mortgaged Properties, such right of reimbursement being prior
to the rights of Certificateholders to receive any related Liquidation Proceeds
(including Insurance Proceeds).
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 Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of Mortgage Loans,
Private Mortgage-Backed Securities or Agency Securities, under 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 Audit
Program for Mortgages serviced for FHLMC or the Uniform Single Attestation
Program for Mortgage Bankers requires it to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of Mortgage
Loans, Private Mortgage-Backed Securities or Agency Securities by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for FHLMC (rendered within one year of
such statement) of firms of independent public accountants with respect to the
related Sub-Servicer.
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 two officers 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 statement of officers
of the Master Servicer may be obtained by Certificateholders of the related
Series without charge upon written request to the Master Servicer at the address
set forth in the related Prospectus Supplement.
LIST OF CERTIFICATEHOLDERS
Each Agreement will provide that three or more holders of Certificates of
any Series may, by written request to the Trustee, obtain access to the list of
all Certificateholders maintained by the Trustee for the purpose
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of communicating with other Certificateholders with respect to their rights
under the Agreement and the Certificates.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may have normal
business relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination that
the performance by it of its duties thereunder is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Each Agreement will further provide that the Master Servicer, the
Depositor and any director, officer, employee or agent of the Master Servicer or
the Depositor will be entitled to indemnification by the related Trust Fund and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the Certificates,
other than any loss, liability or expense related to any specific Mortgage Asset
or Mortgage Assets (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund,
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Certificateholders.
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.
EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, Events of
Default under each Agreement will consist of (i) any failure by the Master
Servicer to deposit in the Certificate Account or remit to the Trustee any
payment (other than an Advance) which continues unremedied for five days after
the giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer and the Trustee by the
holders of Certificates having not less than 25% of the Voting Rights evidenced
by the Certificates; (ii) any failure by the Master Servicer to make an Advance
as required under the Agreement, unless cured as specified therein; (iii) any
failure by the Master Servicer to observe or perform in any material respect any
of its other covenants or agreements in the Agreement which continues unremedied
for sixty days after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer and the
Trustee by the holders of Certificates of any class evidencing not less than 25%
of the Voting Rights evidenced by the Certificate; and (iv) certain events of
insolvency, readjustment of debt, marshalling of
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assets and liabilities or similar proceeding and certain actions by or on behalf
of the Master Servicer indicating its insolvency, reorganization or inability to
pay its obligations. 'Voting Rights' are the portion of voting rights of all of
the Certificates which is allocated to any Certificate pursuant to the terms of
the Agreement.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the Trust
Fund in the event that payments in respect thereto are insufficient to make
payments required in the Agreement. The assets of the Trust Fund will be sold
only under the circumstances and in the manner specified in the related
Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
having not less than 25% of the Voting Rights and under such other circumstances
as may be specified in such Agreement, the Trustee shall, terminate all of the
rights and obligations of the Master Servicer under the Agreement relating to
such Trust Fund and in and to the Mortgage Assets, whereupon the Trustee will
succeed to all of the responsibilities, duties and liabilities of the Master
Servicer under the Agreement, including, if specified in the related Prospectus
Supplement, the obligation to make Advances, and will be entitled to similar
compensation arrangements. In the event that the Trustee is unwilling or unable
so to act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid to the successor servicer, which in no event may be
greater than the compensation payable to the Master Servicer under the
Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of any
class of Certificates of such Series evidencing not less than 25% of the Voting
Rights have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 60 days has neglected or refused to institute any
such proceeding.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Certificateholders, (i) to cure any ambiguity;
(ii) to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein; or (iii) to make any other
revisions with respect to matters or questions arising under the Agreement that
are not inconsistent with the provisions thereof, provided that such action will
not as evidenced by an opinion of counsel, adversely affect in any material
respect the interests of any Certificateholder; provided, however, that no such
opinion of counsel will be required if the person requesting such amendment
obtains a letter from each rating agency requested to rate the class or classes
of Certificates of such Series stating that such amendment will not result in
the downgrading or withdrawal of the respective ratings then assigned to such
Certificates. In addition, to the extent provided in the related Agreement, an
Agreement may be amended without the consent of any of the Certificateholders to
change the manner in which the Certificate Account is maintained, provided that
any such change does not adversely affect the then current rating of the class
or classes of Certificates of such Series that have been rated. In addition, if
a REMIC election is made with respect to a Trust Fund, the related Agreement may
be amended to modify, eliminate or add to any of its provisions to such extent
as may be necessary to maintain the qualification of the related Trust Fund as a
REMIC, provided that the Trustee has received an opinion of counsel to the
effect that such action is necessary or helpful to maintain such qualification.
Unless otherwise specified in the related Prospectus Supplement, each Agreement
may also be amended by the Depositor, the Master Servicer and the Trustee with
the consent of holders of Certificates of such Series evidencing a majority in
interest of each class affected thereby for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Agreement or of modifying in any manner the rights of the holders of the related
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Assets that are required to be distributed on any Certificate without the
consent of the
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holder of such Certificate, (ii) adversely affect in any material respect the
interests of the holders of any class of Certificates in a manner other than as
described in (i), without the consent of the holders of Certificates of such
class evidencing, as to such class, percentage interests aggregating 66%, (iii)
reduce the aforesaid percentage of Certificates of any class of holders that is
required to consent to any such amendment without the consent of the holders of
all Certificates of such class covered by such Agreement then outstanding. If a
REMIC election is made with respect to a Trust Fund, the Trustee will not be
entitled to consent to an amendment to the related Agreement without having
first received an opinion of counsel to the effect that such amendment will not
cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders of all amounts held in the
Certificate Account 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 of any such Mortgage
Assets remaining in the Trust Fund and (ii) the purchase by the Master Servicer
or, if REMIC treatment has been elected and if specified in the related
Prospectus Supplement, by the holder of the residual interest in the REMIC (see
'Certain Federal Income Tax Consequences' below and in the related Prospectus
Supplement), from the related Trust Fund of all of the remaining Mortgage Assets
and all property acquired in respect of such Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any
purchase of Mortgage Assets and property acquired in respect of Mortgage Assets
evidenced by a Series of Certificates will be made at the option of the Master
Servicer or, if applicable, the holder of the REMIC residual interest, at a
price, and in accordance with the procedures, specified in the related
Prospectus Supplement. The exercise of such right will effect early retirement
of the Certificates of that Series, but the right of the Master Servicer or, if
applicable, such holder of the REMIC residual interest, 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 provision that if a REMIC election is made with
respect to a Trust Fund, 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.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer and any of
their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain 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. The summaries are qualified in
their entirety by reference to the appropriate laws of the states in which
Mortgage Loans may be originated.
GENERAL
The Mortgage Loans will be secured by deeds of trust, mortgages, 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. Deeds of trust are
used almost exclusively in California instead of mortgages. 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. Under the mortgage instrument, the mortgagor
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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 trustee's authority under a deed of trust, the mortgagee's
authority under a mortgage 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.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupant under proprietary leases or occupancy
agreements to which that Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust Fund
including Cooperative Loans, the collateral securing the Cooperative Loans.
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
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. 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 certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, such as California, the
trustee must record a notice of default and send a copy to the borrower-trustor
and to any person who has recorded a request for a copy of any notice of default
and notice of sale. In addition, the trustee must provide notice in some states
to any other individual having an interest of record in the real property,
including
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any junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, including California, published for a specified period of time
in one or more newspapers. In addition, these notice provisions require that a
copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the property. In California, the entire process
from recording a notice of default to a non-judicial sale usually takes four to
five months.
In some states, including California, the borrower-trustor has the right to
reinstate the loan at any time following default until shortly before the
trustee's sale. In general, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recoverable by a lender.
Mortgages. 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. Judicial foreclosure proceedings are often not contested by any of the
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 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 deed
of trust is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property 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 often purchases 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.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the Cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under
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the proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the 'UCC') and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a 'commercially reasonable'
manner. Whether a foreclosure sale has been conducted in a 'commercially
reasonable' manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See 'Anti-Deficiency Legislation and Other
Limitations on Lenders' below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
RIGHTS OF REDEMPTION
In some states after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, including California, this right of redemption applies
only to sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In some states, the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial 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 imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the borrower equal in most cases to
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the difference between the amount due to the lender and the current fair market
value of the property at the time of the foreclosure sale. As a result of these
prohibitions, it is anticipated that in most instances the Master Servicer will
utilize the non-judicial foreclosure remedy and will not seek deficiency
judgments against defaulting Mortgagors.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 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 a
mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and 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 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 Certificates and possible reductions in the
aggregate amount of such payments.
The federal 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 in connection with the
origination, servicing and enforcement of mortgage 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 or
contracts.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), the United States Environmental Protection Agency ('EPA') may impose
a lien on property where the EPA has incurred clean-up costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an 'owner' or 'operator' for the costs of
addressing releases or threatened releases of hazardous substances at a
Mortgaged Property, even though the environmental damage or threat was caused by
a prior or
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current owner or operator. CERCLA imposes liability for such costs on any and
all 'responsible parties,' including owners or operators. However, CERCLA
excludes from the definition of 'owner or operator' a secured creditor who holds
indicia of ownership primarily to protect its security interest but does not
'participate in the management' of the property (the 'secured creditor
exclusion'). Thus, if a lender's activities begin to encroach on the actual
management of a contaminated facility or property, the lender may incur
liability as an 'owner or operator' under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to a third party), or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute such participation in
the management of a property, so that the lender would lose the protection of
the secured creditor exclusion, has been a matter of judicial interpretation of
the statutory language, and court decisions have historically been inconsistent.
In 1990, the United States Court of Appeals for the Eleventh Circuit suggested,
in United States v. Fleet Factors Corp., that the mere capacity of the lender to
influence a borrower's decisions regarding disposal of hazardous substances was
sufficient participation in the management of the borrower's business to deny
the protection of the secured creditor exclusion to the lender, regardless of
whether the lender actually exercised such influence. Other judicial decisions
did not interpret the secured creditor exclusion as narrowly as did the Eleventh
Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
'Asset Conservation Act'), which took effect on September 30, 1996. The Asset
Conservation Act provides that in order to be deemed to have participated in the
management of a secured property, a lender must actually participate in the
operational affairs of the property or of the borrower. The Asset Conservation
Act also provides that participation in the management of the property does not
include 'merely having the capacity to influence, or unexercised right to
control' operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the secured property.
If a lender is or becomes liable, it can bring an action for contribution
against any other 'responsible parties,' including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ('RCRA'), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. Moreover, under the Asset Conservation Act, the protections accorded
to lenders under CERCLA are also accorded to holders of security interests in
underground petroleum storage tanks. It should be noted, however, that liability
for cleanup of petroleum contamination may be governed by state law, which
may not provide for any specific protection for secured creditors.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environmental assessment of the Mortgage Properties was conducted.
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 or obligor sells, transfers or conveys
the Mortgaged Property, the loan may be accelerated by the mortgagee. In recent
years, court decisions and legislative actions have placed substantial
restriction on the right of lenders to enforce such clauses in many states. For
instance, the California Supreme Court in August 1978 held that due-on-sale
clauses were generally
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unenforceable. However, 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, the Garn-St
Germain Act sets forth nine specific instances in which a mortgagee covered by
the Garn-St Germain 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 or may result in a mortgage bearing an interest rate
below the current market rate being assumed by a new home buyer, which may
affect the average life of the Mortgage Loans and the number of Mortgage
Loans which may extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on 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 Mortgage Loans having higher Mortgage Rates, may
increase the likelihood of refinancing or other early retirement of such loans
or contracts.
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 Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation 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 Certificates. 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 borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates is based
on the advice of Brown & Wood LLP, counsel to the Depositor. This summary is
based on laws, regulations, including the REMIC regulations promulgated by the
Treasury Department on December 23, 1992 and generally effective for REMICs with
start-up dates on or after November 12, 1991 (the 'REMIC Regulations'), rulings
and decisions now in effect or (with respect to regulations) proposed, all of
which are subject to change either prospectively or retroactively. This summary
does not address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
NON-REMIC CERTIFICATES
If a REMIC election is not made, Brown & Wood LLP will deliver its opinion
that the Trust Fund will not be classified as an association taxable as a
corporation and that each such Trust Fund will be classified as a grantor trust
under subpart E, Part I of subchapter J of the Internal Revenue Code of 1986
(the 'Code' referred to in this section unless otherwise indicated). In this
case, owners of Certificates will be treated for federal income tax purposes as
owners of a portion of the Trust Fund's assets as described below.
A. SINGLE CLASS OF CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Certificates. In this case, each Certificateholder will be treated as the owner
of a pro rata undivided interest in the interest and principal portions of the
Trust Fund represented by the Certificates and will be considered the equitable
owner of a pro rata undivided interest in each of the Mortgage Loans in the
Pool. Any amounts received by a Certificateholder in lieu of amounts due with
respect to any Mortgage Loans because of a default or delinquency in payment
will be treated for federal income tax purposes as having the same character as
the payments they replace.
Each Certificateholder will be required to report on its federal income tax
return in accordance with such Certificateholder's method of accounting its pro
rata share of the entire income from the Mortgage Loans in the Trust Fund
represented by Certificates, including interest, original issue discount
('OID'), if any, prepayment fees, assumption fees, any gain recognized upon an
assumption and late payment charges received by the Master Servicer. Under Code
Sections 162 or 212 each Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Certificateholders that are individuals, estates or
trusts will be entitled to deduct their share of expenses only to the extent
such expenses plus such taxpayer's other miscellaneous itemized deductions (as
defined in the Code) exceed two percent of its adjusted gross income. A
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Master Servicer. A Certificateholder using an accrual method of accounting must
take into account its pro rata share of income and deductions as they become due
(or received if received prior to when due) or are paid (or accrued if accrued
prior to payment) to the Master Servicer. If the servicing fees paid to the
Master Servicer are deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as an ownership interest retained by
the Master Servicer (or any person to whom the Master Servicer assigned for
value all or a portion of the servicing fees) in a portion of the interest
payments on the Mortgage Loans. The Mortgage Loans would then be subject to the
'coupon stripping' rules of the Code discussed below.
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Unless otherwise specified in the related Prospectus Supplement, as to each
Series of Certificates Brown & Wood LLP will have advised the Depositor that:
(i) a Certificate owned by a 'domestic building and loan association'
within the meaning of Code Section 7701(a)(19) representing principal and
interest payments on Mortgage Loans will be considered to represent 'loans
. . . secured by an interest in real property which is . . . residential
property' within the meaning of Code Section 7701(a)(19)(C)(v), to the
extent that the Mortgage Loans represented by that Certificate are of a
type described in such Code section;
(ii) a Certificate owned by a real estate investment trust
representing an interest in Mortgage Loans will be considered to represent
'real estate assets' within the meaning of Code Section 856(c)(5)(A), and
interest income on the Mortgage Loans will be considered 'interest on
obligations secured by mortgages on real property' within the meaning of
Code Section 856(c)(3)(B), to the extent that the Mortgage Loans
represented by that Certificate are of a type described in such Code
section; and
(iii) a Certificate owned by a REMIC will represent an 'obligation ...
which is principally secured, directly or indirectly, by an interest in
real property' within the meaning of Code Section 860G(a)(3).
Buydown Loans. The assets constituting certain Trust Funds may include
Buydown Loans. The characterization of any investment in Buydown Loans will
depend upon the precise terms of the related buydown agreement, but to
the extent that such Buydown Loans are secured in part by a bank account or
other personal property, they may not be treated in their entirety as assets
described in the foregoing sections of the Code. There are no directly
applicable precedents with respect to the federal income tax treatment
or the characterization of investments in Buydown Loans. Accordingly,
Certificateholders should consult their own tax advisors with respect to the
characterization of investments in Certificates representing an interest in a
Trust Fund that includes Buydown Loans.
Premium. The price paid for a Certificate by a holder will be allocated to
such holder's undivided interest in each Mortgage Loan based on each Mortgage
Loan's relative fair market value, so that such holder's undivided interest in
each Mortgage Loan will have its own tax basis. A Certificateholder that
acquires an interest in Mortgage Loans at a premium may elect, under Code
Section 171, to amortize such premium under a constant interest method, provided
that the underlying mortgage loans with respect to such Mortgage Loans were
originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Certificate. The basis for such Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment assumption
should be used in computing amortization of premium allowable under Code Section
171.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Certificate acquired at a premium should recognize a
loss if a Mortgage Loan (or an underlying mortgage loan with respect to a
Mortgage Loan) prepays in full, equal to the difference between the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage loan)
that is allocable to the Certificate and the portion of the adjusted basis of
the Certificate that is allocable to such Mortgage Loan (or underlying mortgage
loan). If a reasonable prepayment assumption is used to amortize such premium,
it appears that such a loss would be available, if at all, only if prepayments
have occurred at a rate faster than the reasonable assumed prepayment rate. It
is not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
Original Issue Discount. The Internal Revenue Service (the 'IRS') has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to 'original issue discount'
(currently Code Sections 1271 through 1273 and 1275) will be applicable to a
Certificateholder's interest in those Mortgage Loans meeting the conditions
necessary for these sections to apply. OID generally must be reported as
ordinary gross income as it accrues under a constant interest method. See
' -- Multiple Classes of Certificates -- Certificates Representing Interests in
Loans Other Than ARM Loans' below.
Market Discount. A Certificateholder that acquires an undivided interest
in Mortgage Loans may be subject to the market discount rules of Code Sections
1276 through 1278 to the extent an undivided interest in a Mortgage Loan is
considered to have been purchased at a 'market discount.' Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of such Mortgage Loan allocable to such
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holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Certificate will be considered to be zero if
the amount allocable to the Certificate is less than 0.25% of the Certificate's
stated redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Although the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history describes how market discount should be accrued on
such instruments. According to such legislative history, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. If a
Certificate is issued with OID, the amount of market discount that accrues
during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the accrual period. For purposes of
calculating market discount under any of the above methods in the case of
instruments that provide for payments that may be accelerated by reason of
prepayments of other obligations (which technically does not include the
Certificates) securing such instruments, the same prepayment assumption
applicable to calculating the accrual of OID will apply. Because the regulations
described above have not been issued, it is impossible to predict what effect
those regulations might have on the tax treatment of a Certificate purchased at
a discount or premium in the secondary market.
A holder who acquired a Certificate at a market discount also may be
required to defer, until the maturity date of such Certificate or its earlier
disposition in a taxable transaction, the deduction of a portion of the amount
of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry such Certificate in
excess of the aggregate amount of interest (including OID) includible in such
holder's gross income for the taxable year with respect to such Certificate. The
amount of such net interest expense deferred in a taxable year may not exceed
the amount of market discount accrued on the Certificate for the days during the
taxable year on which the holder held the Certificate and, in general, would be
deductible when such market discount is includible in income. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the Certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred deduction will be allowed to the extent of gain
recognized on the disposition. This deferral rule does not apply if the
Certificateholder elects to include such market discount in income currently as
it accrues on all market discount obligations acquired by such Certificateholder
in that taxable year or thereafter.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder 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 Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Certificate with
market discount, the Certificateholder 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 Certificateholder acquires during
the year of the election or thereafter. Similarly, a Certificateholder that
makes this election for a Certificate 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 Certificateholder
owns or acquires. See ' -- Single Class of Certificates -- Premium' herein.
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The election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate cannot be revoked without the consent of the IRS.
B. MULTIPLE CLASSES OF CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of 'stripped bonds' with respect to principal payments and 'stripped
coupons' with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Certificates, one class of
Certificates may represent the right to principal and interest, or principal
only, on all or a portion of the Mortgage Loans (the 'Stripped Bond
Certificates'), while the second class of Certificates may represent the right
to some or all of the interest on such portion (the 'Stripped Coupon
Certificates').
Servicing fees in excess of reasonable servicing fees ('excess servicing')
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Loan principal
balance) or the Certificates are initially sold with a de minimis discount
(which amount may be calculated without a prepayment assumption), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Loan by Mortgage Loan basis, which
could result in some Mortgage Loans being treated as having more than 100 basis
points of interest stripped off. See ' -- Non-REMIC Certificates' and 'Multiple
Classes of Senior Certificates -- Stripped Bonds and Stripped Coupons' herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Loans issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Loan is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See ' -- Non-REMIC Certificates'
and ' -- Single Class of Certificates -- Original Issue Discount' herein.
However, a purchaser of a Stripped Bond Certificate will be required to account
for any discount on the Mortgage Loans as market discount rather than OID if
either (i) the amount of OID with respect to the Mortgage Loan is treated as
zero under the OID de minimis rule when the Certificate was stripped or (ii) no
more than 100 basis points (including any amount of servicing fees in excess of
reasonable servicing fees) is stripped off of the Trust Fund's Mortgage Loans.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Loan. However, based on the recent IRS
guidance, it appears that all payments from a Mortgage Loan underlying a
Stripped Coupon Certificate should be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments from such
Mortgage Loan would be included in the Mortgage Loan's stated redemption price
at maturity for purposes of calculating income on such certificate under the OID
rules of the Code.
It is unclear under what circumstances, if any, the prepayment of Mortgage
Loans will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Certificate, it appears that no loss will be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the assumed prepayment rate. However, if such Certificate is treated as an
interest in discrete Mortgage Loans, or if no prepayment assumption is used,
then when a Mortgage Loan is prepaid, the holder of such Certificate should be
able to recognize a loss equal to the portion of the unrecovered premium of such
Certificate that is allocable to such Mortgage Loan.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
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2. Certificates Representing Interests in Loans Other Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of 'teaser' rates (i.e., the initial rates on the Mortgage Loans
are lower than subsequent rates on the Mortgage Loans) on the Mortgage Loans.
OID on each Certificate must be included in the owner's ordinary income for
federal income tax purposes as it accrues, in accordance with a constant
interest method that takes into account the compounding of interest, in advance
of receipt of the cash attributable to such income. The amount of OID required
to be included in an owner's income in any taxable year with respect to a
Certificate representing an interest in Mortgage Loans other than Mortgage Loans
with interest rates that adjust periodically ('ARM Loans') likely will be
computed as described below under ' -- Accrual of Original Issue Discount.' The
following discussion is based in part on Treasury regulations issued on January
27, 1994, under Code Sections 1271 through 1273 and 1275 (the 'OID Regulations')
and in part on the provisions of the Tax Reform Act of 1986 (the '1986 Act').
The OID Regulations generally are effective for debt instruments issued on or
after April 4, 1994, but may be relied upon as authority with respect to debt
instruments issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issued date of the Mortgage Loans should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware, however,
that neither the proposed OID Regulations nor the OID Regulations adequately
address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Loans underlying the Certificates will be
treated as having been issued on the date the were originated with an amount of
OID equal to the excess of such Mortgage Loan's stated redemption price at
maturity over its issue price. The issue price of a Mortgage Loan is generally
the amount lent to the mortgagee, which may be adjusted to take into account
certain loan origination fees. The stated redemption price at maturity of a
Mortgage Loan is the sum of all payments to be made on such Mortgage Loan other
than payments that are treated as qualified stated interest payments. The
accrual of this OID, as described below under ' -- Accrual of Original Issue
Discount,' will, unless otherwise specified in the related Prospectus
Supplement, utilize the original yield to maturity of the Certificates
calculated based on a reasonable assumed prepayment rate for the mortgage loans
underlying the Certificates (the 'Prepayment Assumption'), and will take into
account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. The legislative history of the 1986 Act (the 'Legislative
History') provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Certificate
must include in gross income the sum of the 'daily portions,' as defined below,
of the OID on such Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations. A
calculation will be made by the Master Servicer or such other entity specified
in the related Prospectus Supplement of the portion of OID that accrues during
each successive monthly accrual period
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(or shorter period from the date of original issue) that ends on the day in the
calendar year corresponding to each of the Distribution Dates on the
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by adding (i) the present value at the
end of the accrual period (determined by using as a discount factor the original
yield to maturity of the respective component under the Prepayment Assumption)
of all remaining payments to be received under the Prepayment Assumption on the
respective component and (ii) any payments received during such accrual period,
and subtracting from that total the 'adjusted issue price' of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Certificate at the beginning of the first accrual period is its issue price; the
adjusted issue price of a Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately preceding
accrual period plus the amount of OID allocable to that accrual period reduced
by the amount of any payment made at the end of or during that accrual period.
The OID accruing during such accrual period will then be divided by the number
of days in the period to determine the daily portion of OID for each day in the
period. With respect to an initial accrual period shorter than a full monthly
accrual period, the daily portions of OID must be determined according to an
appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Loans acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Loan, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loan (e.g., due to points) will be
includible by such holder. Other original issue discount on the Mortgage Loans
(e.g., that arising from a 'teaser' rate) would still need to be accrued.
3. Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Certificates, which represent interests in ARM Loans. Additionally, the IRS
has not issued guidance under the Code's coupon stripping rules with respect to
such instruments. In the absence of any authority, the Master Servicer will
report OID on Certificates attributable to ARM Loans ('Stripped ARM
Obligations') to holders in a manner it believes is consistent with the rules
described above under the heading ' -- Certificates Representing Interests in
Loans Other Than ARM Loans' and with the OID Regulations. In general,
application of these rules may require inclusion of income on a Stripped ARM
Obligation in advance of the receipt of cash attributable to such income.
Further, the addition of interest deferred by reason of negative amortization
('Deferred Interest') to the principal balance of an ARM Loan may require the
inclusion of such amount in the income of the Certificateholder when such amount
accrues. Furthermore, the addition of Deferred Interest to the Certificate's
principal balance will result in additional income (including possibly OID
income) to the Certificateholder over the remaining life of such Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
C. SALE OR EXCHANGE OF A CERTIFICATE
Sale or exchange of a Certificate prior to its maturity will result in gain
or loss equal to the difference, if any, between the amount received and the
owner's adjusted basis in the Certificate. Such adjusted basis generally will
equal the seller's purchase price for the Certificate, increased by the OID
included in the seller's gross income with respect to the Certificate, and
reduced by principal payments on the Certificate previously received by the
seller. Such gain or loss will be capital gain or loss to an owner for which a
Certificate is a 'capital asset' within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the Certificate has been
owned for the long-term capital gain holding period (currently more than one
year).
The Certificates will be 'evidences of indebtedness' within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a
Certificate by a bank or a thrift institution to which such section applies will
be ordinary income or loss.
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D. NON-U.S. PERSONS
Generally, to the extent that a Certificate evidences ownership in
underlying Mortgage Loans that were issued on or before July 18, 1984, interest
or OID paid by the person required to withhold tax under Code Section 1441 or
1442 to (i) an owner that is not a U.S. Person (as defined below) or (ii) a
Certificateholder holding on behalf of an owner that is not a U.S. Person will
be subject to federal income tax, collected by withholding, at a rate of 30% or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued OID recognized by the owner on the sale or exchange of such a
Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a Certificate evidences ownership in Mortgage Loans issued after July 18, 1984,
by natural persons if such Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). Additional restrictions apply to Mortgage Loans where
the mortgagor is not a natural person in order to qualify for the exemption from
withholding.
As used herein, a 'U.S. Person' means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States trustees have
authority to control all substantial decisions of the trust.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
REMIC CERTIFICATES
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however ' -- Residual Certificates' and ' -- Prohibited Transactions'
below), if a Trust Fund with respect to which a REMIC election is made fails to
comply with one or more of the ongoing requirements of the Code for REMIC status
during any taxable year, including the implementation of restrictions on the
purchase and transfer of the residual interests in a REMIC as described below
under 'Residual Certificates,' the Code provides that a Trust Fund will not be
treated as a REMIC for such year and thereafter. In that event, such entity may
be taxable as a separate corporation, and the related Certificates (the 'REMIC
Certificates') may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Brown & Wood LLP will deliver its opinion
generally to the effect that, under then existing law and assuming compliance
with all provisions of the related Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
('Regular Certificates') or residual interests ('Residual Certificates') in the
REMIC. The related Prospectus Supplement for each Series of Certificates will
indicate whether the Trust Fund will make a REMIC election and whether a class
of Certificates will be treated as a regular or residual interest in the REMIC.
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In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
'domestic building and loan association' will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute 'real estate assets' within the meaning of Code Section
856(c)(5)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered 'interest on obligations secured by
mortgages on real property' within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Loans held pending distribution on the REMIC Certificates will be
considered to be real estate assets for purposes of Code Section 856(c).
In some instances the Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
Buydown Loans contained in ' -- Non-REMIC Certificates -- Single Class of
Certificates' above. REMIC Certificates held by a real estate investment trust
will not constitute 'Government Securities' within the meaning of Code Section
856(c)(5)(A), and REMIC Certificates held by a regulated investment company will
not constitute 'Government Securities' within the meaning of Code Section
851(b)(4)(A)(ii). REMIC Certificates held by certain financial institutions will
constitute 'evidences of indebtedness' within the meaning of Code Section
582(c)(1).
A 'qualified mortgage' for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) that are
'single family residences' under Code Section 25(e)(10) will qualify as real
property without regard to state law classifications. Under Code Section
25(e)(10), a single family residence includes any manufactured home that has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs (respectively, the 'Subsidiary REMIC' and the 'Master REMIC') for federal
income tax purposes. Upon the issuance of any such Series of Certificates, Brown
& Wood LLP, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and the Subsidiary REMIC,
respectively, will be considered to evidence ownership of Regular Certificates
or Residual Certificates in the related REMIC within the meaning of the REMIC
provisions.
Only REMIC Certificates, other than the residual interest in the Subsidiary
REMIC, issued by the Master REMIC will be offered hereunder. The Subsidiary
REMIC and the Master REMIC will be treated as one REMIC solely for purposes of
determining whether the REMIC Certificates will be (i) 'real estate assets'
within the meaning of Section 856(c)(5)(A) of the Code; (ii) 'loans secured by
an interest in real property' under Section 7701(a)(19)(C) of the Code; and
(iii) whether the income on such Certificates is interest described in Section
856(c)(3)(B) of the Code.
A. REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of Regular Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
Regular Certificates under an accrual method.
Original Issue Discount and Premium. The Regular Certificates may be
issued with original issue discount ('OID'). Generally, such OID, if any, will
equal the difference between the 'stated redemption price at maturity' of a
Regular Certificate and its 'issue price.' Holders of any class of Certificates
issued with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest method
based on the compounding of interest as it accrues rather than in accordance
with receipt of the interest payments. The following discussion is based in part
on Treasury regulations issued on January 27, 1994, under Code Sections 1271
through 1273 and 1275 (the 'OID Regulations') and in part on the provisions of
the Tax Reform Act of 1986 (the '1986 Act'). The OID Regulations generally are
effective for
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debt instruments issued on or after April 4, 1994. Holders of Regular
Certificates (the 'Regular Certificateholders') should be aware, however, that
the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the Regular Certificates and prescribe a method for
adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such Regular Certificates. The Prospectus
Supplement for each Series of Regular Certificates will specify the Prepayment
Assumption to be used for the purpose of determining the amount and rate of
accrual of OID. No representation is made that the Regular Certificates will
prepay at the Prepayment Assumption or at any other rate.
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 subject to Code Section 1272(a)(6), such as
the Regular Certificates. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). The Trustee
intends to base its computations on Code Section 1272(a)(6) and the OID
Regulations as described herein. However, because no regulatory guidance
currently exists under Code Section 1272(a)(6), there can be no assurance that
such methodology represents the correct manner of calculating OID.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
'stated redemption price at maturity' over its 'issue price.' The issue price of
a Regular Certificate is the first price at which a substantial amount of
Regular Certificates of that class are first sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). The issue price of a Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the Regular
Certificate. The stated redemption price at maturity of a Regular Certificate
includes the original principal amount of the Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
'qualified stated interest.' Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or less during the entire term of the Regular Certificate. Interest is
payable at a single fixed rate only if the rate appropriately takes into account
the length of the interval between payments. Distributions of interest on
Regular Certificates with respect to which Deferred Interest will accrue will
not constitute qualified stated interest payments, and the stated redemption
price at maturity of such Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount disregarding the
rate in the first period and any interest foregone during the first period is
treated as the amount by which the stated redemption price of the Certificate
exceeds its issue price for purposes of the de minimis rule described below. The
OID Regulations suggest that all or a portion of the interest on a long first
period Regular Certificate that is issued with non-de minimis OID will be
treated as OID. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval between
subsequent Distribution Dates, interest due on the first Distribution Date in
excess of the amount that accrued during the first period would be added to the
Certificates stated redemption price at maturity. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate. Additionally, it is
possible that the IRS could assert that the stated Pass-Through Rate of interest
on the Regular Certificates is not unconditionally payable because late payments
or nonpayments on the Mortgage Loans are not penalized nor are there reasonable
remedies in place to compel payment on such Mortgage Loans. Such position, if
successful, would require all holders of Regular Certificates to accrue income
on such certificates under the OID Regulations.
Under the de minimis rule, OID on a Regular Certificate will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Regular Certificate multiplied by the weighted
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average maturity of the Regular Certificate. For this purpose, the weighted
average maturity of the Regular Certificate 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 Regular Certificate and the denominator of
which is the stated redemption price at maturity of the Regular Certificate.
Although currently unclear, it appears that the schedule of such distributions
should be determined in accordance with the Prepayment Assumption. The
Prepayment Assumption with respect to a Series of Regular Certificates will be
set forth in the related Prospectus Supplement. Holders generally must report de
minimis OID pro rata as principal payments are received, and such income will be
capital gain if the Regular Certificate 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.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
'Super-Premium Certificates'). The income tax treatment of such Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such Regular Certificates is the sum of all payments to be made on
such Regular Certificates determined under the Prepayment Assumption, with the
result that such Regular Certificates would be issued with OID. The calculation
of income in this manner could result in negative original issue discount (which
delays future accruals of OID rather than being immediately deductible) when
prepayments on the Mortgage Loans exceed those estimated under the Prepayment
Assumption. As discussed above, the Contingent Regulations specifically do not
apply to prepayable debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. However, if the Super-Premium Certificates were
treated as contingent payment obligations, it is unclear how holders of those
Certificates would report income or recover their basis. In the alternative, the
IRS could assert that the stated redemption price at maturity of such Regular
Certificates should be limited to their principal amount (subject to the
discussion below under ' -- Accrued Interest Certificates'), so that such
Regular Certificates would be considered for federal income tax purposes to be
issued at a premium. If such a position were to prevail, the rules described
below under ' -- Regular Certificates -- Premium' would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate. Absent further guidance, the
Trustee intends to treat the Super-Premium Certificates as described herein.
Under the REMIC Regulations, if the issue price of a Regular Certificate
(other than those based on a notional amount) does not exceed 125% of its actual
principal amount, the interest rate is not considered disproportionately high.
Accordingly, such Regular Certificate generally should not be treated as a
Super-Premium Certificate and the rules described below under ' -- Regular
Certificates -- Premium' should apply. However, it is possible that certificates
issued at a premium, even if the premium is less than 25% of such Certificate's
actual principal balance, will be required to amortize the premium under an
original issue discount method or contingent interest method even though no
election under Code section 171 is made to amortize such premium.
Generally, a Regular Certificateholder must include in gross income the
'daily portions,' as determined below, of the OID that accrues on a Regular
Certificate for each day a Certificateholder holds the Regular Certificate,
including the purchase date but excluding the disposition date. The daily
portions of OID are determined by allocating to each day in an accrual period
the ratable portion of OID allocable to the accrual period. Accrual periods may
be of any length and may vary in length over the term of the Regular
Certificates, provided that each accrual period (i) is not longer than one year,
(ii) begins or ends on a Distribution Date (except for the first accrual period
which begins on the issue date) and (iii) begins on the day after the preceding
accrual period ends. This will be done, in the case of each full accrual period,
by (i) adding (a) the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity of the Regular
Certificates as calculated under the Prepayment Assumption) of all remaining
payments to be received on the Regular Certificates under the Prepayment
Assumption and (b) any payments included in the stated redemption price at
maturity received during such accrual period, and (ii) subtracting from that
total the adjusted issue price of the Regular Certificates at the beginning of
such accrual period. The adjusted issue price of a
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Regular Certificate at the beginning of the first accrual period is its issue
price; the adjusted issue price of a Regular Certificate at the beginning of a
subsequent accrual period is the adjusted issue price at the beginning of the
immediately preceding accrual period plus the amount of OID allocable to that
accrual period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the accrual
period. The calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero) in a given
accrual period to reflect the fact that prepayments are occurring faster or
slower than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a Regular Certificate issued with OID who
purchases the Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that Regular Certificate. In computing
the daily portions of OID for such a purchaser (as well as an initial purchaser
that purchases at a price higher than the adjusted issue price but less than the
stated redemption price at maturity), however, the daily portion is reduced by
the amount that would be the daily portion for such day (computed in accordance
with the rules set forth above) multiplied by a fraction, the numerator of which
is the amount, if any, by which the price paid by such holder for that Regular
Certificate exceeds the following amount: (a) the sum of the issue price plus
the aggregate amount of OID that would have been includible in the gross income
of an original Regular Certificateholder (who purchased the Regular Certificate
at its issue price), less (b) any prior payments included in the stated
redemption price at maturity, and the denominator of which is the sum of the
daily portions for that Regular Certificate for all days beginning on the date
after the purchase date and ending on the maturity date computed under the
Prepayment Assumption. A holder who pays an acquisition premium instead may
elect to accrue OID by treating the purchase as a purchase at original issue.
Variable Rate Regular Certificates. Regular Certificates may provide for
interest based on a variable rate. Interest is treated as payable at a variable
rate and not as contingent interest if, generally, (i) the issue price does not
exceed the original principal balance by more than a specified amount and (ii)
the interest compounds or is payable at least annually at current values of
certain objective rates matured by or based on lending rates for newly borrowed
funds. For a debt instrument issued after August 13, 1996, an objective rate is
a rate (other than a qualified floating rate) that is determined using a single
fixed formula and that is based on objective financial or economic information.
The variable interest generally will be qualified stated interest to the extent
it is unconditionally payable at least annually and, to the extent successive
variable rates are used, interest is not significantly accelerated or deferred.
The amount of OID with respect to a Regular Certificate bearing a variable
rate of interest will accrue in the manner described above under ' -- Original
Issue Discount and Premium' by assuming generally that the index used for the
variable rate will remain fixed throughout the term of the Certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans as variable rate certificates. In such case,
the weighted average rate used to compute the initial pass-through rate on the
Regular Certificates will be deemed to be the index in effect through the life
of the Regular Certificates. It is possible, however, that the IRS may treat
some or all of the interest on Regular Certificates with a weighted average rate
as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such
Regular Certificates. Additionally, if some or all of the Mortgage Loans are
subject to 'teaser rates' (i.e., the initial rates on the Mortgage Loans are
less than subsequent rates on the Mortgage Loans) the interest paid on some or
all of the Regular Certificates may be subject to accrual using a constant yield
method notwithstanding the fact that such Certificates may not have been issued
with 'true' non-de minimis original issue discount.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimus market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Regular Certificate
with market discount, the Certificateholder would be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments
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having market discount that such Certificateholder acquires during the year of
the election or thereafter. Similarly, a Certificateholder that makes this
election for a Certificate 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 Certificateholder owns or acquires.
See ' -- Regular Certificates -- Premium' herein. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate cannot be revoked without the consent of the IRS.
Market Discount. A purchaser of a Regular Certificate may also be subject
to the market discount provisions of Code Sections 1276 through 1278. Under
these provisions and the OID Regulations, 'market discount' equals the excess,
if any, of (i) the Regular Certificate's stated principal amount or, in the case
of a Regular Certificate with OID, the adjusted issue price (determined for this
purpose as if the purchaser had purchased such Regular Certificate from an
original holder) over (ii) the price for such Regular Certificate paid by the
purchaser. A Certificateholder that purchases a Regular Certificate at a market
discount will recognize income upon receipt of each distribution representing
stated redemption price. In particular, under Section 1276 of the Code such a
holder generally will be required to allocate each such principal distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a Regular Certificate will be considered to
be zero if the amount allocable to the Regular Certificate is less than 0.25% of
such Regular Certificate's stated redemption price at maturity multiplied by
such Regular Certificate's weighted average maturity remaining after the date of
purchase. If market discount on a Regular Certificate is considered to be zero
under this rule, the actual amount of market discount must be allocated to the
remaining principal payments on the Regular Certificate, and gain equal to such
allocated amount will be recognized when the corresponding principal payment is
made. Treasury regulations implementing the market discount rules have not yet
been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. For Regular
Certificates issued with OID, the amount of market discount that accrues during
a period is equal to the product of (i) the total remaining market discount and
(ii) a fraction, the numerator of which is the OID accruing during the period
and the denominator of which is the total remaining OID at the beginning of the
period. For Regular Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (a) the total
remaining market discount and (b) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the above methods in the case of instruments (such as the Regular
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same Prepayment
Assumption applicable to calculating the accrual of OID will apply.
A holder of a Regular Certificate that acquires such Regular Certificate at
a market discount also may be required to defer, until the maturity date of such
Regular Certificate or its earlier disposition in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Regular Certificate in excess of the
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aggregate amount of interest (including OID) includible in such holder's gross
income for the taxable year with respect to such Regular Certificate. The amount
of such net interest expense deferred in a taxable year may not exceed the
amount of market discount accrued on the Regular Certificate for the days during
the taxable year on which the holder held the Regular Certificate and, in
general, would be deductible when such market discount is includible in income.
The amount of any remaining deferred deduction is to be taken into account in
the taxable year in which the Regular Certificate matures or is disposed of in a
taxable transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part, any remaining deferred deduction will be allowed
to the extent of gain recognized on the disposition. This deferral rule does not
apply if the Regular Certificateholder elects to include such market discount in
income currently as it accrues on all market discount obligations acquired by
such Regular Certificateholder in that taxable year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the Regular Certificate at a premium and may elect to amortize
such premium under a constant yield method. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of the
Regular Certificate for this purpose. The Amortizable Bond Premium Regulations
described above specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Regular Certificates. Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described herein. However, the Legislative History states
that the same rules that apply to accrual of market discount (which rules
require use of a Prepayment Assumption in accruing market discount with respect
to Regular Certificates without regard to whether such Certificates have OID)
will also apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the interest
payments on such Regular Certificates and will be applied as an offset against
such interest payment. Prospective purchasers of the Regular Certificates should
consult their tax advisors regarding the possible application of the Amortizable
Bond Premium Regulations.
On June 27, 1996 the Internal Revenue Service (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). Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the
Certificates should consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Deferred Interest. Certain classes of Regular Certificates will provide
for the accrual of Deferred Interest with respect to one or more ARM Loans. Any
Deferred Interest that accrues with respect to a class of Regular Certificates
will constitute income to the holders of such Certificates prior to the time
distributions of cash with respect to such Deferred Interest are made. It is
unclear, under the OID Regulations, whether any of the interest on such
Certificates will constitute qualified stated interest or whether all or a
portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on Regular Certificates must
in any event be accounted for under an accrual method by the holders of such
Certificates and, therefore, applying the latter analysis may result only in a
slight difference in the timing of the inclusion in income of interest on such
Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event there
are defaults or delinquencies on the Mortgage Loans, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Certificates. Subordinated Certificateholders nevertheless
will be required to report income with respect to such Certificates under an
accrual method without giving effect to delays and reductions in distributions
on such Subordinated Certificates attributable to defaults and delinquencies on
the Mortgage Loans, except to the extent that it can be established that such
amounts are uncollectible. As a result, the amount of income reported by a
Subordinated Certificateholder 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
Subordinated Certificate is reduced as a result of defaults and delinquencies on
the Mortgage Loans. However, the timing and characterization of such losses or
reductions in income are uncertain, and, accordingly, Subordinated
Certificateholders should consult their own tax advisors on this point.
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Sale, Exchange or Redemption. If a Regular Certificate is sold, exchanged,
redeemed or retired, the seller will recognize gain or loss equal to the
difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the Regular Certificate. Such
adjusted basis generally will equal the cost of the Regular Certificate to the
seller, increased by any OID and market discount included in the seller's gross
income with respect to the Regular Certificate, and reduced (but not below zero)
by payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment that is part of the stated redemption price at maturity of a
Regular Certificate will recognize gain equal to the excess, if any, of the
amount of the payment over the holder's adjusted basis in the Regular
Certificate. A Regular Certificateholder who receives a final payment that is
less than the holder's adjusted basis in the Regular Certificate will generally
recognize a loss. Except as provided in the following paragraph and as provided
under 'Market Discount' above, any such gain or loss will be capital gain or
loss, provided that the Regular Certificate is held as a 'capital asset'
(generally, property held for investment) within the meaning of Code Section
1221.
Gain from the sale or other disposition of a Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess, if any, of (i) the amount that would have
been includible in such holder's income with respect to the Regular Certificate
had income accrued thereon at a rate equal to 110% of the AFR as defined in Code
Section 1274(d) determined as of the date of purchase of such Regular
Certificate, over (ii) the amount actually includible in such holder's income.
The Regular Certificates will be 'evidences of indebtedness' within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Regular Certificate by a bank or a thrift institution to which such section
applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
('Payment Lag Certificates') may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the Regular Certificates accrued interest in
excess of the accrued interest that would be paid if the interest paid on the
Distribution Date were interest accrued from Distribution Date to Distribution
Date. If a portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date ('pre-issuance
accrued interest') and the Regular Certificate provides for a payment of stated
interest on the first payment date (and the first payment date is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the Regular Certificates' issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the Regular Certificate. However, it is
unclear under this method how the OID Regulations treat interest on Payment Lag
Certificates. Therefore, in the case of a Payment Lag Certificate, the Trust
Fund intends to include accrued interest in the issue price and report interest
payments made on the first Distribution Date as interest to the extent such
payments represent interest for the number of days that the Certificateholder
has held such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under the temporary Treasury
regulations, if the REMIC is considered to be a 'single-class REMIC,' a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those Regular Certificateholders that are
'pass-through interest holders.' Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the Regular Certificates. See 'Pass-Through of
Non-Interest Expenses of the REMIC' under 'Residual Certificates' below.
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Treatment of Realized Losses. Although not entirely clear, it appears that
holders of Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Although the matter is unclear, non-corporate holders of Certificates may be
allowed a bad debt deduction at such time that the principal balance of any such
Certificate is reduced to reflect realized losses resulting from any liquidated
Mortgage Loans. The Internal Revenue Service, however, could take the position
that non-corporate holders will be allowed a bad debt deduction to reflect
realized losses only after all Mortgage Loans remaining in the related Trust
Fund have been liquidated or the Certificates of the related Series have been
otherwise retired. Potential investors and Holders of the Certificates are urged
to consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Certificates, including any
loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the Regular Certificates to a Regular
Certificateholder who is not a U.S. Person and is not engaged in a trade or
business within the United States will not be subject to federal withholding tax
if such Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that such Regular
Certificateholder is a foreign person and providing the name and address of such
Regular Certificateholder). If a Regular Certificateholder is not exempt from
withholding, distributions of interest, including distributions in respect of
accrued OID, such holder may be subject to a 30% withholding tax, subject to
reduction under any applicable tax treaty.
Further, it appears that a Regular Certificate would not be included in the
estate of a non-resident alien individual and would not be subject to United
States estate taxes. However, Certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
Regular Certificateholders who are not U.S. Persons and persons related to
such holders should not acquire any Residual Certificates, and holders of
Residual Certificates (the 'Residual Certificateholder') and persons related to
Residual Certificateholders should not acquire any Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Regular Certificateholder at any time
during such year, such information as may be deemed necessary or desirable to
assist Regular Certificateholders in preparing their federal income tax returns,
or to enable holders to make such information available to beneficial owners or
financial intermediaries that hold such Regular Certificates on behalf of
beneficial owners. If a holder, beneficial owner, financial intermediary or
other recipient of a payment on behalf of a beneficial owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
B. RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See ' -- Prohibited
Transactions and Other Taxes' below. Instead, each original holder of a Residual
Certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which such holder owns any Residual Certificates. The taxable income of
the REMIC for each day will be determined by allocating the taxable income of
the REMIC for each calendar quarter ratably to each day in the quarter. Such a
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding Residual Certificates that such holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the holders of
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Residual Certificates without regard to the timing or amounts of cash
distributions by the REMIC. Ordinary income derived from Residual Certificates
will be 'portfolio income' for purposes of the taxation of taxpayers subject to
the limitations on the deductibility of 'passive losses.' As residual interests,
the Residual Certificates will be subject to tax rules, described below, that
differ from those that would apply if the Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the Certificates or
as debt instruments issued by the REMIC.
A Residual Certificateholder may be required to include taxable income from
the Residual Certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(that is, a fast-pay, slow-pay structure) may generate such a mismatching of
income and cash distributions (that is, 'phantom income'). This mismatching may
be caused by the use of certain required tax accounting methods by the REMIC,
variations in the prepayment rate of the underlying Mortgage Loans and certain
other factors. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
Residual Certificate to a Residual Certificateholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a Residual
Certificate and the impact of such tax treatment on the after-tax yield of a
Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that such Residual Certificateholder owns such Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual Certificateholder,
as described above. The Legislative History indicates that certain adjustments
may be appropriate to reduce (or increase) the income of a subsequent holder of
a Residual Certificate that purchased such Residual Certificate at a price
greater than (or less than) the adjusted basis such Residual Certificate would
have in the hands of an original Residual Certificateholder. See ' -- Sale or
Exchange of Residual Certificates' below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Loans and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the Regular Certificates and, except as
described above under ' -- Regular Certificates -- Non-Interest Expenses of the
REMIC,' other expenses. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting, except that (i) the limitations on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts, and (iii) the limitation
on the deductibility of interest and expenses related to tax-exempt income is
more restrictive than with respect to individual. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, as well as, income earned from temporary
investments on reverse assets, reduced by the amortization of any premium on the
Mortgage Loans. In addition, a Residual Certificateholder will recognize
additional income due to the allocation of realized losses to the Regular
Certificates due to defaults, delinquencies and realized losses on the Mortgage
Loans. The timing of the inclusion of such income by Residual Certificateholders
may differ from the time the actual loss is allocated to the Regular
Certificates. The REMIC's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Loans, other administrative expenses of the REMIC and realized losses on the
Mortgage Loans. The requirement that Residual Certificateholders report their
pro rata share of taxable income or net loss of the REMIC will continue until
there are no Certificates of any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular Certificates and the Residual Certificates (or, if a class of
Certificates is not sold initially, its fair market value). Such aggregate basis
will be allocated among the Mortgage Loans and other assets of the REMIC in
proportion to their respective fair market value. A Mortgage Loan will be deemed
to have been acquired with discount or premium to the extent that the REMIC's
basis therein is less than or greater than its principal balance, respectively.
Any such discount (whether market discount or OID) will be includible in the
income of the REMIC as it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to the method described
above for accruing OID on the Regular Certificates. The REMIC expects to elect
under Code Section 171 to amortize any premium on the
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Mortgage Loans. Premium on any Mortgage Loan to which such election applies
would be amortized under a constant yield method. It is not clear whether the
yield of a Mortgage Loan would be calculated for this purpose based on scheduled
payments or taking account of the Prepayment Assumption. Additionally, such an
election would not apply to the yield with respect to any underlying mortgage
loan originated on or before September 27, 1985. Instead, premium with respect
to such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the Regular
Certificates. The amount and method of accrual of OID will be calculated for
this purpose in the same manner as described above with respect to Regular
Certificates except that the 0.25% per annum de minimis rule and adjustments for
subsequent holders described therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost of
the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, that taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the Residual Certificates will be added to the issue
price of the Regular Certificates in determining the REMIC's initial basis in
its assets. See ' -- Sale or Exchange of Residual Certificates' below. For a
discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of such
Residual Certificate to such holder and the adjusted basis such Residual
Certificate would have in the hands of an original Residual Certificateholder,
see ' -- Allocation of the Income of the REMIC to the Residual Certificates'
above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any Residual Certificate will
not be deductible by the holder to the extent that such net loss exceeds such
holder's adjusted basis in such Residual Certificate. Any net loss that is not
currently deductible by reason of this limitation may only be used by such
Residual Certificateholder to offset its share of the REMIC's taxable income in
future periods (but not otherwise). The ability of Residual Certificateholders
that are individuals or closely held corporations to deduct net losses may be
subject to additional limitations under the Code.
Mark to Market Rules. A Residual Certificate acquired after January 3,
1995 cannot be marked-to-market.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the Regular Certificateholders and the
Residual Certificateholders on a daily basis in proportion to the relative
amounts of income accruing to each Certificateholder on that day. 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 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 Certificates in
their entirety and not to holders of the related Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
Regular Certificate or a Residual Certificate directly or through a pass-through
interest holder that is required to pass miscellaneous itemized deductions
through to its owners or beneficiaries (e.g. a partnership, an S corporation or
a grantor trust), such expenses will be deductible under Code Section 67 only to
the extent that such expenses, plus other 'miscellaneous itemized deductions' of
the individual, exceed 2% of such individual's adjusted gross income. In
addition, Code Section 68 provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
certain amount (the 'Applicable Amount') will be reduced by the lesser of (i) 3%
of the excess of the individual's adjusted gross income over the Applicable
Amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
the taxable year. The amount of additional taxable income recognized by Residual
Certificateholders who are subject to the limitations of either Code Section 67
or Code Section 68 may be substantial. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. The REMIC is required to report to each pass-through
interest holder and to the IRS such holder's allocable share, if
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any, of the REMIC's non-interest expenses. The term 'pass-through interest
holder' generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the Residual Certificates.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an 'excess inclusion') for any calendar quarter will
be subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a Residual Certificateholder; (ii) will
be treated as 'unrelated business taxable income' within the meaning of Code
Section 512 if the Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income (see ' -- Tax-Exempt Investors' below); and (iii) is not eligible for any
reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor. See ' -- Non-U.S. Persons' below.
The exception for thrift institutions is available only to the institution
holding the Residual Certificate and not to any affiliate of the institution,
unless the affiliate is a subsidiary all the stock of which, and substantially
all the indebtedness of which, is held by the institution, and which is
organized and operated exclusively in connection with the organization and
operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such Residual Certificateholder for
that calendar quarter from its Residual Certificate over (ii) the sum of the
'daily accruals' (as defined below) for all days during the calendar quarter on
which the Residual Certificateholder holds such Residual Certificate. For this
purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the 'adjusted issue price' (as defined below) of the Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
'Federal long-term rate' in effect at the time the Residual Certificate is
issued. For this purpose, the 'adjusted issue price' of a Residual Certificate
at the beginning of any calendar quarter equals the issue price of the Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the Residual Certificate before the beginning of such quarter. The 'federal
long-term rate' is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any Residual Certificates held by a real estate investment
trust, the aggregate excess inclusions with respect to such Residual
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to a
Residual Certificate as if held directly by such shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in
such Residual Certificate. To the extent a distribution exceeds such adjusted
basis, it will be treated as gain from the sale of the Residual Certificate.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the Residual Certificate (except that the recognition of loss may be
limited under the 'wash sale' rules described below). A holder's adjusted basis
in a Residual Certificate generally equals the cost of such Residual Certificate
to such Residual Certificateholder, increased by the taxable income of the REMIC
that was included in the income of such Residual Certificateholder with respect
to such Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such Residual Certificateholder
with respect to such Residual Certificate and by the distributions received
thereon by such Residual Certificateholder. In general, any such gain or loss
will be capital gain or loss provided the Residual Certificate is held as a
capital asset. However, Residual Certificates will be 'evidences of
indebtedness' within the meaning of Code Section 582(c)(1), so that gain or loss
recognized from sale of a Residual Certificate by a bank or thrift institution
to which such section applies would be ordinary income or loss.
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Except as provided in Treasury regulations yet to be issued, if the seller
of a Residual Certificate reacquires such Residual Certificate, or acquires any
other Residual Certificate, any residual interest in another REMIC or similar
interest in a 'taxable mortgage pool' (as defined in Code Section 7701(i))
during the period beginning six months before, and ending six months after, the
date of such sale, such sale will be subject to the 'wash sale' rules of Code
Section 1091. In that event, any loss realized by the Residual Certificateholder
on the sale will not be deductible, but, instead, will increase such Residual
Certificateholder's adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100 percent of the net income
derived from 'prohibited transactions' (the 'Prohibited Transactions Tax'). In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a Mortgage Loan, the receipt of income from a source other
than a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the 'Contributions Tax'). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on 'net income from foreclosure property,' determined by
reference to the rules applicable to real estate investment trusts 'Net income
from foreclosure property' generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of, or
results from, (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller, as
the case may be, out of its own funds or (ii) the Seller's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Seller. In the event
that such Master Servicer, Trustee or Seller, as the case may be, fails to pay
or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transactions Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the Regular
Certificates. If a Residual Certificateholder's adjusted basis in the Residual
Certificate exceeds the amount of cash distributed to such Residual
Certificateholder in final liquidation of its interest, then it would appear
that the Residual Certificateholder would be entitled to a loss equal to the
amount of such excess. It is unclear whether such a loss, if allowed, will be a
capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the Residual
Certificateholders will be treated as the partners. Certain information will be
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furnished quarterly to each Residual Certificateholder who held a Residual
Certificate on any day in the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its return
consistently with their treatment on the REMIC's return, unless the Residual
Certificateholder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from incorrect information received
from the REMIC. The IRS may assert a deficiency resulting from a failure to
comply with the consistency requirement without instituting an administrative
proceeding at the REMIC level. The REMIC does not intend to register as a tax
shelter pursuant to Code Section 6111 because it is not anticipated that the
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person and other
information.
TAX-EXEMPT INVESTORS
Any Residual Certificateholder that is a pension fund or other entity that
is subject to federal income taxation only on its 'unrelated business taxable
income' within the meaning of Code Section 512 will be subject to such tax on
that portion of the distributions received on a Residual Certificate that is
considered an excess inclusion. See ' -- Residual Certificates -- Excess
Inclusions' above.
NON-U.S. PERSONS
Amounts paid to Residual Certificateholders who are not U.S. persons (see
' -- Regular Certificates -- Non-U.S. Persons' above) are treated as interest
for purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to holders of Residual Certificates should qualify as
'portfolio interest,' subject to the conditions described in ' -- Regular
Certificates' above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a Residual Certificate that is excess inclusion income will not be
subject to reduction under any applicable tax treaties. See ' -- Residual
Certificates -- Excess Inclusions' above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where the Residual Certificates do not have significant
value). See ' -- Residual Certificates -- Excess Inclusions' above. If the
amounts paid to Residual Certificateholders that are not U.S. persons are
effectively connected with their conduct of a trade or business within the
United States, the 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U. S.
federal income taxation at regular graduated rates. For special restrictions on
the transfer of Residual Certificates, see ' -- Tax-Related Restrictions on
Transfers of Residual Certificates' below.
Regular Certificateholders and persons related to such holders should not
acquire any Residual Certificates, and Residual Certificateholders and persons
related to Residual Certificateholders should not acquire any Regular
Certificates, without consulting their tax advisors as to the possible adverse
tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by 'disqualified organizations' (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
'disqualified organization.' The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated 'excess inclusions' with respect to such interest for
periods after the transfer and (B) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does
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not have actual knowledge that the affidavit is false. A 'disqualified
organization' means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on 'unrelated business taxable income' and
(C) a rural electric or telephone cooperative.
A tax is imposed on a 'pass-through entity' (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a 'pass-through entity' means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a pass-
through entity as a nominee for another will, with respect to such interest, be
treated as a pass-through entity. The tax on pass-through entities is generally
effective for periods after March 31, 1988, except that in the case of regulated
investment companies, real estate investment trusts, common trust funds and
publicly-traded partnerships the tax shall apply only to taxable years of such
entities beginning after December 31, 1988. Under proposed legislation, large
partnerships (generally with 250 or more partners) will be taxable on excess
inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the Residual Certificate as a
nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the Residual
Certificate.
Noneconomic Residual Certificates. The REMIC Regulations disregard, for
federal income tax purposes, any transfer of a Noneconomic Residual Certificate
to a 'U.S. Person,' as defined in the following section of this discussion,
unless no significant purpose of the transfer is to enable the transferor to
impede the assessment or collection of tax. A Noneconomic Residual Certificate
is any Residual Certificate (including a Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the Residual Certificate
at least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes. 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 that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. A transferor is
presumed not to have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to the
transferor that the residual interest may generate tax liabilities in excess of
the cash flow and the transferee represents that it intends to pay such taxes
associated with the residual interest as they become due. If a transfer of a
Noneconomic Residual Certificate is disregarded, the transferor would continue
to be treated as the owner of the Residual Certificate and would continue to be
subject to tax on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a 'tax avoidance potential' to a 'foreign person'
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a U.S. Person unless such transferee's income in
respect of the
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Residual Certificate is effectively connected with the conduct of a United
States trade or business. A Residual Certificate is deemed to have a tax
avoidance potential unless, at the time of transfer, the transferor reasonably
expects that the REMIC will distribute to the transferee amounts that will equal
at least 30 percent of each excess inclusion, and that such amounts will be
distributed at or after the time the excess inclusion accrues and not later than
the end of the calendar year following the year of accrual. If the non-U.S.
Person transfers the Residual Certificate to a U.S. Person, the transfer will be
disregarded, and the foreign transferor will continue to be treated as the
owner, if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions. The provisions in the REMIC Regulations regarding
transfers of Residual Certificates that have tax avoidance potential to foreign
persons are effective for all transfers after June 30, 1992. The Agreement will
provide that no record or beneficial ownership interest in a Residual
Certificate may be transferred, directly or indirectly, to a non-U.S. Person
unless such person provides the Trustee with a duly completed I.R.S. Form 4224
and the Trustee consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in Residual Certificates are advised to consult their own
tax advisors with respect to transfers of the Residual Certificates and, in
addition, pass-through entities are advised to consult their own tax advisors
with respect to any tax which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Considerations,' potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Certificates. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Certificates of a Series that are not divided into
subclasses. If Certificates are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to ERISA
and the Code that are applicable to such Certificates.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) (collectively 'Plans')
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Senior Certificates without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the 'DOL')
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an 'equity' investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest
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acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined in Labor Reg. Section 2510.3-101, is a
security that is widely held, freely transferable and registered under the
Securities Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ('Parties in Interest') having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the
Mortgage Loans may be deemed Plan assets of each Plan that purchases
Certificates, an investment in the Certificates by a Plan might be a prohibited
transaction under ERISA Sections 406 and 407 and subject to an excise tax under
Code Section 4975 unless a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions that might
otherwise be prohibited between Plans and Parties in Interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the acquisition and holding
of certain mortgage pool pass-through certificates representing an interest in
such mortgage pools by Plans. If the general conditions (discussed below) of PTE
83-1 are satisfied, investments by a Plan in certificates that represent
interests in a mortgage pool consisting of mortgage loans representing loans for
single family homes ('Single Family Certificates') will be exempt from the
prohibitions of ERISA Sections 406(a) and 407 (relating generally to
transactions with Parties in Interest who are not fiduciaries) if the Plan
purchases the Single Family Certificates at no more than fair market value and
will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2)
(relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid to
the pool sponsor, the Plan does not purchase more than twenty-five percent (25%)
of all Single Family Certificates and at least fifty percent (50%) of all Single
Family Certificates are purchased by persons independent of the pool sponsor or
pool trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinated Certificates. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinated Certificate may be made to
a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term 'mortgage pass-through certificate' would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Senior Certificates issued in a Series in which there is
only one class of Senior Certificates; provided that the Certificates in the
case of clause (i), or the Senior Certificates in the case of clause (ii),
evidence the beneficial ownership of both a specified percentage of future
interest payments (greater than zero percent (0%)) and a specified percentage
(greater than zero percent (0%)) of future principal payments on the Mortgage
Loans. It is not clear whether a class of Certificates that evidences the
beneficial ownership in a Trust Fund divided into mortgage loan groups,
beneficial ownership of a specified percentage of interest payments only or
principal payments only, or a notional amount of either principal or interest
payments, or a class of Certificates entitled to receive payments of interest
and principal on the Mortgage Loans only after payments to other classes or
after the occurrence of certain specified events would be a 'mortgage
pass-through certificate' for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent (1%) of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a limitation on
the amount of the payment retained by the pool sponsor, together with other
funds inuring to its benefit, to not more than adequate consideration for
selling the mortgage loans plus reasonable compensation for services provided by
the pool sponsor to the mortgage pool. The Depositor believes that the first
general condition referred to above will be satisfied with respect to the
Certificates in a Series issued without a subordination feature, or the Senior
Certificates only in a Series issued with a subordination
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feature, provided that the subordination and Reserve Fund, subordination by
shifting of interests, the pool insurance or other form of credit enhancement
described herein (such subordination, pool insurance or other form of credit
enhancement being the system of insurance or other protection referred to above)
with respect to a Series of Certificates is maintained in an amount not less
than the greater of one percent of the aggregate principal balance of the
Mortgage Loans or the principal balance of the largest Mortgage Loan. See
'Description of the Certificates' herein. In the absence of a ruling that the
system of insurance or other protection with respect to a Series of Certificates
satisfies the first general condition referred to above, there can be no
assurance that these features will be so viewed by the DOL. The Trustee will not
be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Certificates
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
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.
The DOL has granted to certain underwriters individual administrative
exemptions (the 'Underwriter Exemptions') from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates required by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc. ('S&P'), Moody's Investors Service, Inc. ('Moody's'),
Duff & Phelps Credit Rating Co. ('D&P') or Fitch Investors Service, Inc.
('Fitch');
(4) the trustee must not be an affiliate of any other member of the
Restricted Group;
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans; the sum of all payments made to and retained by the
servicer and any other servicer represents not more than reasonable
compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements of such person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or D&P
for at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust as
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to which the fiduciary (or its affiliate) is an obligor on the receivables held
in the trust provided that, among other requirements: (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent (50%) of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group, (ii) such fiduciary
(or its affiliate) is an obligor with respect to five percent (5%) or less of
the fair market value of the obligations contained in the trust; (iii) the
Plan's investment in certificates of any class does not exceed twenty-five
percent (25%) of all of the certificates of that class outstanding at the time
of the acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
related Underwriter, the Trustee, the Master Servicer, any insurer with respect
to the Mortgage Loans, any obligor with respect to Mortgage Loans included in
the Trust Fund constituting more than five percent (5%) of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of such parties.
The Prospectus Supplement for each Series of Certificates will indicate the
classes of Certificates, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of PTE 83-1, the availability and applicability of any Underwriter
Exemption or any other exemptions from the prohibited transaction provisions of
ERISA and the Code and the potential consequences in their specific
circumstances, prior to making such investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure 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.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby will constitute
'mortgage related securities' for purposes of SMMEA. Classes of Certificates
that qualify as 'mortgage related 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
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any such entities. Under SMMEA, if a state
enacts legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to 'mortgage related
securities,' the Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to purchase,
hold or invest in Certificates, or require the sale or other disposition of
Certificates, so long as such contractual commitment was made or such
Certificates acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase Certificates 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
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ('NCUA') Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation 'Investment and Deposit Activities' (12
C.F.R. Part 703), (whether or not the class of Certificates under consideration
for purchase constitutes a 'mortgage related security').
All depository institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a 'mortgage related security' should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on Securities
Activities (to the extent
81
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adopted by their respective regulators) (the 'Policy Statement'), setting forth,
in relevant part, certain securities trading and sales practices deemed
unsuitable for an institution's investment portfolio, and guidelines for (and
restrictions on) investing in mortgage derivative products, including 'mortgage
related securities' that are 'high-risk mortgage securities' as defined in the
Policy Statement. According to the Policy Statement, such 'high-risk mortgage
securities' include securities such as Certificates not entitled to
distributions allocated to principal or interest, or Subordinated Certificates.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a 'high-risk
mortgage security', and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, 'prudent investor' provisions, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not 'interest
bearing' or 'income paying.'
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
Certificates are being offered hereby in Series from time to time (each
Series evidencing a separate Trust Fund) through any of the following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional
investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Certificates will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Certificates so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Certificates of such Series if any such Certificates are purchased.
Certificates may be acquired by the underwriters for their own accounts 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.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Certificates of such Series.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Brown & Wood LLP, One World Trade Center, New York, New York 10048.
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FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement 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.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through 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,
certificateholders 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.
83
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<PAGE>
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1986 Act................................................................................................... 67
Accretion Directed Certificates............................................................................ 28
Accrual Certificates....................................................................................... 25
Accrual Class.............................................................................................. 30
accrual period............................................................................................. 69
adjusted issue price....................................................................................... 64
Advance.................................................................................................... 10
Agency Securities.......................................................................................... 3
Agreement.................................................................................................. 3
Applicable Amount.......................................................................................... 77
ARM Loans.................................................................................................. 63
Available Funds............................................................................................ 25
balloon payments........................................................................................... 4
Bankruptcy Bonds........................................................................................... 10
beneficial owner........................................................................................... 34
Book-Entry Certificates.................................................................................... 33
Buydown Fund............................................................................................... 13
Buydown Loans.............................................................................................. 13
Calculation Agent.......................................................................................... 30
CERCLA..................................................................................................... 56
Certificate Account........................................................................................ 42
Certificate Balance........................................................................................ 8
Certificate Register....................................................................................... 24
Certificateholders......................................................................................... 12
Certificates............................................................................................... 3
Class Certificate Balance.................................................................................. 25
Closing Date............................................................................................... 3
Code....................................................................................................... 11
COFI....................................................................................................... 31
COFI Certificates.......................................................................................... 32
Collateral Value........................................................................................... 14
Component Certificates..................................................................................... 28
Components................................................................................................. 28
Contributions Tax.......................................................................................... 79
Cooperative Loans.......................................................................................... 3
Cooperatives............................................................................................... 3
Cut-Off Date............................................................................................... 9
D&P........................................................................................................ 84
Deferred Interest.......................................................................................... 65
Definitive Certificates.................................................................................... 33
Depositor.................................................................................................. 3
Depository................................................................................................. 33
Detailed Description....................................................................................... 12
Distribution Date.......................................................................................... 8
DOL........................................................................................................ 83
Eleventh District.......................................................................................... 31
EPA........................................................................................................ 56
ERISA...................................................................................................... 11
excess servicing........................................................................................... 62
FHA........................................................................................................ 4
FHA Insurance.............................................................................................. 10
FHA Loans.................................................................................................. 15
FHLBSF..................................................................................................... 31
FHLMC...................................................................................................... 3
FHLMC Act.................................................................................................. 16
FHLMC Certificate group.................................................................................... 16
FHLMC Certificates......................................................................................... 5
Financial Intermediary..................................................................................... 33
Fitch...................................................................................................... 84
Fixed Rate Class........................................................................................... 29
Floating Rate Class........................................................................................ 29
FNMA....................................................................................................... 3
</TABLE>
84
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<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FNMA Certificates.......................................................................................... 5
Garn-St Germain Act........................................................................................ 57
GNMA....................................................................................................... 3
GNMA Certificates.......................................................................................... 5
GNMA I Certificate......................................................................................... 15
GNMA II Certificate........................................................................................ 15
GNMA Issuer................................................................................................ 15
Guaranty Agreement......................................................................................... 15
Guaranteed Mortgage Pass-Through Certificates.............................................................. 5
Housing Act................................................................................................ 15
HUD........................................................................................................ 47
Insurance Proceeds......................................................................................... 43
Insured Expenses........................................................................................... 43
Interest Only Class........................................................................................ 30
Inverse Floating Rate Class................................................................................ 29
IRS........................................................................................................ 61
Issuer.....................................................................................................
Legislative History........................................................................................ 64
LIBOR...................................................................................................... 30
LIBOR Determination Date................................................................................... 30
Liquidated Mortgage........................................................................................ 49
Liquidation Expenses....................................................................................... 43
Liquidation Proceeds....................................................................................... 43
Loan-to-Value Ratio........................................................................................ 14
lockout periods............................................................................................ 5
Master REMIC............................................................................................... 67
Master Servicer............................................................................................ 3
Master Servicing Fee....................................................................................... 49
Moody's....................................................................................................
Mortgage................................................................................................... 41
Mortgage Assets............................................................................................ 3
Mortgage Loans............................................................................................. 3
Mortgage Note.............................................................................................. 4
Mortgage Pool.............................................................................................. 12
Mortgage Pool Insurance Policy............................................................................. 9
Mortgage Rate.............................................................................................. 4
Mortgaged Property......................................................................................... 3
Mortgagor.................................................................................................. 13
National Cost of Funds Index............................................................................... 32
NCUA....................................................................................................... 86
Notional Amount Certificates............................................................................... 28
OID........................................................................................................ 67
OID Regulations............................................................................................ 67
OTS........................................................................................................ 32
Partial Accrual Class...................................................................................... 30
Parties in Interest........................................................................................ 83
pass-through entity........................................................................................ 81
pass-through interest holder............................................................................... 74
Pass-Through Rate.......................................................................................... 8
Payment Lag Certificates................................................................................... 73
Percentage Interest........................................................................................ 25
Permitted Investments...................................................................................... 38
Plans...................................................................................................... 82
PMBS Agreement............................................................................................. 19
PMBS Issuer................................................................................................ 6
PMBS Servicer.............................................................................................. 7
PMBS Trustee............................................................................................... 7
Policy Statement........................................................................................... 86
Pool Insurer............................................................................................... 35
pre-issuance accrued interest.............................................................................. 73
Prepayment Assumption...................................................................................... 64
Primary Insurer............................................................................................ 46
Primary Mortgage Insurance Policy.......................................................................... 12
</TABLE>
85
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<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prime Rate................................................................................................. 33
Principal Only Class....................................................................................... 30
Principal Prepayments...................................................................................... 26
Private Mortgage-Backed Securities......................................................................... 3
Prohibited Transactions Tax................................................................................ 79
PTE 83-1................................................................................................... 83
Purchase Price............................................................................................. 22
Rating Agency.............................................................................................. 42
Record Date................................................................................................ 24
Reference Banks............................................................................................ 30
Regular Certificateholders................................................................................. 67
Regular Certificates....................................................................................... 66
Relief Act................................................................................................. 58
REMIC...................................................................................................... 11
REMIC Certificates......................................................................................... 66
REMIC Regulations.......................................................................................... 59
Reserve Fund............................................................................................... 9
Reserve Interest Rate...................................................................................... 30
Residual Certificateholder................................................................................. 74
Residual Certificates...................................................................................... 66
Retained Interest.......................................................................................... 23
S&P........................................................................................................ 84
Scheduled Principal Class.................................................................................. 29
Seller..................................................................................................... 3
Senior Certificateholders.................................................................................. 8
Senior Certificates........................................................................................ 7
Sequential Pay............................................................................................. 29
Series..................................................................................................... 3
Single Family Certificates................................................................................. 83
SMMEA...................................................................................................... 11
Special Hazard Insurance Policy............................................................................ 9
Special Hazard Insurer..................................................................................... 37
Strip...................................................................................................... 29
Stripped ARM Obligations................................................................................... 65
Stripped Bond Certificates................................................................................. 62
Stripped Coupon Certificates............................................................................... 62
Subordinated Certificateholders............................................................................ 8
Subordinated Certificates.................................................................................. 7
Sub-Servicer............................................................................................... 10
Subsidiary REMIC........................................................................................... 67
Super-Premium Certificates................................................................................. 69
Support Class.............................................................................................. 29
Targeted Principal Class................................................................................... 29
Temporary Mark to Market Regulations....................................................................... 76
Title V.................................................................................................... 58
Treasury Index............................................................................................. 32
Trust Fund................................................................................................. 3
Trustee.................................................................................................... 3
UCC........................................................................................................ 55
Underwriter Exemption...................................................................................... 84
U.S. Person................................................................................................ 65
VA......................................................................................................... 4
VA Guaranty................................................................................................ 10
VA Loans................................................................................................... 15
Variable Rate.............................................................................................. 29
Voting Rights.............................................................................................. 50
</TABLE>
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<PAGE>
_____________________________ _____________________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF OFFERED CERTIFICATES IN ANY STATE OR
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms............................................................................................................ S-3
The Mortgage Pool........................................................................................................... S-8
Servicing of Mortgage Loans................................................................................................. S-14
Description of the Certificates............................................................................................. S-17
Yield, Prepayment and Maturity Considerations............................................................................... S-26
Credit Enhancement.......................................................................................................... S-32
Use of Proceeds............................................................................................................. S-34
Certain Federal Income Tax Consequences..................................................................................... S-34
ERISA Considerations........................................................................................................ S-35
Method of Distribution...................................................................................................... S-36
Legal Matters............................................................................................................... S-37
Ratings..................................................................................................................... S-37
PROSPECTUS
Prospectus Supplement....................................................................................................... 2
Available Information....................................................................................................... 2
Incorporation of Certain Documents by Reference............................................................................. 2
Summary of Terms............................................................................................................ 3
The Trust Fund.............................................................................................................. 12
Use of Proceeds............................................................................................................. 20
The Depositor............................................................................................................... 20
Mortgage Loan Program....................................................................................................... 20
Description of the Certificates............................................................................................. 23
Credit Enhancement.......................................................................................................... 34
Yield and Prepayment Considerations......................................................................................... 37
The Pooling and Servicing Agreement......................................................................................... 39
Certain Legal Aspects of the Mortgage Loans................................................................................. 50
Certain Federal Income Tax Consequences..................................................................................... 57
State Tax Considerations.................................................................................................... 78
ERISA Considerations........................................................................................................ 78
Legal Investment............................................................................................................ 81
Method of Distribution...................................................................................................... 82
Legal Matters............................................................................................................... 82
Financial Information....................................................................................................... 83
Rating...................................................................................................................... 83
Index to Defined Terms...................................................................................................... 84
</TABLE>
$
(APPROXIMATE)
CWMBS, INC.
DEPOSITOR
[COUNTRYWIDE HOME LOANS]
SELLER AND MASTER SERVICER
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 19 -
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
, 19
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets froth the estimated expenses in connection with
the issuance and distribution of the Certificates being registered under this
Registration Statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee................................................................... $1,060,606.06
Printing and Engraving................................................................. 25,000.00
Legal Fees and Expenses................................................................ 35,000.00
Trustee Fees and Expenses.............................................................. 18,750.00
Rating Agency Fees..................................................................... 125,000.00
Miscellaneous.......................................................................... 5,000.00
-------------
Total............................................................................. $1,269,356.06
-------------
-------------
</TABLE>
- ------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of a Series of
Certificates in an aggregate principal amount assumed for these purposes to
be equal to $250,000,000 of Certificates registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides for indemnification
of directors and officers of the Registrant to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in substance,
that Delaware corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Delaware General Corporation Law also provides
that the Registrant may purchase insurance on behalf of any such director,
officer, employee or agent.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Indemnification and Contribution Agreement.
3.1* -- Certificate of Incorporation of the Registrant.
3.2* -- Bylaws of the Registrant.
4.1* -- Form of Pooling and Servicing Agreement.
5.1 -- Opinion of Brown & Wood LLP as to the legality of the Certificates (including consent of such firm).
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters (included in exhibit 5.1 hereof).
23.1 -- Consent of Brown & Wood LLP (included in exhibits 5.1 and 8.1 hereof).
24.1 -- Power of Attorney.
</TABLE>
- ------------
* Previously filed as an exhibit to Registration Statement (No. 333-08389) on
Form S-3 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The undersigned 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:
II-1
<PAGE>
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the 'Act');
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for 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, as amended, 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.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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-2
<PAGE>
<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 and Post-Effective Amendment No. 1 to Registration Statement (No.
333-08389) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pasadena, State of California, on the 2nd day of May,
1997.
CWMBS, INC.
BY: /S/ STANFORD L. KURLAND
...................................
STANFORD L. KURLAND
CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Stanford L. Kurland, Carlos Garcia, Kevin
W. Bartlett and Thomas H. Boone, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his 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 and Post-Effective Amendment No. 1 to Registration
Statement (No. 333-08389) has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- -------------------
<C> <S> <C>
/S/ STANFORD L. KURLAND Chairman of the Board, May 2, 1997
......................................... President and Director
STANFORD L. KURLAND (principal executive officer)
/S/ CARLOS GARCIA Executive Vice President and Director May 2, 1997
......................................... (principal financial and accounting
CARLOS GARCIA officer)
/S/ THOMAS H. BOONE Executive Vice President and Director May 2, 1997
.........................................
THOMAS H. BOONE
/S/ KEVIN W. BARTLETT Senior Vice President, May 2, 1997
......................................... Assistant Secretary and Director
KEVIN W. BARLETT
/S/ JEFFREY P. GROGIN Director May 2, 1997
.........................................
JEFFREY P. GROGIN
</TABLE>
II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- ------- ------------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement...............................................................
1.2* -- Form of Indemnification and Contribution Agreement...........................................
3.1* -- Certificate of Incorporation of the Registrant...............................................
3.2* -- Bylaws of the Registrant.....................................................................
4.1* -- Form of Pooling and Servicing Agreement......................................................
5.1 -- Opinion of Brown & Wood LLP as to legality of the Certificates (including consent of such
firm)........................................................................................
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters (included in Exhibit 5.1)..............
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1)...............................
24.1 -- Power of Attorney............................................................................
</TABLE>
- ------------
* Previously filed as an exhibit to Registration Statement (No. 333-08389) on
Form S-3 and incorporated herein by reference.
STATEMENT OF DIFFERENCES
------------------------
The division symbol shall be expressed as ............................ [div]
The registered service mark symbol shall be expressed as ............. `s'
<PAGE>
<PAGE>
[LETTERHEAD OF BROWN & WOOD LLP]
May 2, 1997
CWMBS, Inc.
155 North Lake Avenue
Pasadena, California 91101
Re: CWMBS, Inc.
Registration Statement on Form S-3 and Post-Effective
Amendment No. 1 to Registration Statement No. 333-08389
on Form S-3
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for CWMBS, Inc., a Delaware corporation (the
'Company'), in connection with the preparation of a registration statement on
Form S-3 (the 'Registration Statement') relating to Mortgage Pass-Through
Certificates (the 'Certificates'), issuable in series (each, a 'Series').
Pursuant to Rule 429 under the Securities Act of 1933, as amended (the '1933
Act'), the Registration Statement also constitutes Post-Effective Amendment No.
1 to Registration Statement No. 333-08389 on Form S-3 under the 1933 Act. The
Registration Statement is being filed with the Securities and Exchange
Commission under the 1933 Act. As set forth in the Registration Statement, each
Series of Certificates will be issued under and pursuant to the conditions of a
separate pooling and servicing agreement (each a 'Pooling and Servicing
Agreement') among the Company, a trustee and a master servicer to be identified
in the prospectus supplement for such Series of Certificates (the 'Trustee' and
the 'Master Servicer' for such Series, respectively.)
We have examined copies of the Company's Certificate of Incorporation and
Bylaws, the form of Pooling and Servicing Agreement previously filed as Exhibit
4.1 to the Registration Statement No. 333-08389, the forms of Certificates
included in such Pooling and Servicing Agreement, the prospectus contained in
the Registration Statement (the 'Prospectus'), and such other records, documents
and statutes as we have deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized by all necessary action on the part of
the Company and has been duly executed and delivered by the Company, the
Master Servicer, the Trustee and any other party thereto for such Series,
such Pooling and Servicing Agreement will constitute a valid and binding
agreement of the Company, enforceable in accordance with its terms, except
as enforcement thereof may be limited by bankruptcy, insolvency or other
laws relating to or affecting creditors' rights generally or by general
equity principles.
2. When a Series of Certificates has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly
executed and countersigned by the Trustee for such Series in accordance
with the terms of the related Pooling and Servicing Agreement, and issued
and delivered against payment therefor as contemplated in the Registration
Statement, such Series of Certificates will be legally and validly issued,
fully paid and nonassessable, and the holders thereof will be entitled to
the benefits of the related Pooling and Servicing Agreement.
3. The information set forth in the Prospectus under the caption
'Certain Federal Income Tax Consequences,' to the extent that it
constitutes matters of law or legal conclusions, is correct.
<PAGE>
<PAGE>
In rendering the foregoing opinions, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York and the federal
laws of the United States of America.
We hereby consent to the use of our name in the Prospectus under the
captions 'Certain Federal Income Tax Consequences' and 'Legal Matters,' and to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ BROWN & WOOD LLP
2
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