<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
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>
4500 PARK GRANADA
CALABASAS, CALIFORNIA 91302
(818) 225-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANDOR E. SAMUELS, ESQ.
COUNTRYWIDE HOME LOANS, INC.
4500 PARK GRANADA
CALABASAS, CALIFORNIA 91302
(818) 225-3505
(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]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If delivery of this Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates(3)................. $14,708,056,997 100% $14,708,056,997 $4,202,876.81
===============================================================================================================================
</TABLE>
(1) This Registration Statement relates to the offering from time to time of
$14,708,056,997 aggregate principal amount of Mortgage Pass-Through
Certificates and to any resales of them in market making transactions by
Countrywide Securities Corporation, an affiliate of the Registrant, to the
extent required.
(2) Estimated for the purpose of calculating the registration fee.
(3) $6,708,056,997 in securities are being carried forward and $1,978,876.81 of
the filing fee is associated with the securities being carried forward and
was previously paid with the Registrant's registration statement No.
333-53861.
------------------------
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. 333-53861 as previously filed by the Registrant. That
Registration Statement was declared effective on August 14, 1998.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1999)
$
(APPROXIMATE)
CWMBS, INC.
DEPOSITOR
[LOGO]
SELLER AND MASTER SERVICER]
CHL MORTGAGE PASS-THROUGH TRUST 1999-
ISSUER
DISTRIBUTIONS PAYABLE ON THE TH DAY OF EACH MONTH, COMMENCING IN 1999
-------------------------
CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON PAGE S-7
IN THIS PROSPECTUS
SUPPLEMENT AND ON
PAGE 4 IN THE
PROSPECTUS.
The certificates
represent obligations
of the trust only and
do not represent an
interest in or
obligation of CWMBS,
Inc., Countrywide
Home Loans, Inc. or
any of their
affiliates.
This prospectus
supplement may be
used to offer and
sell the offered
certificates only if
accompanied by the
prospectus.
The following classes of certificates are being offered
pursuant to this prospectus supplement and the accompanying
prospectus:
<TABLE>
<CAPTION>
INITIAL CLASS INITIAL CLASS
CERTIFICATE PASS-THROUGH CERTIFICATE PASS-THROUGH
BALANCE(1) RATE BALANCE(1) RATE
<S> <C> <C> <C> <C> <C>
Class A-1 $ % Class A-R $ %
Class A-2 $ % Class M $ %
Class A-3 $ % Class B-1 $ %
Class PO $ (2) Class B-2 $ %
Class X (3) (4)
</TABLE>
(1) This amount is subject to a permitted variance in the
aggregate of plus or minus %.
(2) The Class PO certificates will be principal only
certificates and will not bear interest.
(3) The Class X certificates will have no principal balance
and will bear interest on their notional amount, which
initially is expected to be approximately $ .
(4) The Class X certificate pass-through rate is calculated as
described under 'Description of the
Certificates -- Interest' in this prospectus supplement.
The pass-through rate for the Class X certificates for the
first distribution date is expected to be approximately
% per annum.
THE CERTIFICATES
The Class M, Class B-1 and Class B-2 certificates are
subordinated to the other classes of offered certificates
(we sometimes call these other classes of certificates
the senior certificates). Subordination provides a form
of credit enhancement for the senior certificates.
A rapid rate of principal payments on the mortgage loans
could result in the failure of Class X certificateholders
to recover their initial investments.
Delinquencies and losses realized upon liquidation of
mortgage loans in the pool will adversely affect the
yield to investors in the certificates, and the investors
in the subordinated certificates in particular.
OPTIONAL TERMINATION
The Master Servicer will have the option to purchase the
assets of the trust on any distribution date on which the
principal balance of the mortgage loans as of such date
is less than 10% of the principal balance of the mortgage
loans and any real estate owned by the trust on ,
1999.
If the trust includes properties previously acquired on
behalf of the trust, then the proceeds from the exercise
of the right to optional termination may be insufficient
to pay certificateholders what they would otherwise be
entitled to be paid.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[The senior certificates, other than the Class PO and Class X certificates,
will be purchased by from the depositor. The Class M,
Class B-1 and Class B-2 certificates will be purchased by
from the depositor. and
will offer the certificates that they purchase,
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. We expect the proceeds to the depositor from
the sale of the offered certificates, other than the Class PO and Class X
certificates, to be approximately $ , plus accrued interest, before
deducting issuance expenses payable by the depositor. The Class PO and Class X
certificates will be transferred to the seller on or about , 1999 as
partial consideration for the sale of the mortgage loans to the depositor. See
'Method of Distribution' in this prospectus supplement.]
[We expect that the offered certificates, other than the Class A-R, Class
PO and Class X certificates, will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company. We similarly expect that
the Class A-R certificates will be ready for delivery at the offices of
on or about , 1999.]
[NAME OF UNDERWRITER] [NAME OF UNDERWRITER]
, 1999
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
PAGE
----
<S> <C>
Summary......................................... S-3
Risk Factors.................................... S-7
The Mortgage Pool............................... S-10
Servicing of Mortgage Loans..................... S-18
Description of the Certificates................. S-21
Yield, Prepayment and Maturity Considerations... S-30
Credit Enhancement.............................. S-37
Use of Proceeds................................. S-38
Material Federal Income Tax Consequences........ S-38
ERISA Considerations............................ S-39
Method of Distribution.......................... S-40
Legal Matters................................... S-41
Ratings......................................... S-41
PROSPECTUS
Important Notice About Information in This
Prospectus and Each Accompanying Prospectus
Supplement.................................... 3
Risk Factors.................................... 4
The Trust Fund.................................. 9
Use of Proceeds................................. 19
The Depositor................................... 19
Mortgage Loan Program........................... 19
Description of the Certificates................. 22
Credit Enhancement.............................. 34
Yield and Prepayment Considerations............. 38
The Pooling and Servicing Agreement............. 40
Certain Legal Aspects of the Mortgage Loans..... 51
Material Federal Income Tax Consequences........ 58
State Tax Considerations........................ 80
ERISA Considerations............................ 80
Legal Investment................................ 83
Method of Distribution.......................... 84
Legal Matters................................... 85
Financial Information........................... 85
Rating.......................................... 85
Index to Defined Terms.......................... 86
</TABLE>
S-2
<PAGE>
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING OF THE
CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS.
CERTAIN STATEMENTS CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CONSIST OF FORWARD-LOOKING
STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR PROJECTIONS AND OTHER
FINANCIAL ITEMS. THESE STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING WORDS SUCH AS 'MAY,' 'WILL,' 'SHOULD,' 'EXPECTS,' 'BELIEVES,'
'ANTICIPATES,' 'ESTIMATES,' OR OTHER COMPARABLE WORDS. FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER FROM THE PROJECTED RESULTS. THOSE RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND OUR CONTROL.
BECAUSE WE CANNOT PREDICT THE FUTURE, WHAT ACTUALLY HAPPENS MAY BE VERY
DIFFERENT FROM WHAT WE PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
OFFERED CERTIFICATES
On the closing date, CHL Mortgage Pass-Through Trust 1999- will issue
classes of certificates, of which are being offered by this
prospectus supplement and the accompanying prospectus. The classes of
certificates that are being offered are listed on the cover page of this
prospectus supplement. The other classes of certificates are listed under
' -- Other Certificates' below. The assets of the trust that will support the
certificates will consist of a pool of mortgage loans with a principal balance
of approximately $ as of , 1999. The mortgage loans will
consist primarily of 30-year conventional fixed-rate mortgage loans secured by
first liens on one- to four-family residential properties.
OTHER CERTIFICATES
The trust will issue additional classes of certificates that will provide
limited credit support to the offered certificates. These certificates will be
designated the Class B-3, Class B-4 and Class B-5 Certificates and are not being
offered to the public pursuant to this prospectus supplement and the prospectus.
The approximate initial class certificate balances and pass-through rates for
the non-offered certificates are as follows:
<TABLE>
<CAPTION>
Initial Class Pass-
Certificate Through
Balance Rate
------------- --------
<S> <C> <C>
Class B-3 $ %
Class B-4 $ %
Class B-5 $ %
</TABLE>
See 'Description of the Certificates -- General' and ' -- Book-Entry
Certificates' in this prospectus supplement; and 'The Mortgage Pool' in this
prospectus supplement and 'The Trust Fund -- The Mortgage Loans -- General' in
the prospectus.
CUT-OFF DATE
, 1999
CLOSING DATE
On or about , 1999
DEPOSITOR
CWMBS, Inc. is a limited purpose finance subsidiary of Countrywide Credit
Industries, Inc. Its address is 4500 Park Granada, Calabasas, California 91302,
and its telephone number is (818) 225-3300.
SELLER AND MASTER SERVICER
[Countrywide Home Loans, Inc.]
TRUSTEE
[The Bank of New York]
DESIGNATIONS
Each class of certificates will have different characteristics. Certain of those
characteristics are reflected in the following general designations.
Regular Certificates
All classes of certificates except the Class A-R Certificates.
Residual Certificates
Class A-R Certificates.
S-3
<PAGE>
<PAGE>
Senior Certificates
Class A-1, Class A-2, Class A-3, Class PO, Class X and Class A-R
Certificates.
Subordinated Certificates
Class M, Class B-1, B-2, B-3, B-4 and Class B-5 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 except the Class PO and Class X Certificates.
Variable Rate Certificates
Class X Certificates.
Physical Certificates
Class PO, Class X, Class A-R and the Subordinated Certificates.
Book-Entry Certificates
All classes of certificates except the Physical Certificates.
DISTRIBUTION DATES
The trustee will make distributions on the certificates on the th day of each
calendar month beginning on , 1999 to the holders of record of the
certificates as of the last business day of the month preceding the
distributions. If the th day of a month is not a business day, then the
distributions will be made on the next business day after the th day of the
month.
INTEREST PAYMENTS
The interest rate for each class of certificates is specified on the cover page
of this prospectus supplement. The Class PO Certificates will be principal only
certificates and will not bear interest.
Interest will accrue on each interest bearing class of certificates on the basis
of a 360-day year divided into twelve 30-day months. The 'Interest Accrual
Period' for the interest bearing classes of certificates for any distribution
date will be the calendar month preceding the month of such distribution date.
See 'Description of the Certificates -- Interest' in this prospectus supplement.
PRINCIPAL PAYMENTS
Principal will be paid on the certificates on the th day of each month as
described in this prospectus supplement beginning at page S-25.
See 'Description of the Certificates -- Principal' in this prospectus
supplement.
OPTIONAL TERMINATION
The Master Servicer may purchase all of the remaining assets of the trust after
the principal balance of the mortgage loans and real estate owned by the trust
declines below 10% of the principal balance of the mortgage loans on ,
1999.
See 'Description of the Certificates -- Optional Termination' in this prospectus
supplement.
COLLECTION ACCOUNT; PRIORITY
OF DISTRIBUTIONS
On each distribution date amounts available in the trust to make distributions
on the certificates will be applied in the following order of priority:
(i) to interest on the interest bearing classes of Senior Certificates;
(ii) to principal on the classes of Senior Certificates in the manner, order and
priority described under 'Description of the Certificates -- Principal' in
this prospectus supplement;
(iii) to any deferred amounts payable on the Class PO Certificates, as described
under 'Description of the Certificates -- Principal' in this prospectus
supplement; and
(iv) to interest on and then principal of each class of Subordinated
Certificates, in order of their numerical class designations, beginning
with the Class M Certificates, as described under 'Description of the
Certificates -- Principal' in this prospectus supplement.
ADVANCES
The Master Servicer will make cash advances with respect to delinquent payments
of principal and interest on the mortgage loans to the extent the Master
Servicer reasonably believes that the cash advances can be repaid from future
payments on the mortgage loans. These cash advances are only intended to
maintain a regular flow of scheduled interest and principal payments on the
certificates and are not intended to guarantee or insure against losses.
See 'Servicing of Mortgage Loans -- Advances' in this prospectus supplement.
S-4
<PAGE>
<PAGE>
CREDIT ENHANCEMENT
The issuance of Senior Certificates and Subordinated Certificates by the trust
is designed to increase the likelihood that Senior Certificateholders will
receive regular payments of interest and principal.
SUBORDINATION
The certificates that have been designated as Senior Certificates will have a
payment priority over the certificates that are designated as Subordinated
Certificates. Within the classes of Subordinated Certificates, the Class M
Certificates will have payment priority over the Class B-1 and B-2 Certificates,
and the Class B-1 Certificates will have a payment priority over the Class B-2
Certificates.
Subordination is designed to provide the holders of certificates with a higher
payment priority with protection against most losses realized when the remaining
unpaid principal balance on a mortgage loan exceeds the amount of proceeds
recovered upon the liquidation of that mortgage loan. In general, this loss
protection is accomplished by allocating the realized losses among the
Subordinated Certificates, beginning with the Subordinated Certificates with the
lowest payment priority, until the principal amount of that subordinated class
has been reduced to zero. Realized losses would then be allocated to the next
most junior class of Subordinated Certificates, until the principal balance of
each class of Subordinated Certificates was reduced to zero. Thereafter,
realized losses would be applied to the Senior Certificates (other than the
Class X and Class PO Certificates) on a pro rata basis. Certain categories of
losses, however, such as special hazard losses, bankruptcy losses, and fraud
losses in excess of the amounts set forth in this prospectus supplement, are not
allocated among the Subordinated Certificates before they are allocated among
the Senior Certificates. Rather, such excess losses will be allocated pro rata
to each class of certificates (other than the Class X and Class PO
Certificates), even if the principal balance of each related class of
certificates with a lower payment priority has not been reduced to zero.
See 'Description of the Certificates -- Allocation of Losses' and 'Credit
Enhancement -- Subordination of Certain Classes' in this prospectus supplement.
RATINGS
The classes of certificates listed below will not be offered unless they are
assigned the following ratings by (' ')
and by
(' ').
<TABLE>
<CAPTION>
Class Rating Rating
- ----- ------ ------
<S> <C> <C>
A-1
A-2
A-3
PO
X
A-R
M
B-1
B-2
</TABLE>
A rating is not a recommendation to buy, sell or hold securities. These ratings
may be lowered or withdrawn at any time by either of the rating agencies.
See 'Ratings' in this prospectus supplement.
TAX STATUS
The trust will elect to be treated, for federal income tax purposes as a 'real
estate mortgage investment conduit' ('REMIC'). The classes of certificates that
are designated as the Regular Certificates will constitute 'regular interests'
in the REMIC. The Class A-R Certificates will represent the sole class of
'residual interests' in the REMIC.
See 'Material Federal Income Tax Consequences' in this prospectus supplement and
in the prospectus.
ERISA CONSIDERATIONS
The Senior Certificates (other than the Class PO, Class X and Class A-R
Certificates) may be purchased by a pension or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974 or Section 4975
of the Internal Revenue Code of 1986, so long as certain conditions are met. A
fiduciary of an employee benefit plan must determine that the purchase of a
certificate is consistent with its fiduciary duties under applicable law and
does not result in a nonexempt prohibited transaction under applicable law.
See 'ERISA Considerations' in this prospectus supplement and in the prospectus.
S-5
<PAGE>
<PAGE>
LEGAL INVESTMENT
The Senior Certificates [and the Class M Certificates] will be 'mortgage related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984 as long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization. The [Class B-1
and Class B-2] Certificates will not be rated in one of the two highest rating
categories by a nationally recognized statistical rating organization, and
therefore, will not be 'mortgage related securities' for purposes of that Act.
See 'Legal Investment' in this prospectus supplement and in the prospectus.
S-6
<PAGE>
<PAGE>
RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER 'RISK FACTORS' IN THE PROSPECTUS.
<TABLE>
<S> <C>
UNPREDICTABILITY AND EFFECT OF
PREPAYMENTS............................. Borrowers may prepay their mortgage loans in whole or in part at any
time. We cannot predict the rate at which borrowers will repay their
mortgage loans. A prepayment of a mortgage loan, however, will
usually result in a prepayment on the certificates.
If you purchase principal only certificates or you purchase your
certificates at a discount and principal is repaid slower than you
anticipate, then your yield may be lower than you anticipate.
If you purchase interest only certificates or you purchase your
certificates at a premium and principal is repaid faster than you
anticipate, then your yield may be lower than you anticipate.
If you purchase interest only certificates and principal is repaid
faster than you anticipate, you may lose your initial investment.
See 'Yield, Prepayment and Maturity Considerations' for a description
of factors that may influence the rate and timing of prepayments on
the mortgage loans.
POTENTIAL INADEQUACY OF CREDIT
ENHANCEMENT............................. The certificates are not insured by any financial guaranty insurance
policy. The subordination features described in the summary are
intended to enhance the likelihood that Senior Certificateholders
will receive regular payments of interest and principal.
SUBORDINATION. When certain classes of certificates provide credit
enhancement for other classes of certificates, this is sometimes
referred to as 'subordination.' For purposes of this prospectus
supplement, 'related subordinated classes' means (i) with respect to
the Senior Certificates, the Subordinated Certificates and (ii) with
respect to each class of the Subordinated Certificates, each class of
Subordinated Certificates with a higher numerical class designation.
The Class M Certificates will be deemed to have a lower numerical
designation (and therefore to have a higher payment priority) than
the other classes of Subordinated Certificates.
Credit enhancement will be provided for the certificates, first, by
the right of the holders of the certificates to receive certain
payments of principal prior to the related subordinated classes and,
second, by the allocation of realized losses to the related
subordinated classes. This form of credit enhancement is provided by
using collections on the mortgage loans otherwise payable to the
holders of the related subordinated classes to pay amounts due on the
more senior classes. Such collections comprise the sole source of
funds from which such credit enhancement is provided. Realized losses
are allocated to the Subordinated Certificates, beginning with the
Subordinated Certificates with the lowest payment priority, until the
principal amount of that subordinated class has been reduced to zero.
This means that realized losses would first be allocated to the
Class B-5 Certificates, until the principal balance of the Class B-5
Certificates is reduced to zero. Subsequent realized losses would be
</TABLE>
S-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
allocated to the next most junior class of Subordinated Certificates,
until the principal balance of that class of Subordinated
Certificates is reduced to zero. Accordingly, if the aggregate
principal balance of the related subordinated classes were to be
reduced to zero, delinquencies and defaults on the mortgage loans
would reduce the amount of funds available for monthly distributions
to holders of the remaining certificates. Furthermore, the related
subordinated classes will provide only limited protection against
certain categories of losses such as special hazard losses,
bankruptcy losses and fraud losses in excess of the amounts specified
in this prospectus supplement. Any losses in excess of such amounts
will be allocated pro rata to each class, even if the principal
balance of each related subordinated class has not been reduced to
zero.
See 'Credit Enhancement -- Subordination of Certain Classes' in this
prospectus supplement.
CERTIFICATES MAY NOT BE APPROPRIATE FOR
CERTAIN INVESTORS....................... The offered certificates may not be an appropriate investment for
investors who do not have sufficient resources or expertise to
evaluate the particular characteristics of the applicable class of
offered certificates. This may be the case because, among other
things:
The yield to maturity of offered certificates purchased at a price
other than par will be sensitive to the uncertain rate and timing of
principal prepayments on the mortgage loans;
The rate of principal distributions on and the weighted average lives
of the offered certificates will be sensitive to the uncertain rate
and timing of principal prepayments on the mortgage loans and the
priority of principal distributions among the classes of
certificates. Accordingly, the offered certificates may be an
inappropriate investment if you require a distribution of a
particular amount of principal on a specific date or an otherwise
predictable stream of distributions;
You may not be able to reinvest amounts distributed in respect of
principal on an offered certificate (which, in general, are expected
to be greater during periods of relatively low interest rates) at a
rate at least as high as the pass-through rate applicable to your
certificate; or
A secondary market for the offered certificates may not develop or
provide certificateholders with liquidity of investment.
You should also carefully consider the further risks discussed above
and under the heading 'Yield, Prepayment and Maturity Considera-
tions' in this prospectus supplement and under the heading 'Risk
Factors' in the prospectus.
GEOGRAPHIC CONCENTRATION.................. Approximately % of the mortgage loans expected to be in the
trust on the cut-off date are secured by property in [California].
Property in [California] may be more susceptible than homes located
in other parts of the country to certain types of uninsurable
hazards, such as [earthquakes, floods, mudslides] and other natural
disasters. In addition,
</TABLE>
S-8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Economic conditions in [California] (which may or may not affect real
property values) may affect the ability of borrowers to repay their
loans on time;
Declines in the [California] residential real estate market may
reduce the values of properties located in [California], which would
result in an increase in the loan-to-value ratios; and
Any increase in the market value of properties located in
[California] would reduce the loan-to-value ratios and could,
therefore, make alternative sources of financing available to the
borrowers at lower interest rates, which could result in an
increased rate of prepayment of the mortgage loans.
LIQUIDITY................................. Each underwriter intends to make a secondary market in the classes of
certificates actually purchased by it, but neither underwriter has
any obligation to do so. We cannot assure you that a secondary market
will develop or, if it develops, that it will continue. Consequently,
you may not be able to sell your certificates readily or at prices
that will enable you to realize your desired yield. The market values
of the certificates are likely to fluctuate; these fluctuations may
be significant and could result in significant losses to you.
The secondary markets for mortgage backed securities have experienced
periods of illiquidity and can be expected to do so in the future.
Illiquidity can have a severely adverse effect on the prices of
securities that are especially sensitive to prepayment, credit, or
interest rate risk, or that have been structured to meet the
investment requirements of limited categories of investors.
</TABLE>
S-9
<PAGE>
<PAGE>
THE MORTGAGE POOL
GENERAL
The Depositor, CWMBS, Inc., will purchase mortgage loans (the 'Mortgage
Loans') in the Mortgage Pool (the 'Mortgage Pool') from [Countrywide Home Loans,
Inc. ('Countrywide')] pursuant to a pooling and servicing agreement dated as of
the Cut-off Date (the 'Agreement') among Countrywide, as Seller and Master
Servicer, the Depositor and [The Bank of New York], as trustee (the 'Trustee'),
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 as to which there has been an uncured breach
of any representation or warranty relating to the characteristics of the
Mortgage Loans that materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan. 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 intended
to 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 buydown agreements. [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 each originated as an
adjustable rate mortgage loan but converted to a fixed rate Mortgage Loan prior
to its inclusion in the Mortgage Pool.
No Mortgage Loan has a Loan-to-Value Ratio at origination of more than 95%.
Generally, each Mortgage Loan with a Loan-to-Value Ratio at origination of
greater than 80% is covered by a primary mortgage guaranty insurance policy
issued by a mortgage insurance company acceptable to the Federal National
Mortgage Association ('FNMA') or the Federal Home Loan Mortgage Corporation
('FHLMC'). Such policy provides coverage in an amount equal to a specified
percentage times the sum of the remaining principal balance of the related
Mortgaged Loan, the accrued interest thereon and the related foreclosure
expenses. The specified
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percentage is either 12% for Loan-to-Value Ratios between 80.01% and 85.00%, 25%
for Loan-to-Value Ratios between 85.01% and 90.00% and 30% for Loan-to-Value
Ratios between 90.01% and 95.00%. With respect to Mortgage Loans, the lender
(rather than the borrower) acquired the primary mortgage guaranty insurance and
charged the related borrower an interest premium (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 (i) 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 or (ii) if maintaining such policy is prohibited by applicable
law. 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 Documentation Program as
described herein under ' -- Underwriting Process.' 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 90% 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 90%, 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 a limited
appraisal report at the time of the origination of such Mortgage Loan.] See
' -- Underwriting Process' 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%.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- --------------------------------------------------------------
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING POOL
- --------------------------------------------------------------
<S> <C> <C> <C>
6.375................. $ %
6.500.................
6.625.................
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.................
--------- --------------- ----------
Total............... $ 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>
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...
$1,500,001 - $2,000,000...
$2,000,001 - $2,500,000...
--------- --------------- ----------
Total.............. $ 100.00%
--------- --------------- ----------
--------- --------------- ----------
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the average current Mortgage Loan
principal balance is expected to be approximately $ .
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<PAGE>
<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..............
No Income/No Asset...
Streamlined..........
--------- --------------- ----------
Total............. $ 100.00%
--------- --------------- ----------
--------- --------------- ----------
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- ---------------------------------------------------------------
AGGREGATE
ORIGINAL NUMBER OF PRINCIPAL PERCENT OF
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.......
--------- --------------- ----------
Total............. $ 100.00%
--------- --------------- ----------
--------- --------------- ----------
</TABLE>
- ------------------------
(1) The weighted average original Loan-to-Value Ratio of the
Mortgage Loans is expected to be approximately %.
<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>
California........... $ %
Colorado.............
Georgia..............
Illinois.............
Massachusetts........
Michigan.............
New Jersey...........
Texas................
Washington...........
Other (less than
2%).................
--------- --------------- ----------
Total............. $ 100.00%
--------- --------------- ----------
--------- --------------- ----------
</TABLE>
- ------------------------
(1) Other includes other states and the District of Columbia 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).................
--------- --------------- ----------
Total.............. $ 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............
High Rise Condo........
2-4 Family.............
Planned Unit
Development...........
--------- --------------- ----------
Total............... $ 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.....
--------- --------------- ----------
Total............. $ 100.00%
--------- --------------- ----------
--------- --------------- ----------
</TABLE>
- ------------------------
(1) Based upon representations of the related mortgagors at the time
of origination.
<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..................
351..................
339..................
333..................
311..................
300..................
299..................
287..................
240..................
239..................
238..................
--------- --------------- ----------
Total............. $ 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.
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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 CHL Mortgage Pass-Through Trust 1999-
(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, except
that the Depositor may deliver or cause to be delivered a lost note affidavit in
lieu of any original Mortgage Note that has been lost, 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'). With respect to up to 50% of the Mortgage Loans, the
Depositor may deliver all or a portion of each related Mortgage File to the
Trustee not later than thirty days after the Closing Date. 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 PROCESS
[GENERAL
All mortgage loans must meet credit, appraisal and underwriting standards
acceptable to Countrywide. Countrywide's underwriting standards are applied in
accordance with applicable federal and state laws and regulations. Except as
otherwise provided herein, the underwriting procedures are consistent with those
identified under 'Mortgage Loan Program -- Underwriting Process' in the
Prospectus.
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<PAGE>
<PAGE>
In certain cases, including with respect to mortgage loans originated
through a loan correspondent or mortgage broker, the data used by Countrywide to
complete the underwriting analysis may be obtained by a third party. In such
instances, the initial determination as to whether a mortgage loan complies with
Countrywide's underwriting guidelines may be made by an independent company
hired to perform underwriting services on behalf of Countrywide, the loan
correspondent or mortgage broker. In addition, under certain circumstances,
Countrywide may acquire mortgage loans from approved correspondent lenders under
a program pursuant to which Countrywide delegates to the correspondent the
obligation to underwrite the mortgage loans to Countrywide's standards. Under
these circumstances, the underwriting of a mortgage loan may not have been
reviewed by Countrywide prior to acquisition of the mortgage loan and the
correspondent represents that Countrywide's underwriting standards have been
met. After purchasing mortgage loans under such circumstances, Countrywide
conducts a quality control review of a sample of such mortgage loans. The number
of loans reviewed in the quality control process varies based on a variety of
factors, including Countrywide's prior experience with the correspondent lender
and the results of the quality control review process itself.
Countrywide's underwriting standards are applied by or on behalf of
Countrywide to evaluate the prospective borrower's credit standing and repayment
ability and the value and adequacy of the mortgaged property as collateral.
Under such standards, a prospective borrower must generally demonstrate that the
ratio of the borrower's monthly housing expenses (including principal and
interest on the proposed mortgage loan and, as applicable, the related monthly
portion of property taxes, hazard insurance and mortgage insurance) to the
borrower's monthly gross income and the ratio of total monthly debt to the
monthly gross income (the 'debt-to-income' ratios) are within certain limits. If
the prospective borrower has applied for an adjustable rate loan and the
Loan-to-Value Ratio is less than or equal to 75%, the interest component of the
monthly housing expense is calculated based on the initial loan interest rate;
if the Loan-to-Value Ratio exceeds 75%, the interest component of the monthly
housing expense calculation is based on the maximum possible interest rate
payable in the second year of the mortgage loan. The maximum acceptable
debt-to-income ratio, which is determined on a loan-by-loan basis varies
depending on a number of underwriting criteria, including the Loan-to-Value
Ratio, loan purpose, loan amount and credit history of the borrower. In addition
to meeting the debt-to-income ratio guidelines, each prospective borrower is
required to have sufficient cash resources to pay the down payment and closing
costs. Certain exceptions to Countrywide's underwriting guidelines are made in
the event that compensating factors are demonstrated by a prospective borrower.
The nature of the information which a borrower is required to disclose and
whether such information is verified depends, in part, on the documentation
program used in the origination process. In general under the Full Documentation
Loan Program (the 'Full Documentation Program'), each prospective borrower is
required to complete an application which includes information with respect to
the applicant's assets, liabilities, income, credit history, employment history
and other personal information. Self-employed individuals are generally required
to submit their two most recent federal income tax returns. Under the Full
Documentation Program, the underwriter verifies the information contained in the
application relating to employment, income, assets or mortgages.
Under certain circumstances, a prospective borrower may be eligible for a
loan approval process which limits or eliminates Countrywide's standard
disclosure and/or verification requirements. Countrywide offers the following
documentation programs as alternatives to its Full Documentation Program: an
Alternative Documentation Loan Program (the 'Alternative Documentation
Program'), a Reduced Documentation Loan Program (the 'Reduced Documentation
Program'), a No Income/No Asset Documentation Loan Program (the 'No Income/No
Asset Documentation Program') and a Streamlined Documentation Loan Program (the
'Streamlined Documentation Program').
Countrywide obtains a credit report relating to the applicant from a credit
reporting company. The credit report typically contains information relating to
such matters as credit history with local and national merchants and lenders,
installment debt payments and any record of defaults, 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.
Except with respect to its Streamlined Documentation Program (as further
described below), Countrywide obtains appraisals from independent appraisers or
appraisal services for properties that are to secure mortgage loans. Such
appraisers inspect and appraise the proposed mortgaged property and verify that
such property is in
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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 approved.
Countrywide requires title insurance on all of its mortgage loans secured
by first liens on real property. Countrywide also requires that fire and
extended coverage casualty insurance be maintained on the mortgaged property in
an amount at least equal to the principal balance of the related single-family
mortgage loan or the replacement cost of the mortgaged property, whichever is
less.
In addition to Countrywide's standard underwriting guidelines (the
'Standard Underwriting Guidelines'), which are consistent in many respects with
the guidelines applied to mortgage loans purchased by FNMA and FHLMC,
Countrywide uses underwriting guidelines featuring expanded criteria (the
'Expanded Underwriting Guidelines'). The Standard Underwriting Guidelines and
the Expanded Underwriting Guidelines are described further below.
STANDARD UNDERWRITING GUIDELINES
Countrywide's Standard Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 95% for purchase money or rate and
term refinance 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 85% for mortgage loans with original principal balances of up to
$500,000, up to 80% for mortgage loans with original principal balances of up to
$650,000, up to 75% for mortgage loans with original principal balances of up to
$750,000 and up to 70% for mortgage loans with original principal balances of up
to $1,000,000.
For cash out refinance mortgage loans with original principal balances of
up to $650,000, Countrywide's Standard Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 75%. The maximum 'cash-out' amount
permitted is $150,000 and is based in part on the original Loan-to-Value Ratio
of the related mortgage loan. As used herein, 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 loan.
Under its Standard Underwriting Guidelines, Countrywide generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to
33% and a debt-to-income ratio based on the borrower's total monthly debt of up
to 38%.
In connection with the Standard Underwriting Guidelines, Countrywide
originates or acquires mortgage loans under the Full Documentation Program, the
Alternative Documentation Program, the Reduced Documentation Program or the
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 verification of deposits and permits alternative methods
of employment verification. Mortgage loans which have been originated under the
Alternative Documentation Program may be eligible for sale to FNMA or FHLMC.
Under the Reduced Documentation Program, certain underwriting documentation
concerning income and employment verification is waived. Countrywide obtains
from a prospective borrower either a verification of deposit or bank statements
for the two-month period immediately prior to the date of the mortgage loan
application. Since information relating to a prospective borrower's income and
employment is not verified, such borrower's debt-to-income ratios are calculated
based on the information provided by the borrower in the mortgage loan
application. The maximum Loan-to-Value Ratio (including secondary financing)
ranges up to 70% maximum.
The Streamlined Documentation Program is available for borrowers who are
refinancing 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 90%. In addition,
under the Streamlined Documentation Program, a credit report is
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<PAGE>
obtained but only a limited credit review is conducted, no income or asset
verification is required, and telephonic verification of employment is
permitted. The maximum Loan-to-Value Ratio under the Streamlined Documentation
Program ranges up to 90%.
Mortgage Loans comprising approximately % of the Mortgage Pool were
underwritten pursuant to Countrywide's Standard Underwriting Guidelines.
EXPANDED UNDERWRITING GUIDELINES
Mortgage loans which are underwritten pursuant to the Expanded Underwriting
Guidelines may have higher Loan-to-Value Ratios, higher loan amounts and
different documentation requirements than those associated with the Standard
Underwriting Guidelines. The Expanded Underwriting Guidelines also permit higher
debt-to-income ratios than mortgage loans underwritten pursuant to the Standard
Underwriting Guidelines.
Countrywide's Expanded Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 95% for purchase money or rate and
term refinance 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 85% for mortgage loans with original principal balances of up to
$500,000, up to 80% 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, up to 65% for mortgage loans with original principal balances of up to
$1,000,000 and up to 70% for mortgage loans with original principal balances of
up to $3,000,000.
For cash-out refinance mortgage loans with original principal balances of
up to $3,000,000, Countrywide's Expanded Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 90%. The maximum 'cash-out' amount
permitted is $600,000 and is based in part on the original Loan-to-Value Ratio
of the related mortgage loan.
Under its Expanded Underwriting Guidelines, Countrywide generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to
36% and a debt-to-income ratio based on the borrower's total monthly debt of up
to 40%; provided, however, that if the Loan-to-Value Ratio exceeds 80%, such
maximum permitted debt-to-income ratios are 33% and 38%, respectively.
In connection with the Expanded Underwriting Guidelines, Countrywide
originates or acquires mortgage loans under the Full Documentation Program, the
Alternative Documentation Program, the Reduced Documentation Loan Program and
the No Income/ No Asset Documentation Program. The No Income/No Asset
Documentation Program is not available under the Standard Underwriting
Guidelines.
The same documentation and verification requirements apply to mortgage
loans documented under the Alternative Documentation Program regardless of
whether the loan has been underwritten under the Expanded Underwriting
Guidelines or the Standard Underwriting Guidelines. However, under the
Alternative Documentation Program, mortgage loans that have been underwritten
pursuant to the Expanded Underwriting Guidelines may have higher loan balances
and Loan-to-Value Ratios than those permitted under the Standard Underwriting
Guidelines.
Similarly, the same documentation and verification requirements apply to
mortgage loans documented under the Reduced Documentation Program regardless of
whether the loan has been underwritten under the Expanded Underwriting
Guidelines or the Standard Underwriting Guidelines. However, under the Reduced
Documentation Program, higher loan balances and Loan-to-Value Ratios are
permitted for mortgage loans underwritten pursuant to the Expanded Underwriting
Guidelines than those permitted under the Standard Underwriting Guidelines. The
maximum Loan-to-Value Ratio (including secondary financing) ranges up to 90%.
With respect to certain mortgage loans originated under the Reduced
Documentation Program, the borrower is not required to disclose any income
information, and accordingly debt-to-income ratios are not calculated or
included in the underwriting analysis. With respect to such mortgage loans, the
maximum Loan-to-Value Ratio (including secondary financing) ranges up to 80%.
Under the No Income/No Asset Documentation Program, no documentation
relating to a prospective borrower's income, employment or assets is required
and therefore debt-to-income ratios are not calculated or included in the
underwriting analysis (or if such documentation or calculations are included in
a mortgage loan
S-16
<PAGE>
<PAGE>
file, they are not taken into account for purposes of the underwriting
analysis). This program is limited to borrowers with excellent credit histories.
Under the No Income/No Asset Documentation Program, the maximum Loan-to-Value
Ratio (including secondary financing) ranges up to 75%. Mortgage loans
originated under the No Income/No Asset Documentation Program are not eligible
for sale to FNMA or FHLMC.
Mortgage Loans originated under either the No Income/No Asset Documentation
Program or the Reduced Documentation Program pursuant to which debt-to-income
ratios are not calculated as described above are expected to comprise
approximately % of the Mortgage Pool.
Under the Expanded Underwriting Guidelines, Countrywide may also provide
mortgage loans to borrowers who are not U.S. citizens, including permanent and
non-permanent residents. The borrower is required to have a valid U.S. social
security number or a certificate of foreign status (IRS form W-8). The
borrower's income and assets must be verified under the Full Documentation
Program or the Alternative Documentation Program. The maximum Loan-to-Value
Ratio (including secondary financing) is 80%.
Mortgage Loans comprising approximately % of the Mortgage Pool were
underwritten pursuant to Countrywide's Expanded Underwriting Guidelines.]
S-17
<PAGE>
<PAGE>
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. ('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 , 1999, 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 4500 Park
Granada, Calabasas, California 91302.
Countrywide initially services substantially all of the mortgage loans it
originates or acquires. In addition, Countrywide has purchased 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.
<TABLE>
<CAPTION>
YEAR ENDED , QUARTER ENDED
------------------------------------------------ -------------
--------- --------- --------- --------- -------
(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.......................... $ $ $ $ $
Other Loans
Number of Loans..........................
Volume of Loans.......................... $ $ $ $ $
Total Loans
Number of Loans..........................
Volume of Loans.......................... $ $ $ $ $
Average Loan Balance.......................... $ $ $ $ $
</TABLE>
S-18
<PAGE>
<PAGE>
FORECLOSURE, DELINQUENCY AND LOSS 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.
A general deterioration of the real estate market in regions where the
Mortgaged Properties are located may result and weakening 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. A general
weakening of the economy may result 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 were 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, foreclosure and loss
experience, respectively, on the dates indicated, of all mortgage loans
originated or acquired by Countrywide, serviced or master serviced by the Master
Servicer and securitized by the Depositor. The delinquency, foreclosure and loss
percentages may be affected by the size and relative lack of seasoning of such
servicing portfolio which increased from approximately $ billion at
to approximately $ billion at , to
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,
delinquency and loss experience presented in the table below will be indicative
of such experience on the Mortgage Loans:
<TABLE>
<CAPTION>
AT , AT
----------------------------------------------- -------------
------- -------- ---------- ---------- ------
<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... % % % % %
------- -------- ---------- ---------- -------------
------- -------- ---------- ---------- -------------
Net Gains/(Losses) on liquidated loans(2)......
Percentage of Net Gains/(Losses) on liquidated
loans(2)(3).................................. % % % % %
Percentage of Net Gains/(Losses) on liquidated
loans (based on average outstanding principal
balance)(2).................................. % % % % %
</TABLE>
- ------------
(1) Excluding loans subserviced for others.
(2) 'Net Gains (Losses)' are actual gains or losses incurred on liquidated
properties which are calculated as net liquidation proceeds less book value
(excluding loan purchase premium or discount).
(3) Based upon the total principal balance of the mortgage loans outstanding on
the last day of the indicated period.
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of all mortgage loans serviced or master
serviced by the Master Servicer. Such mortgage loans have a variety of
underwriting, payment and other characteristics, many of which differ from those
of the Mortgage Loans, and no assurances can be given that the delinquency and
foreclosure experience presented in the table below will be indicative of such
experience of the Mortgage Loans. The delinquency and foreclosure percentages
may be affected by the size and relative lack of seasoning of such servicing
portfolio which increased from approximately $ billion at
to approximately $ billion at
S-19
<PAGE>
<PAGE>
, to approximately $ billion at , to
approximately $ billion at , and to approximately $
billion at .
<TABLE>
<CAPTION>
AT , AT ,
---------------------------------- -------------
---- ---- ---- ---- ------
<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) Excluding loans subserviced for others.
YEAR 2000 COMPLIANCE
[The Master Servicer has made and will continue to make investments to
identify, modify or replace any computer systems which are not year 2000
compliant and to address other related issues associated with the change of the
millennium. In the event that computer problems arise out of a failure of such
efforts to be completed on time, or in the event that the computer systems of
the Master Servicer or the Trustee are not fully year 2000 compliant, the
resulting disruptions in the collection or distribution of receipts on the
Mortgage Loans could materially and adversely affect the holders of the Offered
Certificates.]
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 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 (net of the interest premium charged by the related
lenders with respect to the Lender PMI Mortgage Loans) less 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
S-20
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<PAGE>
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'). The
'Determination Date' is 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.
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 a deposit in the Certificate Account as required
under the Agreement, including any failure to make an Advance, will constitute
an Event of Default under the Agreement if such failure remains unremedied for
five days after written notice thereof. If the Master Servicer is terminated as
a result of the occurrence of an Event of Default, the Trustee or the successor
master servicer will be obligated to make any such Advance, in accordance with
the terms of the Agreement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the material 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 1999- will consist of the
Class A-1, Class A-2, Class A-3, Class PO, Class X and Class A-R Certificates
(collectively, the 'Senior Certificates') and the Class M, Class B-1, Class B-2,
Class B-3, Class B-4 and Class B-5 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 on the
cover page hereof or described in this prospectus supplement.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof 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
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<PAGE>
<PAGE>
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 M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5 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
Class A-R Certificates will be issued as a single Certificate in a denomination
of $100.
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 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').
S-22
<PAGE>
<PAGE>
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the
day of each month or, if such day is not a business day, on the first business
day thereafter, commencing in 1999 (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 '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 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,
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 related Prepayment Period; 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 page 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
S-23
<PAGE>
<PAGE>
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
portion of the Prepayment Period occurring in 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 herein under 'Servicing of
Mortgage Loans -- Adjustment to Master Servicing Fee in Connection with Certain
Prepaid 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.
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) in an amount up to the Senior Principal Distribution Amount and as
principal of the Subordinated Certificates, in an amount up to the Subordinated
Principal Distribution Amount.
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
S-24
<PAGE>
<PAGE>
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:
(1) to the Class A-R Certificates, until the Class Certificate Balance
thereof is reduced to zero;
(2) concurrently, to the Class A- , Class and Class Certificates,
pro rata, based on their then outstanding Class Certificate Balances, until
the Class Certificate Balances thereof are reduced to zero;
(3) sequentially, to the Class Certificates, in that order, until
their Class Certificate Balances are reduced to zero;
(4) sequentially, to the Class and Class Certificates, in that
order, until their Class Certificate Balances are reduced to zero; and
(5) to the Class Certificates, until the Class Certificate Balance
thereof is 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.
'Prepayment Period' means the period from the sixteenth day of a calendar
month (or in the case of the first Distribution Date, from the Cut-off Date)
through the fifteenth day of the suceeding calendar month.
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.
S-25
<PAGE>
<PAGE>
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
Subordinated Percentage for any Distribution Date will be calculated as the
difference between 100% and the Senior Percentage for 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 (other than the Class PO Certificates) which receive these
unscheduled payments of principal 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 Subordinated Prepayment Percentage as of any
Distribution Date will be calculated as the difference between 100% and the
Senior Prepayment Percentage.
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 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 Distribution
Date 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 unless both of the following conditions (the 'Step Down
Conditions') are satisfied: (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 on such Distribution Date, does not equal or exceed 50%, and (ii)
cumulative Realized Losses with respect to the Mortgage Loans do not 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.
If on any Distribution Date the allocation to the Class or Classes of
Senior Certificates (other than the Class PO 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 or Classes below zero, the distribution to
such Class or Classes 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(s) 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.
S-26
<PAGE>
<PAGE>
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.
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 M......................................................................... %
Class B-1....................................................................... %
Class B-2....................................................................... %
Class B-3....................................................................... %
Class B-4....................................................................... %
Class B-5....................................................................... %
</TABLE>
For purposes of calculating the Applicable Credit Support Percentages of
the Subordinated Certificates, the Class M Certificates will be deemed to have a
lower numerical Class designation than each other Class of Subordinated
Certificates.
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
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<PAGE>
<PAGE>
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.
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.
For purposes of allocating losses to the Subordinated Certificates, the
Class M Certificates will be deemed to have a lower numerical Class designation
than each other Class of Subordinated Certificates.
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.
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
S-28
<PAGE>
<PAGE>
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 assumptions
(collectively, the 'Structuring Assumptions'): (i) the Mortgage Pool consists of
two Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
NET TO MATURITY TO MATURITY
PRINCIPAL BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS)
- ----------------- ------------- ------------- ------------- --------------
<S> <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 page 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 , 1999, (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.
S-29
<PAGE>
<PAGE>
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.
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 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, 12E, 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 'Material 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 each interest bearing Class of
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
S-30
<PAGE>
<PAGE>
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 Classes of
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 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.
For purposes of allocating losses and shortfalls resulting from
delinquencies to the Subordinated Certificates, the Class M Certificates will be
deemed to have a lower numerical Class designation than each other Class of
Subordinated Certificates.
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 significantly 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, servicing decisions, as well as the characteristics of the
Mortgage Loans included in the Mortgage Pool as described under 'The Mortgage
Pool -- General' and ' -- Underwriting Process' herein. [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
S-31
<PAGE>
<PAGE>
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. Furthermore, with respect to up to 50% of the Mortgage Loans (the
'Delay Delivery Mortgage Loans'), the Depositor may deliver all or a portion of
each related Mortgage File to the Trustee not later than thirty days after the
Closing Date. Should the Seller fail to deliver all or a portion of any such
Mortgage Files to the Depositor or other designee of the Depositor or, at the
Depositor's direction, to the Trustee within such period, the Seller will be
required to use its best efforts to deliver a Substitute Mortgage Loan for the
related Delay Delivery Mortgage Loan or repurchase the related Delay Delivery
Mortgage Loan. Any repurchases pursuant to this provision would also have the
effect of accelerating the rate of prepayments on the Mortgage Loans.
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.'
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 CLASS X 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.
S-32
<PAGE>
<PAGE>
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 CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
-----------------------------------------------
CLASS 0% % % % %
- ----------------------------------------- ----- ----- ----- ---- ----
<S> <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 Non-Discount Mortgage
Loans prepay at the indicated percentages of SPA. No representation is made as
to the actual rate of principal payments on the Non-Discount Mortgage Loans for
any period or over the life 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 WITH RESPECT TO THE CLASS PO CERTIFICATES 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
its 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>
PERCENTAGE OF SPA
-------------------------------------------
CLASS 0% % % % %
- -------------------------------------------- ---- ---- ----- ----- -----
<S> <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 the 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
S-33
<PAGE>
<PAGE>
Certificates is likely to differ from those shown in the table above, even if
all of the Discount Mortgage Loans prepay at the indicated percentages of SPA.
No representation is made as to the actual rate of principal payments on the
Discount 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 Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the 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 assumptions 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 specifically 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 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, the priority sequence of distributions of principal
of the Classes of Certificates. See 'Description of the
Certificates -- Principal' herein.
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.
S-34
<PAGE>
<PAGE>
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Class X 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 the constant percentages of SPA specified in the tables or at any other
constant rate. 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
PERCENTAGES OF SPA PERCENTAGES OF SPA
---------------------------------------- ----------------------------------------
DISTRIBUTION DATE 0% % % % % 0% % % % %
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............... 100 100 100 100 100 100 100 100 100 100
1999............
2000............
2001............
2002............
2003............
2004............
2005............
2006............
2007............
2008............
2009............
2010............
2011............
2012............
2013............
2014............
2015............
2016............
2017............
2018............
2019............
2020............
2021............
2022............
2023............
2024............
2025............
2026............
2027............
2028............
Weighted Average Life
(in years)**........
</TABLE>
- ------------------------------
* Rounded to the nearest whole percentage.
** Determined as specified under 'Weighted Average Lives of the Offered
Certificates' herein.
S-35
<PAGE>
<PAGE>
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 month of 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. In
particular, the rate and timing of mortgagor defaults and the severity of
ensuing losses on the Mortgage Loans may be affected by the characteristics of
the Mortgage Loans included in the Mortgage Pool as described under 'The
Mortgage Pool -- General' and ' -- Underwriting Process' herein. 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.
For purposes of allocating losses and prepayments to the Subordinated
Certificates, the Class M Certificates will be deemed to have a lower numerical
Class designation than each other Class of Subordinated Certificates.
S-36
<PAGE>
<PAGE>
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 M 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 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.
For purposes of allocating losses to the Subordinated Certificates, the
Class M Certificates will be deemed to have a lower numerical Class designation
than each other Class of Subordinated Certificates.
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.
S-37
<PAGE>
<PAGE>
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 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. The Residual Certificates will constitute the sole Class
of 'residual interests' in the REMIC.
The Regular Certificates will be treated as debt instruments issued by the
REMIC for federal income tax purposes. Income on the Regular Certificates must
be reported under an accrual method of accounting. Under the accrual method of
accounting, interest income may be required to be included in a holder's gross
income in advance of the holder's actual receipt of that interest income.
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 'Material
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. 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 'Material 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.
See 'Material Federal Income Tax Consequences -- REMIC Certificates -- a.
Regular Certificates' in the Prospectus.
As is described more fully under 'Material Federal Income Tax Consequences'
in the Prospectus, the Offered Certificates will represent qualifying assets
under Sections 856(c)(4)(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 Internal Revenue Code of 1986, as amended (the 'Code'), to
the extent the assets of the Trust Fund are assets described in such sections.
The
S-38
<PAGE>
<PAGE>
Regular Certificates will represent qualifying assets under Section 860G(a)(3)
if acquired by a REMIC within the prescribed time periods of the Code.
The holders of the Residual Certificates must include the taxable income of
the 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.
In computing alternative minimum taxable income, the special rule providing
that taxable income cannot be less than the sum of the taxpayer's excess
inclusions for the year does not apply. However, a taxpayer's alternative
minimum taxable income cannot be less than the sum of the taxpayer's excess
inclusions for the year. In addition, the amount of any alternative minimum tax
net operating loss is determined without regard to any excess inclusions.
It is recommended that purchasers of a Residual Certificate consider
carefully the tax consequences of an investment in Residual Certificates
discussed in the Prospectus and consult their own tax advisors with respect
to those consequences. See 'Material 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 'Material Federal Income Tax Consequences -- Tax-Related
Restrictions on Transfer of Residual Certificates -- Noneconomic Residual
Certificates,' 'Material Federal Income Tax Consequences -- b. Residual
Certificates -- Mark to Market Rules,' ' -- Excess Inclusions' and 'Material
Federal Income Tax Consequences -- 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 'Material 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 from engaging in certain
transactions involving such plan and its assets unless a statutory, regulatory
or administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes on prohibited transactions involving 'disqualified
persons' and employee benefit plans or other arrangements (including, but not
limited to, individual retirement accounts) described under that Section
(together with employee benefit plans subject to ERISA, 'Plans'); 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
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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 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, 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 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 CLASS PO AND CLASS X CERTIFICATES MAY BE TRANSFERRED ONLY IF
THE CONDITIONS IN CLAUSE (I) OR CLAUSE (III) OF THE IMMEDIATELY SUCCEEDING
PARAGRAPH ARE MET.
BECAUSE THE CHARACTERISTICS OF THE CLASS M, CLASS B-1, CLASS B-2 AND CLASS
A-R CERTIFICATES MAY NOT MEET THE REQUIREMENTS OF PROHIBITED TRANSACTION CLASS
EXEMPTION 83-1 ('PTE 83-1'), THE EXEMPTION OR ANY OTHER ISSUED EXEMPTION UNDER
ERISA, THE PURCHASE AND HOLDING OF THE CLASS M, CLASS B-1, CLASS B-2 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 M, CLASS B-1, CLASS B-2 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 OR 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 ('PTE 95-60')) AND THAT THE PURCHASE AND HOLDING OF SUCH
CERTIFICATES ARE COVERED UNDER SECTIONS I AND III OF PTE 95-60; OR (III) AN
OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING OF
SUCH CERTIFICATE BY A PLAN, OR 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 M, CLASS B-1 OR CLASS B-2 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 the Exemption
and PTE 83-1 described in the Prospectus, 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
among the Depositor, (' ') and
(' ' and, together with
, the 'Underwriters'), the Depositor has agreed to sell the
Certificates to the Underwriters, has agreed to purchase from the
Depositor the Senior Certificates, other than the Class PO and Class X
Certificates (the ' Underwritten Certificates') and
has agreed to purchase from the Depositor the Class M, Class B-1 and Class B-2
Certificates (the '
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Underwritten Certificates' and, together with the Underwritten
Certificates, the 'Underwritten Certificates'). Distribution of the
Underwritten Certificates will be made by and
distribution of the Underwritten Certificates will be made by
, 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.
intends to make a secondary market in the
Underwritten Certificates and intends to make a secondary market
in the Underwritten Certificates, but neither 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 PO and Class X Certificates may be offered by the Seller or 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, the Seller and the Master Servicer) in one or more negotiated
transactions, or otherwise, at varying prices to be determined at the time of
sale, in one or more separate transactions at prices to be negotiated at the
time of each sale. Any underwriters or agents that participate in the
distribution of the Class PO and Class X 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 LLP, 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 , Class PO and Class X
Certificates that they be rated by . It is a condition to the issuance
of the Class M, Class B-1 and Class B-2 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. 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 prepayments of the mortgage loans. The ' '
symbol is appended to the rating by of those Certificates that believes
may experience high volatility or high variability in expected returns due to
non-credit risks. The absence of an ' ' symbol in the ratings of the other
Offered Certificates should not be taken as an indication that such Certificates
will exhibit no volatility or variability in total return.
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. 's ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. 's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. Further the rating
on the Class X Certificates does not address whether investors will recoup their
initial investment. The rating assigned by to the Class PO Certificates
only addresses the return of its stated Principal Balance. The rating assigned
by to the
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Class A-R Certificates only addresses the return of its Class Certificate
Balance and interest thereon at its stated Pass-Through Rate.
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.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, ISSUED FEBRUARY , 1999
PROSPECTUS
CWMBS, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
THE TRUSTS
Each Trust will be established to hold assets in its
trust fund transferred to it by CWMBS, Inc. The
assets in each trust fund will be specified in the
Prospectus Supplement for the particular Trust and
will generally consist of
first lien mortgage loans secured by one- to
four-family residential properties or
participations in that type of loan,
mortgage pass-through securities issued or
guaranteed by the Government National Mortgage
Association, the Federal National Mortgage
Association, or the Federal Home Loan Mortgage
Corporation, or
private mortgage-backed securities backed by
first lien mortgage loans secured by one- to
four-family residential properties or
participations in that type of loan.
PLEASE CAREFULLY CONSIDER OUR DISCUSSION OF SOME OF THE RISKS OF INVESTING IN
THE CERTIFICATES UNDER 'RISK FACTORS' BEGINNING ON PAGE 4.
The Certificates represent obligations of a Trust only. They do not represent
obligations of the depositor, the seller, the master servicer, or any of their
affiliates.
This prospectus may be used to offer and sell the securities only if
accompanied by a prospectus supplement.
THE CERTIFICATES
CWMBS, Inc. will sell the Certificates pursuant to a prospectus supplement. The
Certificates will be grouped into one or more series, each having its own
distinct designation. A series of Certificates will relate to a Trust and
evidence beneficial ownership in its trust fund. Each series will be issued in
one or more classes and each class will evidence beneficial ownership of a
specified portion of future payments on the assets in the trust fund that the
series relates to. Each series may establish varying priorities of payment
among its classes. Any class in a series may be entitled to receive any part
of its distributions from the trust fund before or after or at the same
time as any other classes in the series. A prospectus supplement for a series
will specify all of the terms of the series and of each of the classes in the
series. A Trust may end early in circumstances that will be described in its
prospectus supplement.
MARKET FOR CERTIFICATES
No market for any of the Certificates will exist before they are issued. After a
series of Certificates is issued a secondary market for it may or may not
develop. And if one does develop, it may not continue.
OFFERS OF CERTIFICATES
The Certificates may be offered through several different methods, including
offerings through underwriters.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS
SUPPLEMENT..................................... 3
RISK FACTORS..................................... 4
Limited Liquidity........................... 4
Limited Source of Payments -- No Recourse to
Sellers, Depositor or Servicer............ 4
Credit Enhancement.......................... 4
Prepayment and Yield Considerations......... 5
Balloon Payments............................ 6
Nature of Mortgages......................... 5
Environmental Risks......................... 6
Rating of the Certificates.................. 6
Book-Entry Registration..................... 7
Bankruptcy and Insolvency Risks............. 7
THE TRUST FUND................................... 9
The Mortgage Loans -- General............... 10
Agency Securities........................... 12
Private Mortgage-Backed Securities.......... 16
Substitution of Mortgage Assets............. 18
Available Information....................... 18
Incorporation of Certain Documents by
Reference................................. 18
USE OF PROCEEDS.................................. 19
THE DEPOSITOR.................................... 19
MORTGAGE LOAN PROGRAM............................ 19
Underwriting Process........................ 19
Qualifications of Sellers................... 20
Representations by Sellers; Repurchases..... 20
DESCRIPTION OF THE CERTIFICATES.................. 22
General..................................... 22
Distributions on Certificates............... 24
Advances.................................... 25
Reports to Certificateholders............... 26
Categories of Classes of Certificates....... 27
Indices Applicable to Floating Rate and
Inverse Floating Rate classes............. 29
Book-Entry Certificates..................... 32
CREDIT ENHANCEMENT............................... 34
General..................................... 34
Subordination............................... 34
Mortgage Pool Insurance Policies............ 34
Special Hazard Insurance Policies........... 35
Bankruptcy Bonds............................ 36
Reserve Fund................................ 37
Cross Support............................... 37
Insurance Policies, Surety Bonds and
Guaranties................................ 37
Over-Collateralization...................... 38
YIELD AND PREPAYMENT CONSIDERATIONS.............. 38
THE POOLING AND SERVICING AGREEMENT.............. 40
Assignment of Mortgage Assets............... 40
Payments on Mortgage Assets; Deposits to
Certificate Account....................... 41
Collection Procedures....................... 43
Hazard Insurance............................ 44
Realization Upon Defaulted Mortgage Loans... 45
Servicing and Other Compensation and Payment
of Expenses............................... 48
Evidence as to Compliance................... 48
List of Certificateholders.................. 49
Certain Matters Regarding the Master
Servicer and the Depositor................ 49
Events of Default........................... 49
Rights Upon Event of Default................ 50
Amendment................................... 50
Termination; Optional Termination........... 51
The Trustee................................. 51
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS...... 51
General..................................... 51
Foreclosure/Repossession.................... 52
Rights of Redemption........................ 54
Anti-Deficiency Legislation and Other
Limitations on Lenders.................... 55
Environmental Risks......................... 55
Due-on-Sale Clauses......................... 56
Prepayment Charges.......................... 57
Applicability of Usury Laws................. 57
Soldiers' and Sailors' Civil Relief Act..... 57
MATERIAL FEDERAL INCOME TAX CONSEQUENCES......... 58
General..................................... 58
Non-REMIC Certificates...................... 58
REMIC Certificates.......................... 65
Prohibited Transactions and Other Taxes..... 77
Liquidation and Termination................. 77
Administrative Matters...................... 78
Tax-Exempt Investors........................ 78
Non-U.S. Persons............................ 78
Tax-Related Restrictions on Transfers of
Residual Certificates..................... 78
STATE TAX CONSIDERATIONS......................... 80
ERISA CONSIDERATIONS............................. 80
LEGAL INVESTMENT................................. 83
METHOD OF DISTRIBUTION........................... 84
LEGAL MATTERS.................................... 85
FINANCIAL INFORMATION............................ 85
RATING........................................... 85
INDEX TO DEFINED TERMS........................... 86
</TABLE>
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IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of certificates is contained in two separate
documents:
this prospectus, which provides general information, some of which
may not apply to a particular series; and
the accompanying prospectus supplement for a particular series, which
describes the specific terms of the certificates of that series.
If the prospectus supplement contains information about a particular series that
differs from the information contained in this prospectus, you should rely on
the information in the prospectus supplement.
You should rely only on the information in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Beginning with the section titled 'The Trust Fund,' certain capitalized
terms are used in this prospectus to assist you in understanding the terms of
the certificates. The capitalized terms used in this prospectus are defined on
the pages indicated under the caption 'Index of Defined Terms' beginning on
page 88.
------------------------
If you require additional information, the mailing address of our principal
executive offices is CWMBS, Inc., 4500 Park Granada, Calabasas, California 91302
and the telephone number is (818) 225-3000. For other means of acquiring
additional information about us or a series of securities, see 'The Trust
Fund -- Incorporation of Certain Documents by Reference' beginning on page 20.
------------------------
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RISK FACTORS
You should carefully consider the following information since it identifies
significant risks associated with an investment in the Certificates.
LIMITED LIQUIDITY
No market for any of the Certificates will exist before they are issued.
After a series of Certificates is issued a resale market for it may not develop.
Even if one does develop, it might not provide significant liquidity of
investment or continue for the life of the Certificates.
LIMITED SOURCE OF PAYMENTS -- NO RECOURSE TO SELLERS, DEPOSITOR OR SERVICER
Unless the applicable prospectus supplement provides otherwise,
Certificates will be payable solely from their associated trust fund.
Furthermore, at the times specified in the applicable prospectus supplement,
certain assets of the trust fund may be released and paid out to other people,
such as the depositor, a servicer, a credit enhancement provider, or any other
person entitled to payments from the trust fund. Those assets will no longer be
available to make payments to certificateholders. Those payments are generally
made after:
all payments then due on Certificates of the relevant series have
been made,
adequate provision for future payments on certain classes of
Certificates of the relevant series have been made, and
any other payments specified in the applicable prospectus supplement
have been made.
You will not have any recourse against the depositor or any servicer if you
do not receive a required distribution on the Certificates. Nor will you have
recourse against the assets of the trust fund of any other series of
Certificates.
The Certificates will not represent an interest in the depositor, any
servicer, any seller to the depositor, or any one else except the Trust. The
only obligation of the depositor to a Trust comes from certain representations
and warranties made by it about assets transferred to the trust fund. If these
representations and warranties turn out to be untrue, the depositor may be
required to repurchase some of the transferred assets. CWMBS, Inc., which is the
depositor, does not have significant assets and is unlikely to have significant
assets in the future. So if the depositor were required to repurchase a loan
because of a breach of a representation, its only sources of funds for the
repurchase would be:
funds obtained from enforcing a corresponding obligation of a seller
or originator of the loan, or
funds from a reserve fund or similar credit enhancement established
to pay for loan repurchases.
The only obligations of the master servicer to a Trust (other than its
master servicing obligations) comes from certain representations and warranties
made by it in connection with its loan servicing activities. If these
representations and warranties turn out to be untrue, the master servicer may be
required to repurchase some of the loans. However, the master servicer may not
have the financial ability to make the required repurchase. The only obligations
to a Trust of a seller of loans to the depositor comes from certain
representations and warranties made by it in connection with its sale of the
loans and certain document delivery requirements. If these representations and
warranties turn out to be untrue, or the seller fails to deliver required
documents, it may be required to repurchase some of the loans. However, the
seller may not have the financial ability to make the required repurchase.
CREDIT ENHANCEMENT
Credit enhancement is intended to reduce the effect of loan losses. But
credit enhancements may benefit only some classes of a series of Certificates
and the amount of any credit enhancement will be limited as described in the
applicable prospectus supplement. Furthermore, the amount of a credit
enhancement may decline over time pursuant to a schedule or formula or
otherwise, and could be depleted from payments or under certain other
circumstances before the Certificates covered by the credit enhancement are paid
in full. In addition, a credit enhancement may not cover all potential sources
of loss. For example, a credit enhancement may or may not cover fraud or
negligence by a loan originator or other parties. Also, the Trustee may be
permitted to reduce, substitute for, or even eliminate all or a portion of a
credit enhancement so long as the
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rating agencies that have rated the Certificates at the request of the depositor
indicate that that would not cause them to change adversely their rating of the
Certificates. Consequently, certificateholders may suffer losses even though a
credit enhancement exists and its provider does not default.
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments on Certificates will be affected by a
number of factors, including:
the extent of prepayments on the loans held in the applicable trust
fund or on loans backing securities held in the applicable trust
fund,
how payments of principal are allocated among the classes of
Certificates of a series as specified in the applicable prospectus
supplement,
whether a party exercises a right to terminate the applicable Trust,
the rate and timing of payment defaults and losses on the assets in
the applicable trust fund, and repurchases of assets in the
applicable trust fund for material breaches of representations and
warranties.
For the purposes of the Certificates, prepayments on loans may happen in
many different ways in addition to the owner repaying the loan upon the sale or
refinancing of the underlying property. Some of these other ways include the
application of the proceeds of a foreclosure sale or fire insurance or a
condemnation award, as well as repurchases of a loan by the depositor or the
seller.
The rate and timing of prepayment of loans held in the applicable trust
fund or on loans backing securities held in the applicable trust fund will
affect the yields to maturity and weighted average lives of the Certificates.
Interest payable on the Certificates on any given distribution date will include
all interest accrued during their related interest accrual period. The interest
accrual period for the Certificates of each series will be specified in the
applicable prospectus supplement. If the interest accrual period ends two or
more days before the related distribution date, your effective yield will be
less than it would be if the interest accrual period ended the day before the
distribution date, and your effective yield at par would be less than the
indicated coupon rate. Any reinvestment risks from faster or slower prepayments
of loans will be borne entirely by the holders of one or more classes of the
related series of Certificates.
BALLOON PAYMENTS
Some of the underlying loans may not be fully amortizing over their terms
to maturity and, thus, will require substantial principal payments (that is,
balloon payments) at their stated maturity. Loans with balloon payments involve
a greater degree of risk than fully amortizing loans because typically the
borrower must be able to refinance the loan or sell the property to make the
balloon payment at maturity. The ability of a borrower to do this will depend on
such factors as mortgage rates at the time of sale or refinancing, the
borrower's equity in the property, the relative strength of the local housing
market, the financial condition of the borrower, and tax laws. Losses on these
loans that are not otherwise covered by a credit enhancement will be borne by
the holders of one or more classes of Certificates.
NATURE OF MORTGAGES
Property Values. The value of the properties underlying the loans held in
the trust fund may decline over time. Among the factors that could adversely
affect the value of the properties are:
an overall decline in the residential real estate market in the areas
in which they are located,
a decline in their general condition from the failure of borrowers to
maintain their property adequately, and
natural disasters that are not covered by insurance, such as
earthquakes and floods.
If property values decline, the actual rates of delinquencies,
foreclosures, and losses on all underlying loans could be higher than those
currently experienced in the mortgage lending industry in general. These losses,
to the extent not otherwise covered by a credit enhancement, will be borne by
the holder of one or more classes of Certificates.
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Delays Due to Liquidation. Even if the properties underlying the loans held
in the trust fund provide adequate security for the loans, substantial delays
could occur before defaulted loans are liquidated and their proceeds are
forwarded to investors. Property foreclosure actions are regulated by state
statutes and rules and are subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are made, sometimes requiring several
years to complete. Furthermore, in some states if the proceeds of the
foreclosure are insufficient to repay the loan, the borrower is not liable for
the deficit. Thus, if a borrower defaults, these restrictions may impede the
Trust's ability to dispose of the property and obtain sufficient proceeds to
repay the loan in full. In addition, the servicer will be entitled to deduct
from liquidation proceeds all expenses reasonably incurred in attempting to
recover on the defaulted loan, including legal fees and costs, real estate
taxes, and property maintenance and preservation expenses.
Disproportionate Effect of Liquidation Expenses. Liquidation expenses of
defaulted loans generally do not vary directly with the outstanding principal
balance of the loan at the time of default. Therefore, if a servicer takes the
same steps for a defaulted loan having a small remaining principal balance as it
does for a defaulted loan having a large remaining principal balance, the amount
realized after expenses is smaller as a percentage of the outstanding principal
balance of the small loan than it is for the defaulted loan having a large
remaining principal balance.
Consumer Protection Laws. State laws generally regulate interest rates and
other charges, require certain disclosures, and require licensing of mortgage
loan originators and servicers. In addition, most states have other laws and
public policies for the protection of consumers that prohibit unfair and
deceptive practices in the origination, servicing, and collection of mortgage
loans. Depending on the particular law and the specific facts involved,
violations may limit the ability to collect all or part of the principal or
interest on the underlying loans held in the trust fund. In some cases, the
borrower may even be entitled to a refund of amounts previously paid.
The loans held in the trust fund may also be subject to certain federal
laws, including:
the Federal Truth in Lending Act and its regulations, which require
certain disclosures to the borrowers regarding the terms of any
mortgage loan;
the Equal Credit Opportunity Act and its regulations, which prohibit
discrimination in the extension of credit on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of
public assistance, or the exercise of any right under the Consumer
Credit Protection Act; and
the Fair Credit Reporting Act, which regulates the use and reporting
of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability to collect the principal or interest on the loans held in the trust
fund, and in addition could subject the trust fund to damages and administrative
enforcement. Losses on loans from the application of those laws that are not
otherwise covered by a credit enhancement will be borne by the holders of one or
more classes of Certificates.
ENVIRONMENTAL RISKS
Federal, state, and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health, and safety.
In certain circumstances, these laws and regulations impose obligations on
owners or operators of residential properties such as those that secure the
loans held in the trust fund. Failure to comply with these laws and regulations
can result in fines and penalties that could be assessed against the Trust as
owner of the related property.
In some states, a lien on the property due to contamination has priority
over the lien of an existing mortgage. Also, a mortgage lender may be held
liable as an 'owner' or 'operator' for costs associated with the release of
petroleum from an underground storage tank under certain circumstances. If the
Trust is considered the owner or operator of a property, it will suffer losses
as a result of any liability imposed for environmental hazards on the property.
RATING OF THE CERTIFICATES
Any class of Certificates issued under this prospectus and the accompanying
prospectus supplement will be rated in one of the four highest rating categories
of at least one nationally recognized rating agency. A rating is based on the
adequacy of the value of the trust assets and any credit enhancement for that
class, and reflects the
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rating agency's assessment of how likely it is that holders of the class of
Certificates will receive the payments to which they are entitled. A rating does
not constitute an assessment of how likely it is that principal prepayments on
the underlying loans will be made, the degree to which the rate of prepayments
might differ from that originally anticipated, or the likelihood that the
Certificates will be redeemed early. A rating is not a recommendation to
purchase, hold, or sell certificates because it does not address the market
price of the Certificates or the suitability of the Certificates for any
particular investor.
A rating may not remain in effect for any given period of time and the
rating agency could lower or withdraw the rating entirely in the future. For
example, the rating agency could lower or withdraw its rating due to:
a decrease in the adequacy of the value of the trust assets or any
related credit enhancement,
an adverse change in the financial or other condition of a credit
enhancement provider, or
a change in the rating of the credit enhancement provider's long-term
debt.
The amount, type, and nature of credit enhancement established for a class
of Certificates will be determined on the basis of criteria established by each
rating agency rating classes of the Certificates. These criteria are sometimes
based upon an actuarial analysis of the behavior of similar loans in a larger
group. That analysis is often the basis upon which each rating agency determines
the amount of credit enhancement required for a class. The historical data
supporting any actuarial analysis may not accurately reflect future experience,
and the data derived from a large pool of similar loans may not accurately
predict the delinquency, foreclosure, or loss experience of any particular pool
of mortgage loans. Mortgaged properties may not retain their values. If
residential real estate markets experience an overall decline in property values
such that the outstanding principal balances of the loans held in a particular
trust fund and any secondary financing on the related mortgaged properties
become equal to or greater than the value of the mortgaged properties, the rates
of delinquencies, foreclosures, and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition, adverse
economic conditions may affect timely payment by mortgagors on their loans
whether or not the conditions affect real property values and, accordingly, the
rates of delinquencies, foreclosures, and losses in any trust fund. Losses from
this that are not covered by a credit enhancement will be borne, at least in
part, by the holders of one or more classes of Certificates.
BOOK-ENTRY REGISTRATION
Limit on Liquidity of Certificates. Certificates issued in book-entry form
may have only limited liquidity in the resale market, since investors may be
unwilling to purchase certificates for which they cannot obtain physical
instruments.
Limit on Ability to Transfer or Pledge. Transactions in book-entry
certificates can be effected only through The Depository Trust Company, its
participating organizations, its indirect participants, and certain banks.
Therefore, your ability to transfer or pledge Certificates issued in book-entry
form may be limited.
Delays in Distributions. You may experience some delay in the receipt of
distributions on book-entry Certificates since the distributions will be
forwarded by the trustee to The Depository Trust Company for it to credit the
accounts of its participants. In turn, these participants will then credit the
distributions to your account either directly or indirectly through indirect
participants.
BANKRUPTCY AND INSOLVENCY RISKS
The seller and the depositor will treat the transfer of the loans held in
the trust fund by the seller to the depositor as a sale for accounting purposes.
The depositor and the trust fund will treat the transfer of the loans from the
depositor to the trust fund as a sale for accounting purposes. If these
characterizations are correct, then if the seller were to become bankrupt, the
loans would not be part of the seller's bankruptcy estate and would not be
available to the seller's creditors. On the other hand, if the seller becomes
bankrupt, its bankruptcy trustee or one of its creditors may attempt to
recharacterize the sale of the loans as a borrowing by the seller, secured by a
pledge of the loans. Presenting this position to a bankruptcy court could
prevent timely payments on the Certificates and even reduce the payments on the
Certificates. Similarly, if the characterizations of the transfers as sales are
correct, then if the depositor were to become bankrupt, the loans would not be
part of the depositor's bankruptcy estate and would not be available to the
depositor's creditors. On the other hand, if the depositor
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becomes bankrupt, its bankruptcy trustee or one of its creditors may attempt to
recharacterize the sale of the loans as a borrowing by the depositor, secured by
a pledge of the loans. Presenting this position to a bankruptcy court could
prevent timely payments on the Certificates and even reduce the payments on the
Certificates.
If the master servicer becomes bankrupt, the bankruptcy trustee may have
the power to prevent the appointment of a successor master servicer. The period
during which cash collections may be commingled with the master servicer's own
funds before each distribution date for Certificates will be specified in the
applicable prospectus supplement. If the master servicer becomes bankrupt and
cash collections have been commingled with the master servicer's own funds for
at least ten days, the trust fund will likely not have a perfected interest in
those collections. In this case the Trust might be an unsecured creditor of the
master servicer as to the commingled funds and could recover only its share as a
general creditor, which might be nothing. Collections commingled less than ten
days but still in an account of the master servicer might also be included in
the bankruptcy estate of the master servicer even though the Trust may have a
perfected security interest in them. Their inclusion in the bankruptcy estate of
the master servicer may result in delays in payment and failure to pay amounts
due on the Certificates.
Federal and state statutory provisions affording protection or relief to
distressed borrowers may affect the ability of the secured mortgage lender to
realize upon its security in other situations as well. 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. And in
certain instances a bankruptcy court may allow a borrower to reduce the monthly
payments, change the rate of interest, and alter the mortgage loan repayment
schedule for under collateralized mortgage loans. The effect of these types of
proceedings can be to cause delays in receiving payments on the loans underlying
Certificates and even to reduce the aggregate amount of payments on the loans
underlying Certificates.
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THE TRUST FUND*
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. 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. The Certificates of a Series will evidence beneficial ownership of a
trust fund (a 'Trust Fund'). The Trust Fund for a Series of Certificates will
include certain mortgage related assets (the 'Mortgage Assets') consisting of
(i) a pool of (a 'Mortgage Pool') 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) other mortgage
pass-through certificates or collateralized mortgage obligations (the 'Private
Mortgage-Backed Securities') evidencing an interest in, or secured by, mortgage
loans of the type that would otherwise be eligible to be Mortgage Loans (such
mortgage loans, together with the mortgage loans underlying the Agency
Securities, if any, are sometimes referred to herein as the 'Underlying Mortgage
Loans'). 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. 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. 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. The Mortgage Loans will be secured by first
mortgage liens on one- to four-family residential properties (each, a 'Mortgaged
Property') and, if so specified in the related Prospectus Supplement, 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. In addition, the Mortgage Assets of the related Trust
Fund may include mortgage participation 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. 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').
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. 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
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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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Securities and Exchange Commission (the 'Commission') within fifteen days after
the initial issuance of such Certificates (the 'Detailed Description'). A
maximum of 5% of the Mortgage Assets as they will be constituted at the time
that the applicable Detailed Description is filed will deviate in any material
respect from the Mortgage Asset pool characteristics (other than the aggregate
number or amount of Mortgage Loans) described in the related prospectus
supplement. 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 will 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.
(b) Principal may be payable on a level debt service basis to fully
amortize the Mortgage Loan over its term, may be calculated on the basis of
an assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
interest rate (the 'Mortgage Rate') specified in its Mortgage Note 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
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subsidies. Thereafter, Buydown Funds are applied to the applicable Mortgage Loan
upon receipt by the Master Servicer of the Mortgagor's portion of the monthly
payment on the Mortgage Loan. The Master Servicer administers the Buydown Fund
to ensure that the monthly allocation from the Buydown Fund combined with the
monthly payment received from the Mortgagor equals the scheduled monthly payment
on the applicable Mortgage Loan. 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 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'), (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), (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 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
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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. The Master Servicer may also be a Seller in which
case a breach of its obligations in one capacity will not constitute a breach of
its obligations in the other capacity.
The 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 and, if so specified in the related
Prospectus Supplement, 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. In addition, 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 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
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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).
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.
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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 to increase the availability of mortgage credit to finance 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 mortgage participation certificates issued and either guaranteed as to
timely payment of interest or guaranteed as to timely payment of interest and
ultimate payment of principal by FHLMC ('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, 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
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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 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. These are certificates ('Guaranteed Mortgage
Pass-Through Certificates') issued and guaranteed as to timely payment of
principal and interest by FNMA ('FNMA 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
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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
passthrough 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.
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 (such mortgage loans, together with the mortgage loans underlying
the Agency Securities, if any, are sometimes referred to herein as the
'Underlying Mortgage Loans'). Private
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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. 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.
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 before
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.
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Private Mortgage-Backed Securities issued by the Depositor that are
included in the Trust Fund with respect to a Series of Certificates will be
registered under the Securities Act of 1933 concurrently with the offering of
the related Series of Certificates. Private Mortgage-Backed Securities included
in the Trust Fund with respect to a Series of Certificates that were issued by a
PMBS issuer that is not affiliated with the Depositor must (i) either (a) have
been previously registered under the Securities Act of 1933 or (b) if not so
registered, held for at least the holding period required by eligible for sale
under Rule 144(k) under the Securities Act of 1933 and (b) be acquired in bona
fide secondary market transactions.
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.
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 the Registration
Statement and its exhibits. The 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 Room at 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.
You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. 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 that Internet Web site is
http://www.sec.gov.
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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed for the Trust Fund referred to in the accompanying
Prospectus Supplement after the date of this Prospectus and before the end of
the related offering 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'),
are incorporated by reference in this Prospectus and are a part of this
Prospectus from the date of their filing. Any statement contained in a document
incorporated by reference herein is 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
that also is incorporated by reference differs from that statement. Any
statement so modified or superseded shall not, except as so modified or
superseded, 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.
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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 4500 Park Granada,
Calabasas, California 91302. Its telephone number is (818) 225-3000.
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 Process'.
UNDERWRITING PROCESS
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
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lease and any sublease is at least as long as the remaining term on the loan
agreement or promissory note (the 'Mortgage Note') for the Mortgage Loan.
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
Each Seller must be an institution experienced in originating and servicing
mortgage loans of the type contained in the related Mortgage Pool and must
maintain satisfactory facilities to originate and service those mortgage loans.
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 valid 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); (iv) that there were no delinquent tax
or assessment liens against the Mortgaged Property; and (v) 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. In
addition, if any required payment on a Mortgage Loan was more than 31 days
delinquent at any time during the twelve months before the Cut-off Date, the
related Prospectus Supplement shall so indicate.
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.
As indicated in the related Agreement, the representations and warranties
of a Seller in respect of a Mortgage Loan will be made as of the related date
(the 'Closing Date' for a Series) of initial issuance of the Series of
Certificates, the related Cut-off Date, the date on which such Seller sold the
Mortgage Loan to the Depositor or one of its affiliates, or the date of
origination of the related Mortgage Loan, as the case may be. In the event that
representations and warranties are made as of a date other than such Closing
Date or Cut-off Date, a substantial period of time may have elapsed between such
other 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 or following the origination of such Mortgage
Loan, as the case may be, 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 or after the
origination of such Mortgage Loan, as the case may be. In addition, certain
representations, including the condition of the related Mortgaged Property, will
be limited to the extent the Seller has knowledge and the Seller will be under
no obligation to investigate the substance of any such representation. 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
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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 an
election is to be made to treat a Trust Fund or designated portions thereof as a
'real estate mortgage investment conduit' (a 'REMIC') as defined in the Internal
Revenue Code of 1986, as amended (the 'Code'), 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.
Neither the Depositor nor the Master Servicer 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'.
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DESCRIPTION OF THE CERTIFICATES
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:
a description of the class or classes of Certificates and the rate at
which interest will be passed through to holders of each class of
Certificates entitled to interest (the 'Pass-Through Rate') or the method
of determining the amount of interest, if any, to be passed through to
each such class;
the initial aggregate Certificate Balance of each class of Certificates
included in such Series, the dates on which distributions on the
Certificates will be made (each, a 'Distribution Date') and, if
applicable, the initial and final scheduled Distribution Dates for each
class;
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;
the circumstances, if any, under which the Trust Fund may be subject to
early termination;
the method used to calculate the amount of principal to be distributed
with respect to each class of Certificates;
the order of application of distributions to each of the classes within
such Series, whether sequential, pro rata, or otherwise;
the Distribution Dates with respect to such Series;
additional information with respect to the plan of distribution of such
Certificates;
whether one or more REMIC elections will be made and designation of the
regular interests and residual interests;
the aggregate original percentage ownership interest in the Trust Fund to
be evidenced by each class of Certificates;
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
information as to the Seller, the Master Servicer and the Trustee.
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 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., 4500 Park Granada, Calabasas, California
91302, Attention: Secretary. The following summaries describe material
provisions that may appear in each Agreement.
GENERAL
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
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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 before 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.
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 the
Employee Retirement Income Security Act of 1974, as amended ('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
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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 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. Interest will accrue on the aggregate original
balance of the Certificates (the '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
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Accrual Certificates will commence only after the occurrence of the events
specified in such Prospectus Supplement and, before 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. 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. 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.
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'). 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 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.
ADVANCES
To the extent 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
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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 cash advance reserve fund, a surety bond or other arrangement, in
each case as described in such Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Before 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;
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(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 before 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 (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 A class that is designed to receive principal payments using a
referred to as 'PACs').................. 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
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
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.
Support Class (also sometimes referred to A class that receives principal payments on any Distribution Date
as 'companion classes')................. 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 A class that is designed to receive principal payments using a
referred to as 'TACs').................. 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.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
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 (as such term is defined in the related Prospectus
Supplement) 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 in accordance with one of the two methods described below
(which method will be specified in the related Prospectus Supplement):
LIBO Method
If using this method to calculate LIBOR, 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 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.
Under this method 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
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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.
BBA Method
If using this method of determining LIBOR, the Calculation Agent will
determine LIBOR on the basis of the British Bankers' Association ('BBA')
'Interest Settlement Rate' for one-month deposits in United States dollars as
found on Telerate page 3750 as of 11:00 a.m. London time on each LIBOR
Determination Date. Interest Settlement Rates currently are based on rates
quoted by eight BBA designated banks as being, in the view of such banks, the
offered rate at which deposits are being quoted to prime banks in the London
interbank market. Such Interest Settlement Rates are calculated by eliminating
the two highest rates and the two lowest rates, averaging the four remaining
rates, carrying the result (expressed as a percentage) out to six decimal
places, and rounding to five decimal places.
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual period shall be
calculated in accordance with the LIBOR method described above under 'LIBO
Method'.
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 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 before 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
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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 before 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 before 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 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.
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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
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
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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 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
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claims thereunder may be made only respecting particular defaulted Mortgage
Loans and only upon satisfaction 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.
In general, 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 a special hazard insurance policy or policies
maintained for a Series (the '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.
The original amount of coverage under each Mortgage Pool Insurance Policy
will be maintained to the extent provided in the related Prospectus Supplement
and may 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
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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 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.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. In addition, if
specified in the related Prospectus Supplement, a Trust Fund may also include
bankruptcy bonds, special hazard insurance policies, other insurance or
guaranties 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.
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OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of Certificates, a
portion of the interest payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the principal balance of a
certain class or classes of Certificates and, thus, accelerate the rate of
payment of principal on such class or classes of Certificates. Reducing the
principal balance of the Certificates without a corresponding reduction in the
principal balance of the underlying Mortgage Assets will result in
over-collateralization.
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 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. 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
in 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.
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.
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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 the material 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, except that the Depositor may deliver or cause to
be delivered a lost note affidavit in lieu of any original Mortgage Note that
has been lost, (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 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 (or, to the extent the related Agreement so provides, a lost note
affidavit), 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
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remedy available to the Certificateholders or the Trustee for omission of, or a
material defect in, a constituent document.
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. To the extent provided 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):
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(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties, on the Mortgage Loans;
(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;
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(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.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or before 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 it customarily follows 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,
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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 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
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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 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 consistent
with its practices regarding comparable mortgage loans and 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
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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.
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
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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
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 before
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 3703(a), as amended. As of
February 1996, 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 $50,750. 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.
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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 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'). 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, to the extent provided in the related Agreement,
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 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 before 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.
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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 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 be an affiliate
of the Depositor and may have other 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 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 observe or perform in any material respect any
of its other covenants or agreements in the Agreement which failure materially
affects the rights of Certificateholders that 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
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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 (iii) certain events of insolvency, readjustment of debt,
marshalling of 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 66 2/3% 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
or mistake; (ii) to correct any defective provision therein or to supplement any
provision therein which may be inconsistent with any other provision therein;
(iii) to add to the duties of the Depositor, the Seller or the Master Servicer;
(iv) to add any other provisions with respect to matters or questions arising
thereunder; or (v) to modify, alter, amend, add to or rescind any of the terms
or provisions contained in the Agreement; provided, however, that any action
pursuant to clauses (iv) or (v) will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any Certificateholder;
provided, further, 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. Moreover, the related Agreement may be
amended (i) 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 or to avoid or minimize the risk of imposition of any tax on the REMIC, if
a REMIC election is made with respect to the Trust Fund, or (ii) to comply with
any other requirements of the Code, provided that the Trustee has received an
opinion of counsel to the effect that such action is necessary or helpful to
maintain such qualification, avoid or minimize such risk or comply with such
requirements, as applicable. Unless
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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 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
'Material 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.
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 the party specified in the related Prospectus
Supplement, including 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 such other
party 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(a)(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.
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
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property encumbered by the mortgage, which lien is generally not before 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 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
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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 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
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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 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.
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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 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. And in
certain instances a bankruptcy court may allow a borrower to reduce the monthly
payments, change the rate of interest, and alter the mortgage loan repayment
schedule for under collateralized mortgage loans. The effect of these types of
proceedings can be to cause delays in receiving payments on the loans underlying
Certificates and even to reduce the aggregate amount of payments on the loans
underlying Certificates.
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
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substances at a Mortgaged Property, even though the environmental damage or
threat was caused by a prior or 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
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states. For instance, the California Supreme Court in August 1978 held that
due-on-sale clauses were generally 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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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is the opinion of Brown & Wood LLP, counsel to the
Depositor, as to the material federal income tax consequences of the purchase,
ownership, and disposition of Certificates. The opinion of Brown & Wood LLP is
based on laws, regulations, administrative rulings, and judicial decisions now
in effect, all of which are subject to change either prospectively or
retroactively. The following discussion does not describe aspects of federal tax
law that are unique to insurance companies, securities dealers and investors who
hold Certificates as part of a straddle within the meaning of Section 1092 of
the Internal Revenue Code of 1986, as amended. It is recommended that
prospective investors 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, 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
chapter 1 of subtitle A 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. Brown & Wood LLP will
issue an opinion confirming the above-stated conclusions for each Trust Fund for
which no REMIC election is made.
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 as it accrues, or when received
if such income is received before when it accrues, and must take into account
its pro rata share of deductions as they accrue. 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:
(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)(4)(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. Certain Trust Funds may hold Buydown Loans. These loans can
be secured not only by a mortgage on real property but also by a pledged account
that is drawn upon to subsidize the mortgagor's monthly mortgage payments for a
limited period of time. So long as the loan value of the real property at least
equals the amount of the loan, then for purposes of the above-described
requirements, the mortgage loan will be treated as fully secured by real
property. If the loan value of the real property is less than the amount of the
loan, then, a Certificateholder could be required to treat the loan as one
secured by an interest in real property only to the extent of the loan value of
the real property. The related Prospectus Supplement for any Series of
Certificates will specify whether any such apportionment would be required.
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, however, recent changes to the Code require the use of a prepayment
assumption to accrue original issue discount on pools of receivables the yield
on which may be affected by reason prepayments for tax years beginning after
August 5, 1997 and prior legislative history indicated that if a prepayment
assumption applied to an instrument for purposes of the OID rules that
prepayment assumption should be applied in amortizing bond premium.
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) 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. In addition, under recent
legislation, amounts received on the redemption of an obligation issued by a
natural person are considered received in exchange of such obligation if the
debt obligation is purchased or issued after June 8, 1997 (i.e., treated the
same as obligations issued by corporations). This change could affect the
character of any such loss (e.g., cause the loss to be treated as capital if
such assets are held as capital assets by the taxpayer).
On December 30, 1997 the Internal Revenue Service (the 'IRS') issued final
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,
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the Trustee intends to account for amortizable bond premium in the manner
described above. It is recommended that prospective purchasers of the
Certificates consult their tax advisors regarding the possible application of
the Amortizable Bond Premium Regulations.
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.' The amount of market
discount is equal to the excess of the portion of the principal amount of such
Mortgage Loan allocable to such 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 are advised to 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 securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Recent
legislation expands the required use of a prepayment assumption for purposes of
calculating OID for tax years beginning after August 5, 1997 to pools of
receivables the yield on which may be affected by reason of prepayments and
previous legislative history states Congress intends that if a prepayment
assumption would be used to calculate OID it should also be used to accrue
marked discount. 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
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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. 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 current authority is not entirely clear, a Stripped Bond
Certificate 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
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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.
Based on current authority 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. In addition, amounts received in redemption for debt instruments issued by
natural persons purchased or issued after June 8, 1997 are treated as received
in exchange therefore (i.e., treated the same as obligations issued by
corporations). This change could affect the character of any loss.
It is recommended that holders of Stripped Bond Certificates and Stripped
Coupon Certificates consult with their own tax advisors regarding the proper
treatment of these Certificates for federal income tax purposes.
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 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, and amended on June 11, 1996, 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
before 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 they 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
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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, and,
in tax years beginning after August 5, 1997, to pools of receivables the yield
on which may be affected by prepayments of the receivables 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 (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 before 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. As such, for purposes
of projecting the remaining payments and the projected yield, the assumed rate
payable on the ARM Loans will be the fixed rate equivalent on the issue date.
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
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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, it is
recommended that investors 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 before 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.
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. Any foreclosure property owned by the trust could be treated as a
U.S. real property interest owned by Certificateholders.
As used herein, a 'U.S. Person' means (i) a citizen or resident of the
United States, (ii) a corporation or a partnership (including an entity treated
as a corporation or partnership for U.S. federal income tax purposes) organized
in or created under the laws of the United States or any State thereof or the
District of Columbia (unless in the case of a partnership Treasury Regulations
provide otherwise), (iii) an estate, 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 (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have authority to control all substantial decisions
of the trust. In addition, U.S. Persons would include certain trusts that can
elect to be treated as U.S. Persons. A 'Non-U.S. Person' is a person other than
a U.S. Person.
Interest paid (or accrued) on the Mortgage Loans to a Certificateholder who
is a non-U.S. Person will be considered 'portfolio interest,' and generally will
not be subject to United States federal income tax and withholding tax,
provided, that (i) the interest is not effectively connected with the conduct of
a trade or business within the United States by the non-U.S. Person, (ii) the
non-U.S. Person provides the Trust or other person who is otherwise required to
withhold U.S. tax with respect to the Mortgage Loans with an appropriate
statement (on Form W-8 or other similar form), signed under penalties of
perjury, certifying that the beneficial owner of the Mortgage Loan is a foreign
person and providing that non-U.S. person's name and address. If an interest in
a Mortgage Loan is held through a securities clearing organization or certain
other financial institutions, the
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organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the non-U.S. Person
that owns that interest in the Mortgage Loan. If such interest does not
constitute portfolio interest, then it will be subject to U.S. federal income
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable tax treaty and the non-U.S. Person provides the Trust, or an
organization or financial institution described above, with an appropriate
statement (e.g., a Form 1001), signed under penalties of perjury, to that
effect.
Final regulations dealing with backup withholding and information reporting
on income paid to foreign person and related matters (the 'New Withholding
Regulations') were published in the Federal Register on October 14, 1997. In
general, the New Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements, but do unify
current certification procedures and forms and clarify reliance standards. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to certain transition rules. The Discussion set forth
above does not take the New Withholding Regulations into account. Prospective
Non-U.S. Persons who own interests in Mortgage Loans are strongly urged to
consult their own tax advisor with respect to the New Withholding Regulations.
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. Assuming compliance
with all provisions of the related Agreement, each Trust Fund that elects REMIC
status 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. With respect to each Trust Fund for which a
REMIC election is to be made, Brown & Wood LLP will issue an opinion confirming
the conclusions expressed above concerning the status of the Trust Fund as a
REMIC and the status of the Certificates as representing regular or residual
interests in a REMIC.
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
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assets' within the meaning of Code Section 856(c)(4)(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)(4)(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 or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the 'Subsidiary REMIC or REMICs' and the 'Master
REMIC') for federal income tax purposes. Upon the issuance of any such Series of
Certificates, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as each Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and each 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. With respect to each Trust Fund for which more than one REMIC
election is to be made, Brown & Wood LLP will issue an opinion confirming the
conclusions expressed above concerning the status of the Master REMIC and each
Subsidiary REMIC as a REMIC and the status of the Certificates as regular or
residual interests in a REMIC.
Only REMIC Certificates, other than the residual interest in any Subsidiary
REMIC, issued by the Master REMIC will be offered hereunder. All Subsidiary
REMICs 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)(4)(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
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. Holders of Regular Certificates
(the 'Regular
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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 issued final regulations (the 'Contingent Regulations') in June
1996 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 before 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 average maturity
of the Regular Certificate. For this purpose, the weighted average maturity of
the Regular
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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 Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a
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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 having market discount that such Certificateholder
acquires during the year of the election or thereafter.
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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 aggregate amount of interest
(including OID) includible in such holder's gross income for the taxable year
with
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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 December 30, 1997 the Internal Revenue Service (the 'IRS') issued final
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 before 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 are urged to 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
before 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 before 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.
It is recommended that investors 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.
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, it is recommended that Certificateholders who are
non-resident alien individuals consult their tax advisors concerning this
question.
It is recommended that Regular Certificateholders who are not U.S. Persons
and persons related to such holders not acquire any Residual Certificates, and
holders of Residual Certificates (the 'Residual Certificateholder') and persons
related to Residual Certificateholders not acquire any Regular Certificates
without consulting their tax advisors as to the possible adverse tax
consequences of doing so.
As previously mentioned, the New Withholding Regulations were published in
the Federal Register on October 14, 1997 and generally will be effective for
payments made after December 31, 1999, subject to certain transition rules. THE
DISCUSSION SET FORTH ABOVE DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE NON-U.S. PERSONS WHO OWN REGULAR CERTIFICATES ARE URGED TO
CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
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. In addition, it is recommended that
prospective investors consult their tax advisors with respect to the New
Withholding Regulations.
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
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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 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
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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 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
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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 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
generally will be subject to federal income tax in all events. Thus, for
example, an excess inclusion (i) may not 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.
An exception to the excess inclusion rules that applied to thrifts holding
certain residuals was repealed by the Small Business Tax Act of 1996.
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') and
prohibits deducting any loss with respect to such transactions. 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.
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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 if there is more than one
holder of the Residual Certificate. Certain information will be 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.
It is recommended that Regular Certificateholders that are Non-U.S. Persons
and persons related to such holders not acquire any Residual Certificates, and
Residual Certificateholders and persons related to Residual Certificateholders
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
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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 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 the Taxpayer Relief Act of
1997, 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. In general, the definition of a U.S.
Person is the same as provided under 'Certain Federal Income Tax
Consequences -- Non-REMIC Certificates -- Non-U.S. Persons' above, except that
entities or individuals that would otherwise be treated as Non-U.S. Persons, may
be considered U.S. Persons for this purpose if their income from such residual
is subject to tax under Code Section 871(b) or Code Section 882 (income
effectively connected with a U.S. trade or business). 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
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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 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. It is recommended that investors in Residual Certificates consult
their own tax advisors with respect to transfers of the Residual Certificates
and, in addition, that pass-through entities 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,' it is recommended that potential investors
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, it is recommended that potential investors 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 subject to ERISA (and
the Code imposes requirements 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
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taxation under Code Sections 401(a) and 501(a), moreover, 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 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 and the Code prohibit 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 and from the excise tax imposed under Code Section 4975
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
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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 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 acquired 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 Companies, Inc. ('S&P'), Moody's Investors Service, Inc.
('Moody's'), Duff & Phelps Credit Rating Co. ('DCR') or Fitch IBCA, Inc.
('Fitch');
(4) the trustee is not 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;
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(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 before 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 before 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 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 any 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, before making such investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
prudence and diversification an investment in the Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
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 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 before 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 before 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 before 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
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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 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, before 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.
This Prospectus, together with the related Prospectus Supplement, may be
used by Countrywide Securities Corporation, an affiliate of CWMBS, Inc., in
connection with offers and sales related to market making transactions in the
Certificates in which Countrywide Securities Corporation acts as principal.
Countrywide
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<PAGE>
Securities Corporation may also act as agent in such transactions. Sales in such
transactions will be made at prices related to prevailing prices 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.
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 before 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.
85
<PAGE>
<PAGE>
INDEX TO DEFINED TERMS
<TABLE>
<S> <C>
1986 Act..................................... 56, 60
Accrual Certificates......................... 21
Advance...................................... 9
Agency Securities............................ 6
Agreement.................................... 6, 9
Amortizable Bond Premium Regulations......... 53, 64
Applicable Amount............................ 68
ARM Loans.................................... 55
Asset Conservation Act....................... 50
balloon payments............................. 8
Bankruptcy Bond.............................. 32
BBA.......................................... 26
beneficial owner............................. 28
Book-Entry Certificates...................... 28
Buydown Fund................................. 8
Buydown Loans................................ 8
Calculation Agent............................ 25
CERCLA....................................... 49
Certificate Account.......................... 36
Certificate Balance.......................... 21
Certificate Register......................... 19
Certificateholder............................ 29
Certificateholders........................... 7
Certificates................................. 6
Class Certificate Balance.................... 21
Closing Date................................. 17
Code......................................... 18, 52
COFI Certificates............................ 27
Collateral Value............................. 8
Commission................................... 7, 15
companion classes............................ 24
Components................................... 24
Contingent Regulations....................... 60
Contributions Tax............................ 69
Cooperative Loans............................ 6, 9
Cooperatives................................. 6, 9
Cut-off Date................................. 8
DCR.......................................... 74
Deferred Interest............................ 57
Definitive Certificate....................... 28
Depositor.................................... 6, 16
Depository................................... 28
Detailed Description......................... 7
Distribution Date............................ 18
DOL.......................................... 73
Eleventh District............................ 26
EPA.......................................... 49
ERISA........................................ 20
Exchange Act................................. 15
FHA.......................................... 7
FHA Insurance................................ 7
FHA Loans.................................... 10
FHLBSF....................................... 26
FHLMC........................................ 6
FHLMC Act.................................... 11
FHLMC Certificate group...................... 11
FHLMC Certificates........................... 11
Financial Intermediary....................... 28
Fitch........................................ 74
FNMA......................................... 6
FNMA Certificates............................ 13
Garn-St Germain Act.......................... 50
GNMA......................................... 6
GNMA Certificates............................ 9
GNMA I Certificate........................... 10
GNMA II Certificate.......................... 10
GNMA Issuer.................................. 10
Guaranteed Mortgage Pass-Through
Certificates............................... 13
Guaranty Agreement........................... 10
Housing Act.................................. 9
HUD.......................................... 41
Insurance Proceeds........................... 36
Insured Expenses............................. 36
IRS.......................................... 53, 64
Legislative History.......................... 56
Liquidated Mortgage.......................... 42
Liquidation Expenses......................... 36
Liquidation Proceeds......................... 36
Loan-to-Value Ratio.......................... 8
lockout periods.............................. 8
Master REMIC................................. 59
Master Servicer.............................. 6
Master Servicing Fee......................... 42
Moody's...................................... 74
Mortgage..................................... 35
Mortgage Assets.............................. 6
Mortgage Loans............................... 6
Mortgage Note................................ 7
Mortgage Pool................................ 7
Mortgage Pool Insurance Policy............... 30
Mortgage Rate................................ 7
Mortgaged Property........................... 6
Mortgagor.................................... 8
National Cost of Funds Index................. 27
NCUA......................................... 76
New Withholding Regulations.................. 58
Non-U.S. Person.............................. 58
OID.......................................... 52, 59
OID Regulations.............................. 56
OTS.......................................... 27
PACs......................................... 24
Parties in Interest.......................... 73
Pass-Through Rate............................ 18
Payment Lag Certificates..................... 65
Plans........................................ 72
</TABLE>
86
<PAGE>
<PAGE>
<TABLE>
<S> <C>
PMBS Agreement............................... 14
PMBS Issuer.................................. 14
PMBS Servicer................................ 14
PMBS Trustee................................. 14
Policy Statement............................. 76
Pool Insurer................................. 30
Prepayment Assumption........................ 56
Primary Insurer.............................. 40
Primary Mortgage Insurance Policy............ 7
Prime Rate................................... 28
Principal Prepayments........................ 21
Private Mortgage-Backed Securities........... 6
Prohibited Transactions Tax.................. 69
PTE 83-1..................................... 73
Purchase Price............................... 18
Rating Agency................................ 36
RCRA......................................... 50
Record Date.................................. 19
Reference Banks.............................. 25
Regular Certificateholders................... 60
Regular Certificates......................... 58
Relief Act................................... 51
REMIC........................................ 18
REMIC Certificates........................... 58
REMICs....................................... 59
Reserve Fund................................. 32
Reserve Interest Rate........................ 25
Residual Certificateholder................... 66
Residual Certificates........................ 58
Retained Interest............................ 19
S&P.......................................... 74
Seller....................................... 6
Senior Certificateholders.................... 30
Senior Certificates.......................... 21
Series....................................... 6
Single Family Certificates................... 73
SMMEA........................................ 75
Special Hazard Insurance Policy.............. 31
Special Hazard Insurer....................... 31
Stripped ARM Obligations..................... 57
Stripped Bond Certificates................... 54
Stripped Coupon Certificates................. 54
Subordinated Certificateholders.............. 30
Subordinated Certificates.................... 21
Sub-Servicers................................ 9
Subsidiary REMIC............................. 59
Super-Premium Certificates................... 61
TACs......................................... 24
Title V...................................... 51
Trust Fund................................... 6
Trustee...................................... 6
U.S. Person.................................. 57
UCC.......................................... 48
Underlying Mortgage Loans.................... 6
Underwriter Exemptions....................... 74
VA........................................... 7
VA Guaranty.................................. 7, 42
VA Loans..................................... 10
Voting Rights................................ 44
</TABLE>
87
<PAGE>
<PAGE>
CHL MORTGAGE PASS-THROUGH TRUST 1999-
ISSUER
CWMBS, INC.
DEPOSITOR
[LOGO
SELLER AND MASTER SERVICER]
$
(APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
[NAME OF UNDERWRITER]
[NAME OF UNDERWRITER]
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Series 1999- Mortgage Pass-Through Certificates in
any state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series 1999- Mortgage Pass-Through Certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the Series 1999- Mortgage Pass-Through Certificates will be required to
deliver a prospectus supplement and prospectus until , 1999.
, 1999
<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................................................................... $4,338,876.81
Printing and Engraving................................................................. 25,000.00
Legal Fees and Expenses................................................................ 40,000.00
Trustee Fees and Expenses.............................................................. 18,750.00
Rating Agency Fees..................................................................... 125,000.00
Miscellaneous.......................................................................... 5,000.00
-------------
Total............................................................................. $4,552,625.81
-------------
-------------
</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 by this Registration
Statement.
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 its consent).
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).
</TABLE>
- ------------
* Incorporated by reference from the Registrant's Registration Statement (No.
33-73504).
** Incorporated by reference from the Registrant's Registration Statement (No.
33-63714).
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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the 'Act');
II-1
<PAGE>
<PAGE>
(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; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(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 (i) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and (ii) it reasonably believes that the
security rating requirement of Transaction Requirement B.5 of Form S-3 will be
met by the time of sale of each Series of Certificates to which this
Registration Statement relates and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Calabasas, State of California, on the 19th day of February, 1999.
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 Amendment has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- -------------------
<S> <C> <C>
/S/ STANFORD L. KURLAND Chairman of the Board, February 19, 1999
......................................... President and Director
STANFORD L. KURLAND (principal executive officer)
/S/ CARLOS GARCIA Executive Vice President and Director February 19, 1999
......................................... (principal financial and accounting
CARLOS GARCIA officer)
/S/ THOMAS H. BOONE Executive Vice President and Director February 19, 1999
.........................................
THOMAS H. BOONE
/S/ KEVIN W. BARLETT Senior Vice President, February 19, 1999
......................................... Assistant Secretary and Director
KEVIN W. BARLETT
/S/ JEFFREY P. GROGIN Director February 19, 1999
.........................................
JEFFREY P. GROGIN
</TABLE>
II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- -------- ------------------------------------------------------------------------------------------------ ----------
<C> <S> <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 its consent).......
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)...............................
</TABLE>
- ------------
* Incorporated by reference from the Registrant's Registration Statement (No.
33-73504).
** Incorporated by reference from the Registrant's Registration Statement (No.
33-63714).
STATEMENT OF DIFFERENCES
------------------------
The division sign shall be expressed as ............................... [div]
<PAGE>
<PAGE>
[LETTERHEAD OF BROWN & WOOD LLP]
February 19, 1999
CWMBS, Inc.
4500 Park Granada
Calabasas, California 91302
Re: CWMBS, Inc.
Registration Statement 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 and filing of a registration
statement on Form S-3 (the 'Registration Statement') under the Securities Act of
1933, as amended (the '1933 Act'), relating to Mortgage Pass-Through
Certificates (the 'Certificates'), issuable in series (each, a 'Series'). 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
the Series of Certificates (the 'Trustee' and the 'Master Servicer' for the
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 Registration Statement No. 33-63714, the forms of Certificates included
in the Pooling and Servicing Agreement, 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 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 to it for the Series, the
Pooling and Servicing Agreement will constitute a valid and binding
agreement of the Company, enforceable in accordance with its terms, except
as its enforcement 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 its terms being
otherwise in compliance with applicable law at the time), duly executed and
countersigned by the Trustee for the Series in accordance with the terms of
the related Pooling and Servicing Agreement, and issued and delivered
against payment for it as contemplated in the Registration Statement, the
Series of Certificates will be validly issued, fully paid, and
nonassessable, and its holders will be entitled to the benefits of the
related Pooling and Servicing Agreement.
3. The opinion in the Prospectus under the caption 'Material Federal
Income Tax Consequences' is hereby confirmed.
In rendering these opinions, we express no opinion as to the laws of any
jurisdiction other than the laws of the State of New York, the corporate laws of
the State of Delaware, and the federal laws of the United States of America.
<PAGE>
<PAGE>
We hereby consent to the use of our name in the Prospectus under the
captions 'Material 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
<PAGE>
