As filed with the Securities and Exchange Commission on April 3, 1997
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
MORTGAGE CAPITAL FUNDING, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3408716
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Park Avenue
New York, New York 10043
(212) 793-6899
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Stephen E. Dietz, Esq.
Associate General Counsel
Citibank, N.A.
425 Park Avenue, 2nd Floor
New York, New York 10043
(212) 559-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
William J. Cullen, Esq. Walter G. McNeill, Esq.
Sidley & Austin Weil, Gotshal & Manges LLP
875 Third Avenue 767 Fifth Avenue
New York, New York 10022 New York, New York 10153-0119
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 number of the earlier registration statement for the same offering.
|_| _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================== ================= ================= ================== ===================
Title of each class of Amount Proposed maximum Proposed maximum Amount of
securities to be registered to be offering price aggregate offering registration fee
registered per unit (2) price
- ------------------------------------------- ----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $4,000,000,000(1) 100% $4,000,000,000 $1,212,121.21
=========================================== ================= ================= ================== ===================
</TABLE>
(1) $781,873,799.00 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
33-63924 referred to below are consolidated in this Registration Statement
pursuant to Rule 429. All registration fees in connection with such unsold
amount of Mortgage Pass-Through Certificates have been previously paid by
the Registrant under the foregoing Registration Statement. Accordingly,
the total amount registered under the Registration Statement as so
consolidated as of the date of this filing is $4,781,873,799.00.
(2) Estimated solely for purposes of calculating the registration fee
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
which is a part of this Registration Statement is a combined prospectus and
includes all the information currently required in a prospectus relating to the
securities covered by Registration Statement No. 33-63924 previously filed by
the Registrant.
ii
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 3, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______________, 1997)
MORTGAGE CAPITAL FUNDING, INC.
Mortgage Pass-Through Certificates
Series 199 -
$___ Class A Certificates
$___ Class B Certificates
The Series 199__ -__ Mortgage Pass-Through Certificates (the
"Certificates") will consist of four classes (each, a "Class") of Certificates,
designated as the Class A Certificates, the Class B Certificates, the Class C
Certificates and the Class R Certificates. As and to the extent described
herein, the Class B, Class C and Class R Certificates will be subordinate to the
Class A Certificates; and the Class C and Class R Certificates will be
subordinate to the Class B Certificates. Only the Class A and Class B
Certificates (collectively, the "Offered Certificates") are offered hereby. It
is a condition of their issuance that the Class A and Class B Certificates be
rated not lower than "__" and "__", respectively, by ___________________.
(cover continued on next page)
--------------------------
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
CITIBANK, N.A. CITIBANK REAL ESTATE, INC., CITICORP BANKING CORPORATION,
MORTGAGE CAPITAL FUNDING, INC. OR THEIR ULTIMATE PARENT, CITICORP, EXCEPT AS SET
FORTH HEREIN. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Offered Certificates will be purchased by [Citicorp Securities, Inc.]
[Citibank, N.A.] (the "Underwriter") from the Sponsor and will be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Sponsor from the sale of the Offered Certificates, before deducting expanses
payable by the Sponsor estimated to be approximately $__, will be __% of the
initial aggregate Certificate Balance of the Offered Certificates, plus accrued
interest.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to approval of certain legal matters by counsel. It is expected that the Class A
Certificates will be delivered in book- entry form through the Same-Day Funds
Settlement System of The Depository Trust Company and that the Class B
Certificates will be delivered at the offices of the Underwriter, _____ , on or
about _____ , 199__ (the "Delivery Date"), against payment therefor in
immediately available funds.
Citicorp Securities, Inc.
- or -
____________, 199_
[Citibank Logo]
<PAGE>
(cover continued)
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund"), to be established by
Mortgage Capital Funding, Inc. (the "Sponsor"), that will consist primarily of a
segregated pool (the "Mortgage Pool") of__ conventional, multifamily, balloon
mortgage loans (the "Mortgage Loans"). As of _____________, 199__ (the "Cut-off
Date"), the Mortgage Loans had an aggregate principal balance (the "Initial Pool
Balance") of $______, after application of all payments of principal due on or
before such date, whether or not received. The initial principal balance of the
Class A Certificates will be $____, which represents __% of the Initial Pool
Balance; and the initial principal balance of the Class B Certificates will be
$____, which represents__ % of the Initial Pool Balance.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE S-_______ OF THIS PROSPECTUS SUPPLEMENT AND THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 11 IN THE
PROSPECTUS BEFORE PURCHASING ANY OF THE OFFERED CERTIFICATES.
The Mortgage Loans provide for monthly payments of principal and/or
interest ("Monthly Payments"), in all cases based on amortization schedules that
are significantly longer than their remaining terms, thereby leaving substantial
principal amounts due and payable on their respective maturity dates. As more
fully described herein, (i) __ of the Mortgage Loans (the "ARM Loans"), which
represent __% of the Initial Pool Balance, provide for periodic adjustments
(which may occur monthly, semi-annually or annually) to the respective
annualized rates at which they accrue interest (their "Mortgage Rate") based on
fluctuations in a base index (an "Index") and subject to the limitations
described herein, and (ii) the remaining Mortgage Loans (the "Fixed Rate Loans")
bear interest at fixed Mortgage Rates. Adjustments to the Mortgage Rates on __
of the ARM Loans (the "COFI ARM Loans"), which represent __% of the Initial Pool
Balance, are based upon changes in the monthly weighted average cost of funds of
member savings institutions of the Eleventh Federal Home Loan Bank District (the
"COFI Index"). ____________of the ARM Loans, which represent % of the Initial
Pool Balance, provide for Monthly Payment adjustments that occur less frequently
than Mortgage Rate adjustments and/or payment caps that limit the amount by
which a Monthly Payment can change in response to a change in the Mortgage Rate,
which in either case may result in Monthly Payments that are greater or less
than the amount necessary to amortize the loan fully over its remaining
amortization term and pay interest at the then applicable Mortgage Rate.
Consequently, those ARM Loans (and, accordingly, the Offered Certificates) may
from time to time be subject to periods of accelerated, slower or negative
amortization.
All of the Mortgage Loans are currently held by ____________ (the
"Mortgage Loan Seller"), which either originated the Mortgage Loans or acquired
them from their respective originators. On or before the date of initial
issuance of the Certificates, the Sponsor will acquire the Mortgage Loans from
the Mortgage Loan Seller and will transfer them to the Trustee in exchange for
the Certificates.
Distributions of interest on and principal of the Certificates will be
made, to the extent of available funds, on the 25th day of each month or, if any
such 25th day is not a business day, then on the next succeeding business day,
beginning in ______, 199 __ (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest accrued on each Class of
Offered Certificates will be made on each Distribution Date based on the
variable pass-through rate (the "Pass-Through Rate") then applicable to such
Class and the stated principal amount (the "Certificate Balance") of such Class
outstanding immediately prior to such Distribution Date. The Pass-Through Rates
for the Class A and Class B Certificates applicable to the first Distribution
Date will be ___% and ___% per annum, respectively. Subsequent to the initial
Distribution Date, the Pass-Through Rate for the Class A Certificates will equal
from time to time monthly LIBOR plus __ basis points (i. e., _ percentage
points), subject to a maximum of % per annum and a minimum of __% per annum;
except when such rate exceeds a "funds-available cap rate" calculated as
described herein, at which time the Pass-Through Rate for the Class A
Certificates will equal the weighted average of, subject to certain adjustments
described herein, the Net Mortgage Rates on the Mortgage Loans. Subsequent to
the initial Distribution Date, the Pass-Through Rate for the Class B
Certificates will equal from time to time the weighted average of, subject to
certain adjustments described herein, the Net Mortgage Rates on the Mortgage
Loans. The Net Mortgage Rate for any Mortgage Loan is its Mortgage Rate less __
basis points. Distributions allocable to principal of each Class of
ii
<PAGE>
Offered Certificates will be made in the amounts and in accordance with the
priorities described herein. See "Description of the Certificates-Distribution"
herein.
The yield to maturity on each Class of Offered Certificates will depend
on, among other things, fluctuations in its respective Pass-Through Rate and the
rate and timing of principal payments (including by reason of prepayments,
defaults and liquidations) on the Mortgage Loans. See "Yield and Maturity
Considerations" herein and "Yield and Maturity Considerations" and "Risk
Factors-Prepayments; Average Life of Certificates; Yields" in the Prospectus.
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. The
Offered and the Class C Certificates (collectively; the "REMIC Regular
Certificates") will constitute "regular interests", and the Class R Certificates
will constitute the sole class of "residual interests", in the Trust Fund. See
"Certain Federal Income Tax Consequences" herein and "Material Federal Income
Tax Consequences" in the Prospectus.
There is currently no secondary market for the Offered Certificates, and
there can be no assurance that such a market will develop or, if it does
develop, that it will continue. See "Special Considerations-Limited Liquidity"
herein.
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE OFFERED
CERTIFICATES. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT.
UNTIL [NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT], ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS MAY BE USED BY CITIBANK,
N.A., CITICORP SECURITIES, INC. OR CITIBANK INTERNATIONAL PLC, AFFILIATES OF THE
SPONSOR AND WHOLLY-OWNED SUBSIDIARIES OF CITICORP, IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES. CITIBANK, N.A.,
CITICORP SECURITIES, INC OR CITIBANK INTERNATIONAL PLC MAY ACT AS PRINCIPAL OR
AGENT IN SUCH TRANSACTIONS. SUCH SALE WILL BE MADE AT PRICES RELATED TO
PREVAILING MARKET PRICES AT THE TIME OF SALE.
iii
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS SUPPLEMENT ....................................... S-1
RISK FACTORS ........................................................... S-17
The Certificates ..................................................... S-17
Limited Liquidity .................................................. S-17
Variability in Yield; Priority of Payments ......................... S-17
Conflicts of Interest Involving Parties to the Pooling and
Servicing Agreement .............................................. S-18
The Mortgage Loans ................................................... S-18
Nature of the Mortgaged Properties ................................. S-18
Limited Recourse ................................................... S-19
Environmental Law Considerations ................................... S-19
Geographic Concentration ........................................... S-19
Concentration of Mortgage Loans and Borrowers ...................... S-19
Adjustable Rate Mortgage Loans; Negative Amortization .............. S-20
Balloon Payments ................................................... S-20
DESCRIPTION OF THE MORTGAGE POOL ....................................... S-20
General .............................................................. S-20
Certain Payment Characteristics ...................................... S-21
The Eleventh District Cost of Funds Index ............................ S-22
Additional Mortgage Loan Information ................................. S-23
The Mortgage Loan Seller ............................................. S-32
Underwriting Standards ............................................... S-32
Assignment of the Mortgage Loans; Repurchase ......................... S-33
Representations and Warranties; Repurchases .......................... S-34
Changes in Mortgage Pool Characteristics ............................. S-35
SERVICING OF THE MORTGAGE LOANS ........................................ S-35
General .............................................................. S-35
The Master Servicer .................................................. S-36
The Special Servicer ................................................. S-36
Servicing and Other Compensation and Payment of Expenses ............. S-37
Modifications, Waivers and Amendments ................................ S-38
Inspections; Collection of Operating Information ..................... S-39
Additional Obligations of the Master Servicer with
Respect to ARM Loans ............................................... S-40
DESCRIPTION OF THE CERTIFICATES ........................................ S-40
General .............................................................. S-40
Distributions ........................................................ S-41
Method, Timing and Amount .......................................... S-41
Priority ........................................................... S-42
Pass-Through Rates ................................................. S-44
Determination of LIBOR ............................................. S-44
Distributable Certificate Interest ................................. S-45
<PAGE>
Scheduled Principal Distribution Amount and
Unscheduled Principal Distribution Amount .......................... S-46
Certain Calculations with Respect to Individual Mortgage Loans ....... S-47
Subordination ........................................................ S-47
P&I Advances ......................................................... S-48
Reports to Certificateholders; Certain Available Information ......... S-49
Voting Rights ........................................................ S-50
Termination .......................................................... S-50
The Trustee .......................................................... S-51
YIELD AND MATURITY CONSIDERATIONS ...................................... S-51
Yield Considerations ................................................. S-51
General ............................................................ S-51
Pass-Through Rate .................................................. S-51
Rate and Timing of Principal Payments .............................. S-53
Losses and Shortfalls .............................................. S-55
Certain Relevant Factors ........................................... S-55
Delay in Payment of Distributions .................................. S-56
Unpaid Distributable Certificate Interest .......................... S-56
Weighted Average Life ................................................ S-56
USE OF PROCEEDS ........................................................ S-60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................ S-60
ERISA CONSIDERATIONS ................................................... S-61
LEGAL INVESTMENT ....................................................... S-63
METHOD OF DISTRIBUTION ................................................. S-64
LEGAL MATTERS .......................................................... S-64
RATING ................................................................. S-65
INDEX OF PRINCIPAL DEFINITIONS ......................................... S-66
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary may
be defined elsewhere in this Prospectus Supplement or in the Prospectus. An
"Index of Principal Definitions" is included at the end of both this Prospectus
Supplement and the Prospectus. Terms that are used but not defined in this
Prospectus Supplement will have the meanings specified in the Prospectus.
Title of Certificates ............. Mortgage Capital Funding, Inc., Mortgage
Pass- Through Certificates, Series 199__-__
(the "Certificates"), to be issued in four
Classes designated as the Class A, Class B,
Class C and Class R Certificates. The Class
A, Class B and Class C Certificates are
herein collectively referred to from time to
time as the "REMIC Regular Certificates".
Only the Class A and Class B Certificates
(collectively, the "Offered Certificates")
are offered hereby. The Class C and Class R
Certificates are herein collectively
referred to from time to time as the
"Private Certificates".
Sponsor ........................... Mortgage Capital Funding, Inc., a Delaware
corporation. The Sponsor is a direct
wholly-owned subsidiary of Citicorp Banking
Corporation, which is a direct wholly-owned
subsidiary of Citicorp. The Sponsor is an
affiliate of [Citicorp Securities, Inc.]
[Citibank, N.A.] (the "Underwriter"). See
"Mortgage Capital Funding, Inc." in the
Prospectus and "Method of Distribution"
herein. Neither the Sponsor nor any of its
affiliates has insured or guaranteed the
Offered Certificates.
Master Servicer ................... _______, a ______. See "Servicing of the
Mortgage Loans-The Master Servicer" herein.
Special Servicer .................. _______, a ______. See "Servicing of the
Mortgage Loans-The Special Servicer" herein.
Trustee ........................... _______, a ______. See "Description of the
Certificates-The Trustee" herein.
REMIC Administrator ............... _______, a ______. See "Certain Federal
Income Tax Consequences" herein.
Mortgage Loan Seller .............. _______, a ______. See "Description of the
Mortgage Pool-The Mortgage Loan Seller"
herein.
Cut-off Date ...................... ________________, 199__.
Delivery Date ..................... ________________, 199__.
S-1
<PAGE>
Registration of the
Class A Certificates .......... The Class A Certificates will be represented
by one or more global Certificates
registered in the name of Cede & Co., as
nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in
the Class A Certificates (any such person, a
"Class A Certificate Owner") will be
entitled to receive a Class A Certificate in
fully registered, certificated form (a
"Definitive Class A Certificate"), except
under the limited circumstances described in
the Prospectus under "Description of the
Certificates-Book Entry Registration and
Definitive Certificates". Instead, DTC will
effect payments and transfers in respect of
the Class A Certificates by means of its
electronic record keeping services, acting
through certain participating organizations
("Participants"). This may result in certain
delays in receipt of payments by an investor
and may restrict an investor's ability to
pledge its securities. Unless and until
Definitive Class A Certificates are issued,
all references herein to the rights of
holders of the Class A Certificates are to
the rights of Class A Certificate Owners as
they may be exercised through DTC and its
Participants, except as otherwise specified
herein. See "Description of the
Certificates-General" herein and
"Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in
the Prospectus.
Denominations ..................... The Class A Certificates will be issued,
maintained and transferred on the book-entry
records of DTC and its Participants in
denominations of $1,000 and in integral
multiples thereof. The Class B Certificates
will be issuable in fully registered,
certificated form in denominations of $___
and in integral multiples of $1,000 in
excess thereof, with one Class B Certificate
evidencing an additional amount equal to the
remainder of the initial Certificate Balance
of such Class.
The Mortgage Pool ................. The Mortgage Pool will consist of __
conventional, balloon Mortgage Loans with an
Initial Pool Balance of $______. On or prior
to the Delivery Date, the Sponsor will
acquire the Mortgage Loans from the Mortgage
Loan Seller pursuant to a Mortgage Loan
Purchase Agreement, dated [the date hereof],
between the Sponsor and the Mortgage Loan
Seller (the "Mortgage Loan Purchase
Agreement"). In the Mortgage Loan Purchase
Agreement, the Mortgage Loan Seller has made
certain representations and warranties to
the Sponsor regarding the characteristics
and quality of the Mortgage Loans and, as
more particularly described herein, has
agreed to cure any material breach thereof
or repurchase the affected Mortgage Loan. In
connection with the assignment of its
interests in the Mortgage Loans to the
Trustee, the Sponsor will also assign its
rights under the Mortgage Loan Purchase
Agreement insofar as they relate to or arise
out of the Mortgage Loan Seller's
representations and warranties regarding the
Mortgage Loans. See "Description of the
Mortgage Pool- Representations and
Warranties; Repurchases" herein.
S-2
<PAGE>
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple estate in a
multifamily rental property (each, a
"Mortgaged Property"). _______ of the
Mortgage Loans, which represent ___% of the
Initial Pool Balance, are secured by liens
on Mortgaged Properties located in ____. The
remaining Mortgaged Properties are located
throughout ______ other states. See
"Description of the Mortgage Pool-Additional
Mortgage Loan Information" herein.
_______ of the Mortgage Loans, which
represent __% of the Initial Pool Balance,
provide for scheduled payments of principal
and/or interest ("Monthly Payments") to be
due on the first day of each month; the
remainder of the Mortgage Loans provide for
Monthly Payments to be due on the ___, ___,
__ or __ day of each month (the date in any
month on which a Monthly Payment on a
Mortgage Loan is first due, the "Due Date").
The annualized rate at which interest
accrues (the "Mortgage Rate") on __ of the
Mortgage Loans (the "ARM Loans"), which
represent __% of the Initial Pool Balance,
is subject to adjustment on specified Due
Dates (each such date of adjustment, an
"Interest Rate Adjustment Date") by adding a
fixed number of basis points (a "Gross
Margin") to the value of a base index (an
"Index"), subject, in [most] cases, to
lifetime maximum and/or minimum Mortgage
Rates, and in __ cases, to periodic maximum
and/or minimum Mortgage Rates, in each case
as described herein; and the remaining
Mortgage Loans (the "Fixed Rate Loans") bear
interest at fixed Mortgage Rates. ___ of the
ARM Loans, which represent __% of the
Initial Pool Balance, provide for Interest
Rate Adjustment Dates that occur monthly,
while the remainder of the ARM Loans provide
for adjustments of the Mortgage Rate to
occur semi-annually or annually. _______ of
the ARM Loans (the "COFI ARM Loans"), which
represent __% of the Initial Pool Balance,
provide for Mortgage Rate adjustments based
on changes in the monthly weighted average
cost of funds of member savings institutions
of the Eleventh Federal Home Loan Bank
District (the "COFI Index"); and the
remaining ARM Loans, which represent __% of
the Initial Pool Balance, provide for
Mortgage Rate adjustments based on United
States Treasury yield indices (each, a
"Treasury Index"). See "Description of the
Mortgage Pool- Certain Payment
Characteristics" herein.
The amount of the Monthly Payment on all of
the ARM Loans is subject to adjustment on
specified Due Dates (each such date, a
"Payment Adjustment Date") generally to an
amount that would amortize the outstanding
principal balance of the Mortgage Loan over
its then remaining amortization schedule and
pay interest at the then applicable Mortgage
Rate, subject, in the case of [most] of the
ARM Loans, to payment caps ("Payment Caps"),
which limit the amount by which the Monthly
Payment may adjust on any Payment Adjustment
Date as described herein. _________ of the
ARM Loans, which represent ___% of the
Initial Pool Balance,
S-3
<PAGE>
provide for Payment Adjustment Dates that
occur annually, while the remainder of the
ARM Loans provide for adjustments of the
Monthly Payment to occur monthly or
semi-annually.
_______ of the ARM Loans, which represent
___% of the Initial Pool Balance, have
Payment Adjustment Dates that occur less
frequently than Interest Rate Adjustment
Dates and/or provide for Payment Caps that
limit the amount by which a Monthly Payment
can change in response to a change in the
Mortgage Rate. As a result, the amount of a
Monthly Payment in those cases may be
greater or less than the amount necessary to
amortize the loan fully over its then
remaining amortization schedule and pay
interest at the then applicable Mortgage
Rate, and accordingly, those ARM Loans may
be subject to periods of slower amortization
(if the Monthly Payment due on a Due Date is
sufficient to pay interest accrued to such
Due Date at the applicable Mortgage Rate but
is not sufficient to reduce principal in
accordance with the applicable amortization
schedule), to negative amortization (if
interest accrued to a Due Date at the
applicable Mortgage Rate is greater than the
entire Monthly Payment due on such Due
Date), or to accelerated amortization (if
the Monthly Payment due on a Due Date is
greater than the amount necessary to pay
interest accrued to such Due Date at the
applicable Mortgage Rate and to reduce
principal in accordance with the applicable
amortization schedule). All of the Mortgage
Loans that permit negative amortization
limit the amount by which the original
principal balance may be exceeded as a
result of negative amortization. In
addition, the ARM Loans with Payment Caps
provide by their terms that the Payment Caps
will not be applicable on specified Payment
Adjustment Dates. No ARM Loan that permits
negative amortization had a Cut-off Date
Balance (that is, a principal balance as of
the Cut-off Date, after the application of
all payments due on or before such date,
whether or not received) in excess of its
original principal balance.
All of the Mortgage Loans provide for
monthly payments of principal based on
amortization schedules significantly longer
than the remaining terms of such Mortgage
Loans, thereby leaving substantial principal
amounts due and payable (each such payment,
a "Balloon Payment") on their respective
maturity dates, unless prepaid prior
thereto.
As of the Cut-off Date, the Mortgage Loans
had the following additional
characteristics:
(i) Mortgage Rates ranging from ___% per
annum to ___% per annum, and a
weighted average Mortgage Rate of
___% per annum;
S-4
<PAGE>
(ii) in the case of the ARM Loans, Gross
Margins ranging from __ basis points
to __ basis points, and a weighted
average Gross Margin of ____basis
points;
(iii) for those ___ ARM Loans as to which
such characteristic applies, minimum
lifetime Mortgage Rates ranging from
___% per annum to ___% per annum, and
a weighted average minimum lifetime
Mortgage Rate of ___% per annum;
(iv) for those ___ ARM Loans as to which
such characteristic applies, maximum
lifetime Mortgage Rates ranging from
___% per annum to ___% per annum, and
a weighted average maximum lifetime
Mortgage Rate of ___% per annum;
(v) Cut-off Date Balances ranging from
$____ to $____, and an average
Cut-off Date Balance of $____;
(vi) original terms to scheduled maturity
ranging from ___ months to ____
months, and a weighted average
original term to scheduled maturity
of ____ months;
(vii) remaining terms to scheduled maturity
ranging from ___ months to ___
months, and a weighted average
remaining term to scheduled maturity
of ___ months;
(viii) Cut-off Date LTV Ratios (that is, in
each case, a loan-to-value ratio
based upon (a) the Cut-off Date
Balance of the Mortgage Loan, and (b)
the appraised value of the related
Mortgaged Property determined at the
time of origination of such loan),
ranging from __ % to __%, and a
weighted average Cut-off Date LTV
Ratio of __%; and
(ix) for those ____ Mortgage Loans as to
which such characteristic was
determinable, Debt Service Coverage
Ratios (calculated as more
particularly described under
"Description of the Mortgage
Pool-Additional Mortgage Loan
Information") ranging from ___xto
___x, and a weighted average Debt
Service Coverage Ratio of ___x.
The Mortgage Loans were originated between
19__ and 19__.
Description of the
Certificates ............. The Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be
dated as of the Cut-off Date, among the
Sponsor, the Master Servicer, the Special
Servicer, the Trustee and the REMIC
Administrator (the "Pooling and Servicing
Agreement"), and will represent in the
aggregate the entire beneficial ownership
S-5
<PAGE>
interest in a trust fund (the "Trust Fund")
consisting of the Mortgage Pool and certain
related assets.
A. Certificate Balance ........ The aggregate Certificate Balance of the
Certificates as of the Delivery Date will
equal the Initial Pool Balance. The Class A
Certificates will have an initial
Certificate Balance of $___ which represents
___% of the Initial Pool Balance; the Class
B Certificates will have an initial
Certificate Balance of $___, which
represents ___% of the Initial Pool Balance;
the Class C Certificates will have an
initial Certificate Balance of $___, which
represents ___% of the Initial Pool Balance;
and the Class R Certificates will have an
initial Certificate Balance of [zero]. The
Certificate Balance of each Class of
Certificates outstanding at any time
represents the maximum amount that the
holders thereof are entitled to receive as
distributions allocable to principal from
the cash flow on the Mortgage Loans and
other assets in the Trust Fund. As more
specifically described herein, the
Certificate Balance of each Class of REMIC
Regular Certificates will be adjusted from
time to time on each Distribution Date to
reflect any additions thereto resulting from
the allocation of Mortgage Loan negative
amortization to such Class and any
reductions therein resulting from the
distribution of principal of such Class. The
aggregate amount of monthly Mortgage Loan
negative amortization allocable to the
Certificates on any Distribution Date is
herein referred to as the "Aggregate
Mortgage Loan Negative Amortization" for
such date, and the portion thereof allocable
to any particular Class constitutes the
"Certificate Negative Amortization" in
respect of such Class for such date. The
Certificate Balance of the Class R
Certificates will at all times equal the
excess, if any, of the aggregate Stated
Principal Balance of the Mortgage Pool, over
the aggregate Certificate Balance of the
REMIC Regular Certificates (such excess, if
any, the "Excess Pool Balance"). See
"Description of the Certificates-General"
herein.
Losses experienced with respect to the
Mortgage Loans or otherwise with respect to
the Trust Fund will not be applied to reduce
either the Certificate Balance or the
absolute entitlement to interest of any
Class of REMIC Regular Certificates, even
though such losses may cause one or more of
such Classes to receive less than the full
amount of principal and interest to which it
is entitled. As a result, the aggregate
Stated Principal Balance of the Mortgage
Pool at any time subsequent to the initial
Distribution Date may be less than the
aggregate Certificate Balance of the REMIC
Regular Certificates. Such deficit will be
allocated to the respective Classes of REMIC
Regular Certificates (in each case to the
extent of its Certificate Balance) in
reverse alphabetical order of their Class
designations (i.e., C, B, A). Such
allocation will not reduce the Certificate
Balance of any such Class and is intended
solely to identify the portion (the
"Uncovered Portion") of the Certificate
Balance of each such Class for which there
is at such time no corresponding principal
amount of Mortgage Loans. See "Description
of the Certificates-Subordination" herein.
The "Stated Principal Balance" of each
Mortgage Loan outstanding at any time
represents the principal balance of such
Mortgage Loan ultimately due and payable to
the Certificateholders, subject to the
Special Servicer's right to receive any
Workout Fee in respect thereof. As more
particularly described herein, the Stated
Principal Balance of each Mortgage Loan will
equal the Cut-off Date Balance thereof,
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<PAGE>
increased on each Distribution Date by any
negative amortization experienced by such
Mortgage Loan that is allocated to the
Certificates on such date, and reduced on
each Distribution Date generally by any
payments or other collections (or advances
in lieu thereof) of principal of such
Mortgage Loan that are distributed on the
Certificates on such date (or that would
have been so distributed on such date if
they had not otherwise been paid to the
Special Servicer in respect of any related
Workout Fee). The "Workout Fee" is a fee,
separate from its servicing fee, payable to
the Special Servicer with respect to any
Mortgage Loan that is or has been serviced
by it, and is equal to a specified
percentage (calculated as described herein)
of the principal collections on or in
respect of such Mortgage Loan. See
"Description of the
Certificates-Distributions-Certain
Calculations with Respect to Individual
Mortgage Loans" and "Servicing of the
Mortgage Loans-Servicing and Other
Compensation and Payment of Expenses herein.
B. Pass-Through Rates ............. The Pass-Through Rates applicable to the
Class A and Class B Certificates for the
initial Distribution Date will equal __% and
__% per annum, respectively. With respect to
any Distribution Date subsequent to the
initial Distribution Date, the Pass-Through
Rate for the Class A Certificates will equal
LIBOR for such Distribution Date plus __
basis points (i.e., ____ percentage points)
subject to a maximum of __% per annum and a
minimum of ___% per annum; unless, however,
the rate so calculated exceeds the
Funds-Available Cap Rate in respect of the
Class A Certificates for such Distribution
Date, in which case the Pass- Through Rate
for the Class A Certificates will equal the
Weighted Average Effective Net Mortgage Rate
for such Distribution Date. With respect to
any Distribution Date subsequent to the
initial Distribution Date, the Pass-Through
Rate for the Class B Certificates will equal
the Weighted Average Effective Net Mortgage
Rate for such Distribution Date.
[The Pass-Through Rate applicable to the
Class C Certificates for any Distribution
Date will equal the Weighted Average
Effective Net Mortgage Rate for such
Distribution Date. The Class R Certificates
will have no specified Pass-Through Rate.]
"LIBOR" for each Distribution Date will be
the average of the interbank offered rates
for one month United States dollar deposits
in the London market as determined during
the preceding month in accordance with the
method described herein. The "Weighted
Average Effective Net Mortgage Rate" for
each Distribution Date is the weighted
average of the applicable Effective Net
Mortgage Rates for the Mortgage Loans,
weighted on the basis of their respective
Stated Principal Balances immediately prior
to such Distribution Date. For purposes of
calculating the Weighted Average Effective
Net Mortgage Rate for any Distribution Date,
the "applicable Effective Net Mortgage Rate"
for each Mortgage Loan is an annualized rate
equal to the Mortgage Rate in effect for
such Mortgage Loan as of the
S-7
<PAGE>
commencement of the related Due Period, (a)
reduced by __ basis points (the Mortgage
Rate, as so reduced, the "Net Mortgage
Rate"), and (b) if the accrual of interest
on such Mortgage Loan is computed other than
on the basis of a 360-day year consisting of
twelve 30-day months (which is the basis of
accrual for interest on the REMIC Regular
Certificates), then adjusted to reflect that
difference in computation.
The "Funds-Available Cap Rate" applicable to
the determination of the Pass-Through Rate
on the Class A Certificates for each
Distribution Date will be an annualized rate
equal to the product of (a) the Weighted
Average Effective Net Mortgage Rate for such
Distribution Date, multiplied by (b) a
fraction, expressed in decimal form, the
numerator of which is the sum of (i) the
Certificate Balance of the Class A
Certificates immediately prior to such
Distribution Date, plus (ii) any Excess Pool
Balance immediately prior to such
Distribution Date, and the denominator of
which is the Certificate Balance of the
Class A Certificates immediately prior to
such Distribution Date. Accordingly, in the
absence of Excess Pool Balance, the
Funds-Available Cap Rate applicable to the
determination of the Pass-Through Rate for
the Class A Certificates for any
Distribution Date will be the Weighted
Average Effective Net Mortgage Rate for such
Distribution Date.
The "Due Period" for each Distribution Date
will be the period that begins on the__ day
of the month preceding the month in which
such Distribution Date occurs and ends on
the ___ day of the month in which such
Distribution Date occurs. See "Description
of the
Certificates-Distributions-Pass-Through
Rates" and "-- Distributions-Determination
of LIBOR" herein.
C. Distributions .................. Distributions on the Certificates will be
made by the Master Servicer, to the extent
of available funds, on the 25th day of each
month or, if any such 25th day is not a
business day, then on the next succeeding
business day, beginning in ____, 199__
(each, a "Distribution Date"), to the
holders of record as of the close of
business on the last business day of the
month preceding the month
of each such distribution (each, a "Record
Date"). Notwithstanding the above, the final
distribution on any Certificate will be made
after due notice by the Master Servicer of
the pendency of such distribution and only
upon presentation and surrender of such
Certificates at the location to be specified
in such notice. The total of all payments or
other collections (or advances in lieu
thereof) on or in respect of the Mortgage
Loans that are available for distribution to
Certificateholders on any Distribution Date
is herein referred to as the "Available
Distribution Amount" for such date. See
"Description of the
Certificates-Distributions-Method, Timing
and Amount" herein.
On each Distribution Date, for so long as
the Class A and/or Class B Certificates
remain outstanding, the Master Servicer will
(except as
S-8
<PAGE>
otherwise described under "Description of
the Certificates- Termination" herein) apply
the Available Distribution Amount for such
date for the following purposes and in the
following order of priority, in each case to
the extent of remaining available funds:
(1) to distributions of interest to the
holders of the Class A Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class A
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to the
holders of the Class A Certificates
in an amount equal to the sum of (a)
the product of (i) the Class A
Certificates' Ownership Percentage
(as calculated immediately prior to
such Distribution Date), multiplied
by (ii) the Scheduled Principal
Distribution Amount for such
Distribution Date, plus (b) the
entire Unscheduled Principal
Distribution Amount for such
Distribution Date (but not more than
would be necessary to reduce the
Certificate Balance of the Class A
Certificates to zero);
(3) to distributions of principal to the
holders of the Class A Certificates
in an amount equal to any Uncovered
Portion of the Certificate Balance
of the Class A Certificates
immediately prior to such
Distribution Date;
(4) to distributions of interest to the
holders of the Class B Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class B
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(5) to distributions of principal to the
holders of the Class B Certificates
in an amount equal to the sum of (a)
the product of (i) the Class B
Certificates' Ownership
Percentage (as calculated
immediately prior to such
Distribution Date), multiplied by
(ii) the Scheduled Principal
Distribution Amount for such
Distribution Date, plus (b) if the
Class A Certificates have been
retired, then to the extent not
distributed in retirement thereof on
such Distribution Date, the entire
Unscheduled Principal Distribution
Amount for such Distribution Date
(but not more than would be
necessary to reduce the Certificate
Balance of the Class B Certificates
to zero);
(6) to distributions of principal to the
holders of the Class A Certificates
in an amount equal to any Uncovered
Portion of the Certificate Balance
of the Class B Certificates
immediately prior to such
Distribution Date (but not more
S-9
<PAGE>
than would be necessary to reduce
the Certificate Balance of the Class
A Certificates to zero);
(7) to distributions of principal to the
holders of the Class B Certificates
in an amount equal to any Uncovered
Portion of the Certificate Balance
of the Class B Certificates
immediately prior to such
Distribution Date, net of any
distributions of principal made on
such Distribution Date in respect of
the Class A Certificates as
described in the immediately
preceding clause (6);
(8) to distributions of interest to the
holders of the Class C Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class C
Certificates for such Distribution
Date and, to the extent not
previously distributed, for all
prior Distribution Dates;
(9) to distributions of principal to the
holders of the Class C Certificates
in an amount equal to the product of
(a) the Class C Certificates'
Ownership Percentage (as calculated
immediately prior to such
Distribution Date), multiplied by
(b) the Scheduled Principal
Distribution Amount for such
Distribution Date;
(10) to distributions of principal to the
holders of the respective Classes of
REMIC Regular Certificates, in
reverse alphabetical order of their
Class designations (i.e., C, B, A),
in an aggregate amount equal to the
product of (a) the Class R
Certificates' Ownership Percentage
(as calculated immediately prior to
such Distribution Date), multiplied
by (b) the Scheduled Principal
Distribution Amount for such
Distribution Date (but, in each
case, not more than would be
necessary to reduce the related
Certificate Balance to zero);
(11) to distributions of principal to the
holders of the respective Classes of
REMIC Regular Certificates, in
alphabetical order of their Class
designations (i.e., A, B, C), in an
aggregate amount equal to any
Uncovered Portion of the Certificate
Balance of the Class C Certificates
immediately prior to such
Distribution Date (but, in each
case, not more than would be
necessary to reduce the related
Certificate Balance to zero);
(12) to distributions of principal to the
holders of the respective Classes of
REMIC Regular Certificates, in
reverse alphabetical order of their
Class designations (i.e., C, B, A,),
in an aggregate amount equal to __%
of the remaining balance, if any, of
the Available Distribution Amount
(such remaining balance, if any,
herein referred to as "Excess
Funds") (but, in each case, not more
than would be necessary to reduce
the related Certificate Balance to
zero); and
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<PAGE>
(13) to distributions to the holders of
the Class R Certificates in an
amount equal to the remaining
balance of any Excess Funds. See
"Description of the
Certificates-Distributions-
Priority" herein.
The "Distributable Certificate Interest" in
respect of any Class of REMIC Regular
Certificates for any Distribution Date will
equal 30 days' interest at the applicable
Pass-Through Rate accrued on the Certificate
Balance of such Class of REMIC Regular
Certificates immediately prior to such
Distribution Date, reduced (to not less than
zero) by such Class of REMIC Regular
Certificates' allocable share (in each case,
calculated as described herein) of any
Aggregate Mortgage Loan Negative
Amortization and any Net Aggregate
Prepayment Interest Shortfall (as described
below) for such Distribution Date. See
"Servicing of the Mortgage Loans-Servicing
and Other Compensation and Payment of
Expenses" and "Description of the
Certificates-Distributions- Distributable
Certificate Interest" herein.
The "Scheduled Principal Distribution
Amount" for any Distribution Date will equal
the aggregate of all scheduled payments of
principal (including the principal portion
of any Balloon Payments)[, net of any
related Workout Fees payable to the Special
Servicer therefrom,] due on the Mortgage
Loans during or, if and to the extent not
previously received or advanced and
distributed on prior Distribution Dates,
prior to the related Due Period that were
either received from the borrowers as of the
___ day of the month in which such
Distribution Date occurs or advanced by the
Master Servicer in respect of such
Distribution Date. The "Unscheduled
Principal Distribution Amount" for any
Distribution Date will, in general, equal
the aggregate of (i) all
prepayments of principal of the Mortgage
Loans received from the borrowers during the
related Due Period[, net of any related
Workout Fees payable to the Special Servicer
therefrom,] and (ii) any other unscheduled
collections on or in respect of the Mortgage
Loans and any Mortgaged Properties acquired
in respect of defaulted Mortgage Loans
through foreclosure, deed in lieu of
foreclosure or otherwise (each, an "REO
Property"), which other unscheduled
collections were received during the related
Due Period and were identified and applied
by the Master Servicer as recoveries of
previously unadvanced principal of the
related Mortgage Loans [, net of any related
Workout Fees payable to the Special Servicer
therefrom]. The respective amounts which
constitute the Scheduled Principal
Distribution Amount and Unscheduled
Principal Distribution Amount for any
Distribution Date are herein collectively
referred to from time to time as the
"Distributable Principal Collections and
Advances". The "Ownership Percentage"
evidenced by any Class of Certificates as of
any date of determination will equal a
fraction, expressed as a percentage, the
numerator of which is the then Certificate
Balance of such Class of Certificates, net
(in the case of a Class of REMIC Regular
Certificates) of any Uncovered Portion of
such Certificate
S-11
<PAGE>
Balance, and the denominator of which is the
then aggregate Stated Principal Balance of
the Mortgage Pool. See "Description of the
Certificates-Distributions-Scheduled
Principal Distribution Amount and
Unscheduled Principal Distribution Amount"
herein.
P&I Advances ...................... [Subject to a recoverability determination
as described herein, the Master Servicer is
required to make advances (each, a "P&I
Advance") with respect to each Distribution
Date in an amount that is generally equal to
the aggregate of: (i) all delinquent
payments of principal (net of any related
Workout Fees) and interest (net of related
servicing fees) on the Mortgage Loans, other
than delinquent Balloon Payments, scheduled
to be due during the related Due Period;
(ii) in the case of each Mortgage Loan
delinquent in respect of its Balloon
Payment, an amount equal to 30 days'
interest thereon (net of related servicing
fees), but only to the extent that the
related borrower has not made a payment
sufficient to cover such amount under any
forbearance arrangement or otherwise, which
payment has been included in the Available
Distribution Amount for such Distribution
Date; and (iii) in the case of each REO
Property, an amount equal to 30 days'
imputed interest with respect thereto (net
of related servicing fees), but only to the
extent that such amount is not covered by
any net income from such REO Property
included in the Available Distribution
Amount for such Distribution Date.
As more fully described herein, the Master
Servicer will be entitled to interest on any
P&I Advances made, and the Master Servicer
and the Special Servicer will each be
entitled to interest on certain servicing
expenses incurred, by or on behalf of it.
Such interest will accrue from the date any
such P&I Advance is made or such servicing
expense is incurred at an annualized rate
equal to ___% (the "Reimbursement Rate") and
will be paid, contemporaneously with the
reimbursement of such P&I Advance or such
servicing expense, out of general
collections on the Mortgage Pool then on
deposit in the Certificate Account. See
"Description of the Certificates-P&I
Advances" herein and "Description of the
Certificates-Advances in Respect of
Delinquencies" and "Description of the
Pooling Agreements-Certificate Account" in
the Prospectus.]
Compensating Interest
Payments........................... [To the extent of its servicing compensation
for the related Due Period, the Master
Servicer is required to make a
non-reimbursable payment (a "Compensating
Interest Payment") with respect to each
Distribution Date to cover the amount, if
any, by which Prepayment Interest Shortfalls
incurred during the related Due Period
exceed Prepayment Interest Excesses and
prepayment premiums collected during such
Due Period. A "Prepayment Interest
Shortfall" is a shortfall in the collection
of a full month's interest (net of related
servicing fees) on any Mortgage Loan by
reason of a full or partial principal
prepayment made prior to its Due Date in any
Due Period. A "Prepayment Interest Excess"
is a payment of interest (net of
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<PAGE>
related servicing fees) made in connection
with any full or partial prepayment of a
Mortgage Loan subsequent to its Due Date in
any Due Period, which payment of interest is
intended to cover the period on and after
such Due Date. The "Net Aggregate Prepayment
Interest Shortfall" for any Distribution
Date will be the amount, if any, by which
(a) the aggregate of any Prepayment Interest
Shortfalls incurred during the related Due
Period exceeds (b) the sum of (i) the
aggregate of any Prepayment Interest
Excesses and prepayment premiums collected
during the related Due Period and (ii) any
Compensating Interest Payment made by the
Master Servicer with respect to such
Distribution Date. See "Servicing of the
Mortgage Loans-Servicing and Other
Compensation and Payment of Expenses" and
"Description of the
Certificates-Distributions-Distributable
Certificate Interest" herein.]
Subordination ..................... The rights of holders of the Class B
Certificates and each Class of the Private
Certificates (collectively, the "Subordinate
Certificates") to receive distributions of
amounts collected or advanced on the
Mortgage Loans will, in each case, be
subordinated, to the extent described
herein, to the rights of holders of the
Class A Certificates and each other Class of
Subordinate Certificates, if any, with an
earlier alphabetical Class designation. This
subordination is intended to enhance the
likelihood of timely receipt by the holders
of the Class A Certificates of the full
amount of Distributable Certificate Interest
payable in respect of such Certificates on
each Distribution Date, and the ultimate
receipt by such holders of principal equal
to the entire Certificate Balance of the
Class A Certificates. Similarly, but to a
lesser degree, this subordination is also
intended to enhance the likelihood of timely
receipt by the holders of the Class B
Certificates of the full amount of
Distributable Certificate Interest payable
in respect of such Certificates on each
Distribution Date, and the ultimate receipt
by such holders of principal equal to the
entire Certificate Balance of the related
Class of Certificates. The protection
afforded to the holders of each Class of
Offered Certificates by means of the
subordination of each other Class of
Certificates with a later alphabetical Class
designation will be accomplished by the
application of the Available Distribution
Amount on each Distribution Date in the
order described above in this Summary under
"-Description of the Certificates-
Distributions". No other form of Credit
Support will be available for the benefit of
the holders of the Offered Certificates.
Optional Termination .............. At its option, the Master Servicer may
purchase all of the Mortgage Loans and REO
Properties, and thereby effect termination
of the Trust Fund and early retirement of
the then outstanding Certificates, on any
Distribution Date on which the remaining
aggregate Stated Principal Balance of the
Mortgage Pool is less than ___% of the
Initial Pool Balance. See "Description of
the Certificates-Termination" herein and in
the Prospectus.
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<PAGE>
Certain Federal Income Tax
Consequences ...................... An election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit (a "REMIC") for federal income tax
purposes. Upon the issuance of the Offered
Certificates, _________, counsel to the
Sponsor, will deliver its opinion generally
to the effect that, assuming compliance with
all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes,
the Trust Fund will qualify as a REMIC under
Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code"). For
federal income tax purposes, the Class A,
Class B and Class C Certificates will be the
"regular interests" in the Trust Fund, and
the Class R Certificates will be the sole
class of "residual interests" in the Trust
Fund.
The Offered Certificates generally will be
treated as debt obligations of the Trust
Fund for federal income tax purposes.
Holders of Offered Certificates must report
income with respect thereto on the accrual
method, regardless of their method of tax
accounting generally. In addition, the
Offered Certificates will be treated as
qualifying assets and income under Sections
856(c)(5)(A), 856(c)(3)(B) and 7701
(a)(19)(C) of the Code.
The ____ Certificates [will] [will not]
[may] be treated as having been issued with
original issue discount for federal income
tax purposes. The prepayment assumption that
will be used for purposes of computing the
accrual of [original issue discount,] market
discount and premium, if any, for Federal
income tax purposes will be equal to [a CPR
of ___%]. However, no representation is made
that the Mortgage Loans will prepay at that
rate or at any other rate.
For further information regarding the
federal income tax consequences of investing
in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and
"Material Federal Income Tax Consequences"
in the Prospectus.
ERISA Considerations .............. A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan") should review
carefully with its legal advisors whether
the purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or
Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
[The U.S. Department of Labor has issued to
Citicorp an individual prohibited
transaction exemption, Prohibited
Transaction Exemption 90-88, which generally
exempts from the application of certain of
the prohibited transaction provisions of
Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code and
Section 502(i) of ERISA,
S-14
<PAGE>
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriter, as an
affiliate of Citicorp, and the servicing and
operation of related asset pools, provided
that certain conditions are satisfied.]
[The Sponsor expects that Prohibited
Transaction Exemption 90- 88 will generally
apply to the Class A Certificates, but it
will not apply to the Class B Certificates.
As a result,] no transfer of a [Class B]
Certificate or any interest therein may be
made to a Plan or to any person who is
directly or indirectly purchasing such
[Class B] Certificate or interest therein on
behalf of, as named fiduciary of, as trustee
of, or with assets of a Plan, unless the
prospective transferee (at its own expense)
provides the Certificate Registrar (as
identified herein) with a certification and
an opinion of counsel which establish to the
Certificate Registrar's satisfaction that
such transfer will not result in a violation
of Section 406 of ERISA or Section 4975 of
the Code or cause the Master Servicer, the
Special Servicer or the Trustee to be deemed
a fiduciary of such Plan or result in the
imposition of an excise tax under Section
4975 of the Code. See "ERISA Considerations"
herein and in the Prospectus.
Rating ............................ It is a condition of their issuance that the
Class A and Class B Certificates be rated
not lower than "___" and "___",
respectively, by _______ ([collectively,]
the "Rating Agenc[ies]"). 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. A security rating does
not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect
on yield to investors. See "Rating" herein
and "Risk Factors-Limited Nature of Credit
Ratings" in the Prospectus.
Legal Investment .................. [The Class A Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest ratings
categories by one or more nationally
recognized statistical rating organizations
and, as such, are legal investments for
certain entities to the extent provided in
SMMEA. Such investments, however, will be
subject to general regulatory considerations
governing investment practices under state
and federal law. In addition, institutions
whose investment activities are subject to
review by federal or state regulatory
authorities may be or may become subject to
restrictions, which may be retroactively
imposed by such regulatory authorities, on
the investment by such institutions in
certain forms of mortgage related
securities. Furthermore, certain states have
recently enacted legislation overriding the
legal investment provisions of SMMEA.]
The [Class B] Certificates will not be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984. As a result, the
appropriate characterization of the
S-15
<PAGE>
[Class B] Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the [Class B]
Certificates, may be subject to significant
interpretative uncertainties.
Investors should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the Prospectus.
S-16
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among
other things, the following factors (as well as the factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein.
The Certificates
Limited Liquidity. There is currently no secondary market for the Offered
Certificates. The Sponsor has been advised by the Underwriter that it presently
intends to make a secondary market in the Offered Certificates; however, it has
no obligation to do so and any market making may be discontinued at any time.
There can be no assurance that a secondary market for the Offered Certificates
will develop or, if it does develop, that it will provide holders of Offered
Certificates with liquidity of investment or that it will continue for the life
of the Offered Certificates. The Offered Certificates will not be listed on any
securities exchange. See "Risk Factors-Certain Factors Adversely Affecting
Resale of the Offered Certificates" in the Prospectus.
Variability in Yield; Priority of Payments. The yield on any Offered
Certificate will depend on, among other things, the Pass-Through Rate in effect
from time to time for such Certificate. The Pass- Through Rate applicable to the
Class A Certificates for any Distribution Date will equal LIBOR for such
Distribution Date, plus __ basis points, subject to a maximum of ___% per annum
and a minimum of__% per annum; unless, however, the rate so calculated exceeds
the Funds-Available Cap Rate applicable to the Class A Certificates for such
Distribution Date, in which case the Pass-Through Rate for the Class A
Certificates for such Distribution Date will equal the Weighted Average
Effective Net Mortgage Rate for such date. Accordingly, the yield on the Class A
Certificates will, in general, be highly sensitive to monthly changes in LIBOR.
The Pass-Through Rate applicable to the Class B Certificates for any
Distribution Date will equal the Weighted Average Effective Net Mortgage Rate
for such date. Accordingly, the yield on the Class B Certificates will be
sensitive to adjustments to the Mortgage Rates on the ARM Loans and to changes
in the relative composition of the Mortgage Pool as a result of scheduled
amortization, voluntary prepayments and involuntary liquidations of Mortgage
Loans. See "Description of the Certificates- Distributions-Pass-Through Rate"
herein.
The yield on any Offered Certificate that is purchased at a discount or
premium will also be affected by the rate and timing of principal payments on
such Certificate, which in turn will be affected by (i) the rate and timing of
principal payments (including principal prepayments) and other principal
collections on the Mortgage Loans, (ii) the availability from time to time of
amounts other than Distributable Principal Collections and Advances to amortize
the Certificate Balances of the respective Classes of Certificates, and (iii)
the extent to which the items described in subclauses (i) and (ii) are applied
on any Distribution Date in reduction of the Certificate Balance of the Class to
which such Certificate belongs. As and to the extent described herein, the
holders of each Class of Offered Certificates will be entitled to receive on
each Distribution Date their allocable share (calculated on the basis of the
Ownership Percentage evidenced by such Class of Certificates immediately prior
to such date) of the Scheduled Principal Distribution Amount for such
Distribution Date; however, the Unscheduled Principal Distribution Amount for
each Distribution Date will be distributable entirely in respect of the Class A
Certificates, until the Certificate Balance thereof is reduced to zero, and will
thereafter be distributable entirely in respect of the Class B Certificates. In
addition, as and to the extent described herein, distributions of the Class R
Certificates' allocable share of the Scheduled Principal Distribution Amount for
each Distribution Date, together with ___% of all Excess Funds, if any, for such
Distribution Date, will be applied in reduction of the Certificate Balances of
the respective Classes of REMIC Regular Certificates, in reverse alphabetical
order of their Class designations; while any distributions in respect of an
Uncovered Portion of the Certificate Balance of any Class of REMIC Regular
Certificates will be applied, to the extent of such Uncovered Portion, in
reduction of the Certificate Balance(s) of such Class of REMIC Regular
Certificates and each other Class of REMIC Regular Certificates, if any, with an
earlier alphabetical Class designation, in alphabetical order of such Class
designations. See "Description of the Certificates-Distributions-Priority" and
"-Distributions-
S-17
<PAGE>
Scheduled Principal Distribution Amount and Unscheduled Principal Distribution
Amount" herein. Because it is impossible to predict accurately the timing and
amount of principal prepayments and other unscheduled recoveries of principal,
if any, that will be received, or the availability from time to time of any
amounts other than Distributable Principal Collections and Advances to amortize
the Certificate Balances of the respective Classes of Certificates, investors
may find it difficult to analyze the effect that such items might have on the
yield and weighted average lives of the Offered Certificates.
Furthermore, the yield on any Offered Certificate also will be affected by
the rate and timing of delinquencies and defaults on the Mortgage Loans and the
severity of ensuing losses. As and to the extent described herein, the Private
Certificates are subordinate in right and time of payment to the Offered
Certificates and will bear shortfalls in collections and losses incurred in
respect of the Mortgage Loans prior to the Offered Certificates; and the Class B
Certificates are subordinate in right and time of payment to the Class A
Certificates and will bear shortfalls in collections and losses incurred in
respect of the Mortgage Loans prior to the Class A Certificates. See
"Description of the Mortgage Pool", "Description of the
Certificates-Distributions" and "-Subordination" and "Yield and Maturity
Considerations" herein and "Yield and Maturity Considerations" in the
Prospectus.
[Conflicts of Interest Involving Parties to the Pooling and Servicing
Agreement. ______________[an affiliate of the Sponsor, will perform the
functions of Master Servicer, Special Servicer and REMIC Administrator. In
addition, any party to the Pooling and Servicing Agreement or any affiliate
thereof may acquire and own Certificates. Investors in the Offered Certificates
should consider that any resulting conflicts of interests could affect the
performance of duties under the Pooling and Servicing Agreement. For example,
______'s obligation to make P&I Advances in its capacity as Master Servicer, or
its acquisition and holding of Private Certificates, could influence its
servicing decisions in respect of defaulted Mortgage Loans in its capacity as
Special Servicer notwithstanding the servicing standard described herein under
"Servicing of the Mortgage Loans - General".]
The Mortgage Loans
Nature of the Mortgaged Properties. The Mortgaged Properties consist
solely of multifamily rental properties. Lending on the security of multifamily
residential property is generally viewed as exposing the lender to a greater
risk of loss than lending upon the security of owner-occupied one- to
four-family residences. In contrast to lending on the security of single-family
residences, multifamily residential lending typically involves larger loans to a
single obligor or group of related obligors. Furthermore, the repayment of loans
secured by income producing properties is typically dependent upon the
successful operation of the related real estate project, which in turn is
dependent upon, in the case of multifamily rental properties, among other
things, the supply and demand for rental units in the relevant locale and the
performance of the managing agent. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the obligor's ability to
repay the loan may be impaired and the resale value of the particular property
may decline. In addition, the successful operation of a multifamily rental
property may be affected by circumstances outside the control of the borrower or
lender, such as the deterioration of the surrounding neighborhood, the
imposition of rent control or changes in the tax laws. See "Risk Factors-Certain
Risks Associated with Mortgage Loans Secured by Commercial and Multifamily
Properties" in the Prospectus.
[In addition, although lease terms for multifamily rental properties are
generally one year, units at the Mortgaged Properties may be let on a
week-to-week or month-to-month basis. Properties leased, occupied or used on a
short-term basis (i.e., six months or less) tend to be affected more rapidly by
changes in market or business conditions in the relevant locale than do
properties leased for longer periods.]
S-18
<PAGE>
Limited Recourse. The Mortgage Loans are not insured or guaranteed by any
governmental entity or private mortgage insurer. The Sponsor has not undertaken
any evaluation of the significance of the recourse provisions of any of a number
of the Mortgage Loans that provide for recourse against the related borrower or
another person in the event of a default. Accordingly, investors should consider
all of the Mortgage Loans to be non-recourse loans as to which recourse in the
case of default will be limited to the specific property and such other assets,
if any, as were pledged to secure a Mortgage Loan.
Environmental Law Considerations. [The Mortgage Loan Seller has
represented and warranted in the Mortgage Loan Purchase Agreement that as of
[the Delivery Date] [specify any representation and warranty as to environmental
matters]. Furthermore, the Mortgage Loan Seller has agreed that, in the event of
a material breach of such representation and warranty, it will either cure the
breach or repurchase the affected Mortgage Loan. The Mortgage Loan Seller's
representations and warranties regarding the Mortgage Loans set forth in the
Mortgage Loan Purchase Agreement will be assigned, together with the related
cure and repurchase obligations, by the Sponsor to the Trustee in connection
with the Sponsor's assignment of its interests in the Mortgage Loans.
Notwithstanding the foregoing, however, no environmental site assessments have
been conducted with respect to any of the Mortgaged Properties, and thus, the
Mortgage Loan Seller's representation and warranty as to environmental matters
should be regarded as an absence of knowledge on the part of the Mortgage Loan
Seller of the inaccuracy of such representation and warranty and as an
allocation of risk in the event any breach thereof is subsequently discovered.
Furthermore, the Mortgage Loan Seller's repurchase obligation will constitute
the sole remedy to Certificateholders and the Trustee for any material breach of
such representation and warranty, and neither the Sponsor nor any of its
affiliates will be obligated to repurchase the affected Mortgage Loan if the
Mortgage Loan Seller defaults on its obligation to do so. See "Description of
the Mortgage Pool-Representations and Warranties; Repurchases" herein.]
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto or assuming its operation. Such prohibition effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental site assessment is obtained (or until any required
remedial action is thereafter taken), but will decrease the likelihood that the
Trust Fund will become liable for a material adverse environmental condition at
the Mortgaged Property. However, there can be no assurance that the requirements
of the Pooling and Servicing Agreement will effectively insulate the Trust Fund
from potential liability for a materially adverse environmental condition at any
Mortgaged Property. See "Description of the Pooling Agreements-Realization Upon
Defaulted Mortgage Loans", "Risk Factors-Environmental Risks" and "Certain Legal
Aspects of Mortgage Loans-Environmental Legislation" in the Prospectus.
Geographic Concentration. __ Mortgage Loans, which represent __% of the
Initial Pool Balance, are secured by liens on Mortgaged Properties located in
_____. In general, that concentration increases the exposure of the Mortgage
Pool to any adverse economic or other developments that may occur in _____. In
recent periods, (along with other regions of the United States) has experienced
a significant downturn in the market value of real estate.
Concentration of Mortgage Loans and Borrowers. Several of the Mortgage
Loans have Cut-off Date Balances that are substantially higher than the average
Cut-off Date Balance. The [two] largest Mortgage Loans have Cut-off Date
Balances that represent approximately __% and __%, respectively, of the Initial
Pool Balance, and the _____ largest Mortgage Loans have Cut-off Date Balances
that represent in the aggregate approximately __% of the Initial Pool Balance.
There are also several pairs of Mortgage Loans that have the same borrower. The
[three] largest of those pairs, by aggregate Cut-off Date Balance of the
Mortgage Loans, represent __%, __% and __%, respectively, of the Initial Pool
Balance.
S-19
<PAGE>
In general, concentrations in a mortgage pool of loans with
larger-than-average balances can result in losses that are more severe, relative
to the size of the pool, than would be the case if the aggregate balance of the
pool were more evenly distributed. Concentration of borrowers also poses
increased risks. For instance, if a borrower that owns several Mortgaged
Properties experiences financial difficulty at one Mortgaged Property, or at
another income-producing property that it owns, it could attempt to avert
foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments for an indefinite period on all of the related
Mortgage Loans.
Adjustable Rate Mortgage Loans; Negative Amortization. ________of the
Mortgage Loans, which represent ___% of the Initial Pool Balance, are ARM Loans.
In addition, ___ of the ARM Loans, which represent __% of the Initial Pool
Balance, allow negative amortization to occur. Increases in the required Monthly
Payments on ARM Loans in excess of those assumed in the original underwriting of
such loans may result in a default rate higher than that on mortgage loans with
fixed mortgage rates. Moreover, increases in the principal balances of ARM Loans
due to the deferral and capitalization of interest payments may result in a
default rate that is higher than that of adjustable rate mortgage loans that do
not provide for negative amortization.
Balloon Payments. None of the Mortgage Loans is fully amortizing over its
term to maturity. Thus, each Mortgage Loan will have a substantial payment (that
is, a Balloon Payment) due at its stated maturity unless prepaid prior thereto.
In addition, ARM Loans that permit negative amortization could require, under
certain interest rate scenarios, balloon payments substantially larger than
expected. Loans with Balloon Payments involve a greater risk to the lender than
self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related mortgaged property. See "Risk Factors-Balloon Payments" in
the Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Pooling
and Servicing Agreement enables the Special Servicer to extend and modify
Mortgage Loans that are in material default or as to which a payment default
(including the failure to make a Balloon Payment) is imminent; subject, however,
to the limitations described under "Servicing of the Mortgage
Loans-Modifications, Waivers and Amendments" herein. There can be no assurance,
however, that any such extension or modification will increase the present value
of recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of Offered Certificates,
whether such delay is due to borrower default or to modification of the related
Mortgage Loan by the Special Servicer, will likely extend the weighted average
life of such Class of Offered Certificates. See "Yield and Maturity
Considerations" herein and in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
General
The Trust Fund will consist primarily of ___ conventional, balloon
Mortgage Loans with an Initial Pool Balance of $____. Each Mortgage Loan is
evidenced by a promissory note (a "Mortgage Note") and secured by a mortgage,
deed of trust or other similar security instrument (a "Mortgage") that creates a
first mortgage lien on a fee simple estate in a multifamily rental property (a
"Mortgaged Property"). All percentages of the Mortgage Loans, or of any
specified group of Mortgage Loans, referred to herein without further
description are approximate percentages by aggregate Cut-off Date Balance.
The Mortgage Loans will be acquired by the Sponsor on or before the
Delivery Date from _______ (the "Mortgage Loan Seller"), which either originated
the Mortgage Loans or acquired them from their respective originators. See "-The
Mortgage Loan Seller" herein.
S-20
<PAGE>
The Mortgage Loans were originated between 19__ and 19__. [While the
Sponsor has caused to be undertaken a limited review of the records and files
related to the Mortgage Loans in connection with the issuance of the
Certificates, none of the Mortgage Loans was "re-underwritten" or subjected to
the type of review that would typically be made in respect of a newly originated
mortgage loan. All of the Mortgaged Properties were inspected by or on behalf of
the Sponsor within the __ month period preceding the Cut-off Date to assess
their general condition, which in virtually all cases was determined to be
average or better. However, no Mortgaged Property was re-appraised by or on
behalf of the Sponsor to assess its current value, and no evaluation was made as
to the extent of deferred maintenance at any Mortgaged Property or whether
adequate reserves, if any, have been escrowed to cover such.]
Certain Payment Characteristics
_____ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the first day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ___(___% of the Mortgage Loans),
___ ( ___ % of the Mortgage Loans), ___ ( ___% of the Mortgage Loans),
and___(___% of the Mortgage Loans) day of each month.
______ of the Mortgage Loans (the "ARM Loans"), which represent __% of the
Initial Pool Balance, bear interest at Mortgage Rates that are subject to
adjustment on periodically occurring Interest Rate Adjustment Dates by adding
the related Gross Margin to the value of a base index (an "Index"), subject in
[most] cases to rounding conventions and lifetime minimum and/or maximum
Mortgage Rates and, in the case of Mortgage Loans, which represent __% of the
Initial Pool Balance, to periodic minimum and/or maximum Mortgage Rates. The
remaining Mortgage Loans (the "Fixed Rate Loans") bear interest at fixed
Mortgage Rates. None of the ARM Loans is convertible into a Fixed Rate Loan.
Adjustments to the Mortgage Rates on ___ of the ARM Loans (the "COFI ARM
Loans"), which represent ___% of the Initial Pool Balance, are based upon the
COFI Index (See "-The Eleventh District Cost of Funds Index" herein).
Adjustments to the Mortgage Rates on the remaining ARM Loans are based upon
Treasury Indices. The adjustments to the Mortgage Rates on the ARM Loans may in
each case be based on the value of the related Index as available a specified
number of days prior to an Interest Rate Adjustment Date, or may be based on the
value of the related Index as most recently published as of an Interest Rate
Adjustment Date or as of a designated date preceding an Interest Rate Adjustment
Date ___ of the ARM Loans, which represent ___% of the Initial Pool Balance,
provide for Interest Rate Adjustment Dates that occur monthly; __ of the ARM
Loans, which represent ___% of the Initial Pool Balance, provide for Interest
Rate Adjustment Date that occur semi-annually; and the remaining ARM Loans
provide for Interest Rate Adjustment Dates that occur annually.
Subject, in the case of [most] of the ARM Loans, to the Payment Caps
described below, the Monthly Payments on each ARM Loan are subject to adjustment
on each Payment Adjustment Date to an amount that would amortize fully the
principal balance of the Mortgage Loan over its then remaining amortization
schedule and pay interest at the Mortgage Rate in effect during the one month
period preceding such Payment Adjustment Date. ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance, provide for Payment Adjustment Dates
that occur annually; ___ of the ARM Loans, which represent ___% of the Initial
Pool Balance, provide for Payment Adjustment Dates that occur semi-annually; and
the remaining ARM Loans provide for Payment Adjustment Dates that occur monthly.
___ of the ARM Loans, which represent % of the Initial Pool Balance, provide
that an adjustment of the amount of the Monthly Payment on a Payment Adjustment
Date may not result in a Monthly Payment that is more than ___% greater or, in
the case of [some] of those Mortgage Loans, less than the amount of the Monthly
Payment in effect immediately prior to such Payment Adjustment Date (each such
provision, a "Payment Cap"); however, those Mortgage Loans also provide that the
Payment Cap will not apply on certain Payment Adjustment Dates.
S-21
<PAGE>
________ of the ARM Loans, which represent __% of the Initial Pool
Balance, provide for Payment Adjustment Dates that occur less frequently than
Interest Rate Adjustment Dates and/or provide for Payment Caps that limit the
amount by which a Monthly Payment can increase (or, in [some] cases, decrease)
in response to a change in the Mortgage Rate. As a result, the amount of a
Monthly Payment in those cases may be greater or less than the amount necessary
to amortize the loan fully over its then remaining amortization schedule and pay
interest at the applicable Mortgage Rate, and accordingly, those ARM Loans may
be subject to slower amortization (if the Monthly Payment due on a Due Date is
sufficient to pay interest accrued to such Due Date at the applicable Mortgage
Rate but is not sufficient to reduce principal in accordance with the applicable
amortization schedule), to negative amortization (if interest accrued to a Due
Date at the applicable Mortgage Rate is greater than the entire Monthly Payment
due on such Due Date) or to accelerated amortization (if the Monthly Payment due
on a Due Date is greater than the amount necessary to pay interest accrued to
such Due Date at the applicable Mortgage Rate and to reduce principal in
accordance with the applicable amortization schedule). All of the Mortgage Loans
that permit negative amortization provide that if, as a result of negative
amortization, the respective principal balance of the Mortgage Loan reaches an
amount specified therein (which in no case is greater than [125%] of the
original principal balance thereof), the amount of the Monthly Payments due
thereunder will be increased (irrespective of any Payment Cap and whether or not
such increase will occur on a Payment Adjustment Date) as necessary to prevent
negative amortization in excess of such amount.
All of the Mortgage Loans provide for monthly payments of principal based
on amortization schedules significantly longer than the remaining terms of such
Mortgage Loans, thereby leaving substantial principal amounts due and payable
(each such payment, a "Balloon Payment") on their respective maturity dates,
unless prepaid prior thereto.
No Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Prepayment Premiums are payable
to the Master Servicer as additional servicing compensation, to the extent not
otherwise applied to offset Prepayment Interest Shortfalls, and may be waived by
the Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans-General" herein.
The Eleventh District Cost of Funds Index
The COFI Index reflects the monthly weighted average cost of funds of
savings and loan associations and savings banks, the home offices of which are
located in Arizona, California and Nevada, that are member institutions of the
Eleventh District of the Federal Home Loan Bank System. The COFI Index is
computed from statistics tabulated and published by the Federal Home Loan Bank
of San Francisco (the "FHLB of San Francisco "), which normally announces the
COFI Index on the last working day of the month following the month as to which
the weighted average cost of funds was computed. The FHLB of San Francisco
publishes the COFI Index in its monthly Information Bulletin, copies of which
may be obtained from the FHLB of San Francisco's Office of Public Information,
the mailing address of which is 600 California Street, P.O. Box 7948, San
Francisco, California 94120, and the telephone number of which is (415)
616-2600.
The COFI Index reflects the interest costs paid on all types of funds held
by Eleventh District member institutions. The COFI Index is weighted to reflect
the relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of Eleventh District member
institutions: (1) savings deposits, (2) FHLB of San Francisco advances and (3)
all other borrowings, such as reverse repurchase agreements and mortgage-backed
bonds. Unlike most other interest rate measures, the COFI Index does not
necessarily reflect current market rates, since the component funds represent a
variety of maturities the costs of which may react in different ways to changing
conditions.
S-22
<PAGE>
A number of factors affect the performance of the COFI Index and may cause
the COFI Index to move in a manner different from indices based upon specific
interest rates, such as the United States Treasury rates and LIBOR. Because the
COFI Index is based on, among other things, the various maturities of the
liabilities of member institutions of the Eleventh District of the Federal Home
Loan Bank System for the month prior to the month in which the COFI Index is
published, the COFI Index may not reflect the average prevailing market interest
rates on new liabilities of similar maturities and, in general, the COFI Index
tends to respond more slowly to interest rate movements than do other interest
rate indices. Moreover, there can be no assurance that the COFI Index will
necessarily move in the same direction as prevailing interest rates since, as
longer term deposits or borrowings mature and are renewed at market interest
rates, the COFI Index will rise or fall depending upon the differential between
the prior and the new rates on such deposits and borrowings. Furthermore, any
movement in the COFI Index, as compared to other indices based upon specific
interest rates, may be affected by changes instituted by the FHLB of San
Francisco in the method used to calculate the COFI Index. Because __% of the
Mortgage Loans are COFI ARM Loans, the performance of the COFI Index, to the
extent that it moves within a range that affects the Mortgage Rates on the COFI
ARM Loans, will have a substantial effect on the Weighted Average Effective Net
Mortgage Rate in effect from time to time. The Pass-Through Rate from time to
time of the Class B Certificates is the Weighted Average Effective Net Mortgage
Rate, and thus, the yield on the Class B Certificates will be extremely
sensitive to movements in the COFI Index that result in adjustments to the
Mortgage Rates of the COFI ARM Loans. The Pass-Through Rate from time to time of
the Class A Certificates, under certain circumstances described herein, will
equal the Weighted Average Effective Net Mortgage Rate, and thus, the yield on
the Class A Certificates may in those circumstances also be affected by
movements in the COFI Index. See "Yield and Maturity Considerations" herein.
Listed below are some historical values of the COFI Index since January
1990. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of past or future values of the COFI Index.
Month 1990 1991 1992 1993 1994 1995 1996 1997
- ------ ---- ---- ---- ---- ---- ---- ---- ----
January ...... % % % % % % % %
February .....
March ........
April ........
May ..........
June .........
July .........
August .......
September.....
October.......
November......
December......
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
The following table sets forth the range of Mortgage Rates on the Mortgage
Loans as of the Cut-off Date:
S-23
<PAGE>
Mortgage Rates as of the Cut-off Date
Number of Percent by
Range of Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Mortgage Rates(%) Loans Date Balance Number Date Balance
- ----------------- --------- ----------------- ---------- -----------------
--------- ----------------- ---------- -----------------
Total ...........
========= ================= ========== =================
Weighted Average
Mortgage Rate (All Loans): __% per annum
Weighted Average
Mortgage Rate (ARM Loans): __% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): __% per annum
The following table sets forth the range of Gross Margins for the ARM
Loans:
Gross Margins for the ARM Loans
Percent by
Range of Number of Aggregate Cut-off Percent by Aggregate Cut-off
Gross Margins(%) ARM Loans Date Balance Number Date Balance
- ----------------- --------- ----------------- ---------- -----------------
--------- ----------------- ---------- -----------------
Total ...........
========= ================= ========== =================
Weighted Average
Gross Margin: ___%
The following table sets forth for the ARM Loans the Indices upon which
Mortgage Rate adjustments are based, and the frequency of adjustments to the
Mortgage Rates and Monthly Payments of the ARM Loans.
S-24
<PAGE>
Indices and Frequency of Adjustments to Mortgage Rates and
Monthly Payments for the ARM Loans
<TABLE>
<CAPTION>
Monthly
Mortgage Rate Payment Number of Percent by
Adjustment Adjustment Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Index Frequency Frequency Loans Date Balance Number Date Balance
- ----- ---------- ---------- -------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
-------- ----------------- ---------- -----------------
Total ...........
======== ================= ========== =================
</TABLE>
The following table sets forth the range of maximum lifetime Mortgage
Rates for the ARM Loans to which such characteristic applies:
Maximum Lifetime Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Maximum Number of Aggregate Cut-off Percent by Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Number Date Balance
- -------------------------- --------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
None ..................... _________ _________________ __________ _________________
Total ....................
========= ================= ========== =================
</TABLE>
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): __% per annum (A)
- ---------------
(A) This calculation does not include the ___ ARM Loans without maximum
lifetime Mortgage Rates.
S-25
<PAGE>
The following table sets forth the range of minimum lifetime Mortgage
Rates for the ARM Loans to which such characteristic applies:
Minimum Lifetime Mortgage Rates for the ARM Loan
<TABLE>
<CAPTION>
Percent by
Range of Minimum Number of Aggregate Cut-off Percent by Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Number Date Balance
- -------------------------- --------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
None.....................
--------- ----------------- ---------- -----------------
Total .....................
========= ================= ========== =================
</TABLE>
Weighted Average Minimum
Lifetime Mortgage Rate (ARM Loans):___% per annum (A)
- -------------
(A) This calculation does not include the __ ARM Loans without minimum
lifetime Mortgage Rates.
S-26
<PAGE>
The following table sets forth the range of Cut-off Date Balances of the
Mortgage Loans:
Cut-off Date Balances
Number of Percent by
Cut-off Date Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Balance Range ($) Loans Date Balance Number Date Balance
- ----------------- --------- ----------------- ---------- -----------------
--------- ----------------- ---------- -----------------
Total ...........
========= ================= ========== =================
Average Cut-off Date
Balance (All Loans): $_____
Average Cut-off Date
Balance (ARM Loans): $_____
Average Cut-off Date
Balance (Fixed Rate Loans): $_____
The following tables set forth the range of original and remaining terms
to stated maturity (in months) of the Mortgage Loans:
Original Term to Stated Maturity (in Months)
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Terms (in Months) Loans Date Balance Number Date Balance
- ----------------- --------- ----------------- ---------- -----------------
--------- ----------------- ---------- -----------------
Total ...........
========= ================= ========== =================
Weighted Average Original
Term to Stated Maturity
(All Loans): __ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): __ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): __ months
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<PAGE>
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
Number of Percent by
Range of Remaining Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Terms (in Months) Loans Date Balance Number Date Balance
- ------------------ -------- ----------------- ---------- ----------------
-------- ----------------- ---------- ----------------
Total ............
======== ================= ========== ================
Weighted Average Remaining
Term to Stated Maturity
(All Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
S-28
<PAGE>
The following table sets forth the respective years in which the Mortgage
Loans were originated:
Year of Origination
Number of Percent by
Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Year Loans Date Balance Number Date Balance
- ---- -------- ----------------- ---------- -----------------
-------- ----------------- ---------- -----------------
Total .........
======== ================= ========== =================
The following table sets forth the respective years in which the Mortgage
Loans are scheduled to mature. The table provides an indication (which does not
account for any scheduled amortization, prepayments or negative amortization) of
the concentration of Balloon Payments that will be due in those years with
respect to the Mortgage Loans. See "Special Considerations-Balloon Payments"
herein.
Year of Scheduled Maturity
Number of Percent by
Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Year Loans Date Balance Number Date Balance
- ---- -------- ----------------- ---------- -----------------
-------- ----------------- ---------- -----------------
Total .........
======== ================= ========== =================
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<PAGE>
The following table sets forth the range of Cut-off Date LTV Ratios of the
Mortgage Loans. A "Cutoff Date LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the Cut-off Date Balance of a Mortgage
Loan, and the denominator of which is the appraised value of the related
Mortgaged Property as determined by an appraisal thereof obtained in connection
with the origination of such Mortgage Loan. A Cut-off Date LTV Ratio, because it
is based on the value of a Mortgaged Property determined as of loan origination,
is not necessarily a reliable measure of the borrower's current equity in that
Mortgaged Property. In a declining real estate market, the fair market value of
the Mortgaged Property could have decreased from the value determined at
origination, and the actual loan-to-value ratio of a Mortgage Loan may be higher
than its Cut-off Date LTV Ratio.
Cut-off Date LTV Ratios
Number of Percent by
Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Year Loans Date Balance Number Date Balance
- ---- -------- ----------------- ---------- -----------------
-------- ----------------- ---------- -----------------
Total .........
======== ================= ========== =================
Weighted Average Cut-off
Date LTV Ratio (All Loans): ___%
Weighted Average Cut-off
Date LTV Ratio (ARM Loans): ___%
Weighted Average Cut-off
Date LTV Ratio (Fixed Rate Loans): ___%
The following table sets forth the range of Debt Service Coverage Ratios
for the Mortgage Loans as of the Cut-off Date. The "Debt Service Coverage Ratio"
for any Mortgage Loan is the ratio of Net Operating Income produced by the
related Mortgaged Property for the period (annualized if the period was less
than one year) covered by an operating statement to the amount of the Monthly
Payment in effect as of the Cut-off Date multiplied by 12. "Net Operating
Income" is the revenue derived from the use and operation of a Mortgaged
Property (consisting primarily of rental income and deposit forfeitures) less
operating expenses (such as utilities, general administrative expenses,
management fees, advertising, repairs and maintenance) and less fixed expenses
(such as insurance and real estate taxes). Net Operating Income generally does
not reflect capital expenditures. The following table was prepared using
operating statements obtained from the respective mortgagors. In each case, the
information contained in such operating statements was unaudited, and the
Sponsor has made no attempt to verify its accuracy. In the case of __ Mortgage
Loans (___ ARM Loans and ___Fixed Rate Loans), operating statements could not be
obtained, and accordingly, Debt Service Coverage Ratios for those Mortgage Loans
were not calculated. The last day of .the period covered by each operating
statement from which a Debt Service Coverage Ratio was calculated may not
correspond to the end of the calendar year most recent to the Cut-off Date, but
in no event was a Debt Service Coverage Ratio calculated using an operating
statement for a period ending prior to_________.
S-30
<PAGE>
Debt Service Coverage Ratios as of the Cut-off Date
Range of Number of Percent by
Debt Service Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
Coverage Ratios Loans Date Balance Number Date Balance
- --------------- --------- ----------------- ---------- -----------------
--------- ----------------- ---------- -----------------
Total .........
========= ================= ========== =================
Weighted Average
Debt Service Coverage
Ratio (All Loans): __x(B)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans):__x(C)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): __x(D)
- ----------
(A) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(B) This calculation does not include the _____ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(C) This calculation does not include the _____ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(D) This calculation does not include the _____ Fixed Rate Loans as to which
Debt Service Coverage Ratios were not calculated.
The Mortgage Loans are secured by Mortgaged Properties located in
__different states. The following table sets forth the states in which the
Mortgaged Properties are located:
S-31
<PAGE>
Geographic Distribution
Number of Percent by
Mortgage Aggregate Cut-off Percent by Aggregate Cut-off
State Loans Date Balance Number Date Balance
- ----- -------- ----------------- ---------- -----------------
-------- ----------------- ---------- -----------------
Total .........
======== ================= ========== =================
[The single largest Mortgage Loan in the Mortgage Pool has a Cut-off Date
Balance of $ , which represents [101% of the Initial Pool Balance. It is a Fixed
Rate Loan with a Mortgage Rate of__% per annum, an original term to stated
maturity of __ months and a remaining term to stated maturity of __ months. It
was originated in ____ 19__ and its stated maturity date is _______, 19__. It
may be prepaid at any time without penalty. It has a Cut-off Date LTV Ratio of
__% and a Debt Service Coverage Ratio (calculated on the basis ___ of an
unaudited operating statement for the related Mortgaged Property covering the
period ___, 19__ to ____,19__) of ____x. The related Mortgaged Property is
located in ______, has ___ rental units and an occupancy rate as of _____, 19__
of ___% .]
Certain additional information regarding the Mortgage Loans is contained
herein under "Underwriting Standards", "-Assignment of the Mortgage Loans;
Repurchases" and "- Representations and Warranties; Repurchases" and in the
Prospectus under "Description of the Trust Funds" and "Certain Legal Aspects of
Mortgage Loans".
The Mortgage Loan Seller
On or prior to the Delivery Date, the Sponsor will acquire the Mortgage
Loans from ____ (the "Mortgage Loan Seller") pursuant to a Mortgage Loan
Purchase Agreement, dated [the date hereof], between the Sponsor and the
Mortgage Loan Seller (the "Mortgage Loan Purchase Agreement"). [The Mortgage
Loan Seller originated ___ of the Mortgage Loans, which represent ___% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof, generally in accordance with the underwriting
criteria described below under "-Underwriting Standards" .]
[The Mortgage Loans Seller [, a wholly-owned subsidiary of ____,] is a
______ organized in ______ under the laws of __________. [As of December 31,
199_, the Mortgage Loan Seller had a net worth of approximately $ _________, and
currently holds and services for its own account a total multifamily and
commercial mortgage loan portfolio of approximately $______, of which
approximately $______ constitutes multifamily mortgage loans.] [Because more
than ___% of its multifamily and commercial mortgage loan portfolio was acquired
or originated during the ___ month period preceding the Cut-off Date, no
meaningful information can be given as to the delinquency and foreclosure
experience of such portfolio.]
The information set forth herein concerning the Mortgage Loan Seller and
its underwriting standards has been provided by the Mortgage Loan Seller, and
neither the Sponsor nor the Underwriter makes any representation or warranty as
to the accuracy or completeness of such information.
Underwriting Standards
All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described herein.
S-32
<PAGE>
[Description of underwriting standards.]
The Sponsor believes that the Mortgage Loans selected for inclusion in the
Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected on
any basis which would have a material adverse effect on the Certificateholders.]
Assignment of the Mortgage Loans; Repurchase
On or prior to the Delivery Date, the Sponsor will assign its interests in
the Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with such -assignment, the Sponsor will
require the Mortgage Loan Seller to deliver to the Trustee or to a document
custodian appointed by the Trustee (a "Custodian"), among other things, the
following documents with respect to each Mortgage Loan (collectively, as to such
Mortgage Loan, the "Mortgage File"): [(i) the original Mortgage Note, endorsed
(without recourse) to the order of Trustee; (ii) the original Mortgage or a
certified copy thereof, together with originals or certified copies of any
intervening assignments of such document, in each case with evidence of
recording thereon; (iii) the original or a certified copy of any related
assignment of leases, rents and profits (if such item is a document separate
from the Mortgage), together with originals or certified copies of any
intervening assignments of such document, in each case with evidence of
recording thereon; (iv) the original or a certified copy of any related security
agreement (if such item is a document separate from the Mortgage), together with
originals or certified copies of any intervening assignments of such document;
(v) an assignment of the Mortgage in favor of the Trustee, in recordable form;
(vi) an assignment of any related assignment of leases, rents and profits (if
such item is a document separate from the Mortgage) in favor of the Trustee, in
recordable form; (vii) an assignment of any related security agreement (if such
item is a document separate from the Mortgage) in favor of the Trustee; (viii)
originals or certified copies of all assumption, modification and substitution
agreements in those instances where the terms or provisions of the Mortgage or
Mortgage Note have been modified or the Mortgage or Mortgage Note has been
assumed; (ix) the original lender's title insurance policy issued on the date of
the origination of such Mortgage Loan or, with respect to each Mortgage Loan as
to which a lender's title insurance policy has not yet been issued, a
preliminary title report or a title insurance commitment or binder or, with
respect to each Mortgage Loan not covered by a lender's title insurance policy,
an attorney's opinion of title given by an attorney licensed to practice law in
the jurisdiction where the Mortgaged Property is located; and (x) the original
of any guaranty of the borrower's obligations under the related Mortgage Note].
The Trustee or a Custodian on its behalf will be required to review each
Mortgage File within a period of ___ days of the receipt thereof, and the
Trustee or a Custodian on its behalf will hold such documents in trust for the
benefit of the Certificateholders. If any of the above-described documents is
found during the course of such review to be missing from any Mortgage File or
defective, and in either case such omission or defect materially and adversely
affects the value of any Mortgage Loan or the interests of Certificateholders
therein, the Trustee will be required to notify the Master Servicer, the Special
Servicer, the Sponsor and the Mortgage Loans Seller. In any such case, and if
the Mortgage Loan Seller cannot deliver the document or cure the defect within a
period of ___ days following its receipt of such notice, then, except as
otherwise provided below, the Mortgage Loan Seller will be obligated pursuant to
the Mortgage Loan Purchase Agreement (the relevant rights under which will be
assigned, together with its interests in the Mortgage Loans, by the Sponsor to
the Trustee) to repurchase the affected Mortgage Loan within such ___ day period
at a price (the "Purchase Price") equal to the sum of (i) the unpaid principal
balance of such Mortgage Loan, (ii) unpaid accrued interest on such Mortgage
Loan at the Mortgage Rate from the date to which interest was last paid to the
Due Date in the Due Period in which the purchase is to occur (exclusive of any
portion of such interest representing negative amortization previously added to
the principal balance of such Mortgage Loan), (iii) certain servicing expenses
that are reimbursable to the Master Servicer or Special Servicer, and (iv) any
unpaid accrued interest at the Reimbursement Rate that may be payable to the
Master Servicer in respect of related unreimbursed P&I Advances, or to the
Master Servicer or Special Servicer in respect of related unreimbursed servicing
expenses, as described under "Description of the
S-33
<PAGE>
Certificates-P&l Advances" herein. This repurchase obligation will constitute
the sole remedy available to the Certificateholders and the Trustee for any
defect in or omission from a Mortgage File, and neither the Sponsor nor any of
its affiliates will be obligated to repurchase the affected Mortgage Loan if the
Mortgage Loan Seller defaults on its obligation to do so. Notwithstanding the
foregoing, if a document is missing from any Mortgage File because it has been
submitted for recording, and neither such document nor a certified copy thereof,
in either case with evidence of recording thereon, can be obtained because of
delays on the part of the applicable recording office, then the Mortgage Loan
Seller will not be required to repurchase the affected Mortgage Loan on the
basis of such missing document so long as it continues in good faith to obtain
such document or such certified copy.
The Pooling and Servicing Agreement will require the Master Servicer
promptly (and in any event within ___ days of the Delivery Date) to cause each
assignment of a Mortgage described in clause (v) of the second preceding
paragraph and each assignment of an assignment of leases, rents and profits
described in clause (vi) of the second preceding paragraph to be submitted for
recording in the real property records of the appropriate jurisdictions, except
in states where, in the written opinion of local counsel acceptable to the
Sponsor, such recordation is not required to protect the Trustee's interests in
the related Mortgage Loans against sale, further assignment, satisfaction or
discharge by the Mortgage Loan Seller, the Master Servicer, the Special
Servicer, any Sub-Servicers or the Sponsor. See "Description of the Pooling
Agreements- Assignment of Mortgage Loans; Repurchases" in the Prospectus.
Representations and Warranties; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of [the
Delivery Date], or as of such other date specifically provided in the
representation and warranty, among other things, that:
[Specify significant representations and warranties.]
If the Master Servicer, the Special Servicer, the Trustee or the Sponsor
discovers a breach of any of the foregoing representations and warranties, and
such breach materially and adversely affects the value of any Mortgage Loan or
the interests of Certificateholders therein, the party making such discovery
will be required to so notify each of the other parties and the Mortgage Loan
Seller. In any such case, and if the Mortgage Loan Seller cannot cure such
breach within a period of ___ days following its receipt of such notice, then
the Mortgage Loan Seller will be obligated pursuant to the Mortgage Loan
Purchase Agreement (the relevant rights under which will be assigned, together
with its interests in the Mortgage Loans, by the Sponsor to the Trustee) to
repurchase the affected Mortgage Loan within such ___ day period at the
applicable Purchase Price.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. [Thus, if the Mortgage Loan Seller were found to have breached its
representation set forth in clause __ above regarding environmental matters [or
its representation in clause ___ above regarding the servicing practices
utilized in respect of the Mortgage Loans], it would have no obligation to
indemnify the Trust Fund for any consequent liability that the Trust Fund might
have incurred. See "Risk Factors-Environmental Law Considerations" herein and
"Description of the Pooling Agreements- Realization Upon Defaulted Mortgage
Loans", "Risk Factors-Environmental Risks" and "Certain Legal Aspects of
Mortgage Loans-Environmental Legislation" in the Prospectus.]
The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and neither the Sponsor nor any of its affiliates will be
obligated to repurchase any affected Mortgage Loan in connection with a breach
of the Mortgage Loan Seller's representations and warranties if the Mortgage
Loan Seller defaults on its obligation to do so. However, the Sponsor will not
include any Mortgage Loan in the
S-34
<PAGE>
Mortgage Pool if anything has come to the Sponsor's attention that would cause
it to believe that the representations and warranties made by the Mortgage Loan
Seller regarding such Mortgage Loan will not be correct in all material
respects. See "Description of the Pooling Agreements-Representations and
Warranties; Repurchases" in the Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Sponsor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Sponsor believes that the information set
forth herein will be representative of the characteristics of the Mortgage Pool
as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates and maturities, as well as the other
characteristics of the Mortgage Loans described herein, may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
from or added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer will, either directly or
through sub-servicers, each be required to service and administer the Mortgage
Loans for which it is responsible, on behalf of the Trustee and in the best
interests of and for the benefit of the Certificateholders (as determined by the
Master Servicer or the Special Servicer, as the case may be, in its good faith
and reasonable judgment), in accordance with applicable law, the terms of the
Pooling and Servicing Agreement, the terms of the respective Mortgage Loans and,
to the extent consistent with the foregoing, in the same manner as would prudent
institutional mortgage lenders and loan servicers servicing mortgage loans
comparable to such Mortgage Loans in the jurisdictions where the related
Mortgaged Properties are located, and with a view to the maximization of timely
and complete recovery of principal and interest, but without regard to: (i) any
relationship that the Master Servicer or the Special Servicer, as the case may
be, or any affiliate thereof may have with the related mortgagor; (ii) the
ownership of any Certificate by the Master Servicer or the Special Servicer, as
the case may be, or any affiliate thereof; (iii) the Master Servicer's or the
Special Servicer's, as the case may be, obligation to make advances, whether in
respect of delinquent payments of principal and/or interest or to cover certain
servicing expenses; and (iv) the Master Servicer's or the Special Servicer's, as
the case may be, right to receive compensation for its services under the
Pooling and Servicing Agreement or with respect to any particular transaction.
Except as otherwise described under "-Inspections; Collection of Operating
Information" below, the Master Servicer initially will be responsible for the
servicing and administration of the entire Mortgage Pool. With respect to any
Mortgage Loan (i) which has a Balloon Payment which is past due or any other
payment which is more than [60] days past due, (ii) as to which the borrower has
entered into or consented to bankruptcy, appointment of a receiver or
conservator or a similar insolvency proceeding, or the borrower has become the
subject of a decree or order for such a proceeding which shall have remained in
force undischarged or unstayed
S-35
<PAGE>
for a period of [60] days, (iii) as to which the Master Servicer shall have
received notice of the foreclosure or proposed foreclosure of any other lien on
the Mortgaged Property, or (iv) as to which, in the judgment of the Master
Servicer, a payment default has occurred or is imminent and is not likely to be
cured by the borrower within [60] days, and prior to acceleration of amounts due
under the related Mortgage Note or commencement of any foreclosure or similar
proceedings, the Master Servicer will transfer its servicing responsibilities to
the Special Servicer, but will continue to receive payments on such Mortgage
Loan (including amounts collected by the Special Servicer), to make certain
calculations with respect to such Mortgage Loan and to make remittances and
prepare certain reports to the Certificateholders with respect to such Mortgage
Loan. If the related Mortgaged Property is acquired in respect of any such
Mortgage Loan (upon acquisition, an "REO Property"), whether through
foreclosure, deed-in-lieu of foreclosure or otherwise, the Special Servicer will
continue to be responsible for the operation and management thereof. The
Mortgage Loans serviced by the Special Servicer are referred to herein as the
"Specially Serviced Mortgage Loans" and, together with any REO Properties,
constitute the "Specially Serviced Mortgage Assets". The Master Servicer shall
have no responsibility for the performance by the Special Servicer of its duties
under the Pooling and Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for at least [90] days, the Special Servicer
will return servicing of such Mortgage Loan to the Master Servicer.
Set forth below, following the subsections captioned "-The Master
Servicer" and "-The Special Servicer", is a description of certain pertinent
provisions of the Pooling and Servicing Agreement relating to the servicing of
the Mortgage Loans. Reference is also made to the Prospectus, in particular to
the section captioned "Description of the Pooling Agreements", for important
information in addition to that set forth herein regarding the terms and
conditions of the Pooling and Servicing Agreement as they relate to the rights
and obligations of the Master Servicer and the Special Servicer thereunder.
The Master Servicer
[______, a ________, will act as Master Servicer with respect to the
Mortgage Pool. Founded in ___ as a ___, the Master Servicer today furnishes a
variety of wholesale banking services. As of December 31, 19__, the Master
Servicer had a net worth of approximately $____, and ____ a total mortgage loan
servicing portfolio of approximately $____, of which approximately $____
represented multifamily mortgage loans.
The offices of the Master Servicer that will be primarily responsible for
its servicing and administrative duties with respect to the Mortgage Pool are
located at _____________.]
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer, and neither the Sponsor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
The Special Servicer
[_________, a _________, will be responsible for the servicing and
administration of the Specially Serviced Mortgage Assets. As of December 31,
19___, the Special Servicer had a total mortgage loan servicing portfolio of
approximately $___, of which approximately $___ represented multifamily mortgage
loans.
S-36
<PAGE>
The Special Servicer has ___ offices___ states with a total staff of ____
employees. Its principal executive offices are located at _______.]
The information set forth herein concerning the Special Servicer has been
provided by the Special Servicer, and neither the Sponsor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan- by-loan basis from amounts
received in respect of interest on each Mortgage Loan, will accrue in accordance
with the terms of the related Mortgage Note at a rate equal to ____% per annum,
in the case of Mortgage Loans other than Specially Serviced Mortgage Loans, and
____% per annum, in the case of Specially Serviced Mortgage Loans, and will be
computed on the basis of the same principal amount and for the same period
respecting which any related interest payment on the related Mortgage Loan is
computed. As additional servicing compensation, the Master Servicer will be
entitled to retain all assumption and modification fees received on Mortgage
Loans serviced thereby and, as and to the extent described below, Prepayment
Premiums and Prepayment Interest Excesses collected on any of the Mortgage
Loans. In addition, the Master Servicer is authorized but not required to invest
or direct the investment of funds held in the Certificate Account in certain
[short-term] United States government securities and other obligations
acceptable to the Rating Agenc[ies] ("Permitted Investments"), and the Master
Servicer will be entitled to retain any interest or other income earned on such
funds.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will consist of the Special Servicing Fee
(together with the Master Servicing Fee, the "Servicing Fees") and the Workout
Fee. Like the Master Servicing Fee, the "Special Servicing Fee" will be payable
monthly on a loan-by-loan basis from amounts received in respect of interest on
each Mortgage Loan, will accrue in accordance with the terms of the related
Mortgage Note at a rate equal to ___% per annum, in the case of Mortgage Loans
other than Specially Serviced Mortgage Loans, and ___% per annum, in the case of
Specially Serviced Mortgage Loans, and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on the related Mortgage Loan is computed. The "Workout Fee" will equal a
specified percentage (varying from ___% to ___% (the "Workout Fee Rate")
depending on the related unpaid principal balance) of, and will be payable from,
all collections and proceeds received in respect of principal of each Mortgage
Loan which is or has been a Specially Serviced Mortgage Loan (including those
for which servicing has been returned to the Master Servicer); provided that, in
the case of Liquidation Proceeds, the otherwise fixed Workout Fee Rate will be
proportionately reduced to reflect the extent to which, if at all, the principal
portion of such Liquidation Proceeds is less than the unpaid principal balance
of the related Mortgage Loan immediately prior to the receipt thereof. As
additional servicing compensation, the Special Servicer will be entitled to
retain all assumption and modification fees received on Mortgage Loans serviced
thereby and, as and to the extent described below, Penalty Charges collected on
any of the Mortgage Loans.
Although the Master Servicer and Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the general
servicing standard described under "-General" above and, accordingly, without
regard to its right to receive compensation under the Pooling and Servicing
Agreement, additional servicing compensation in the nature of assumption and
modification fees, Prepayment Premiums, Prepayment Interest Excesses and Penalty
Charges may under certain circumstances provide the Master Servicer or the
Special Servicer, as the case may be, with an economic disincentive to comply
with such standard.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period on a date that is prior to its Due Date in such Due
Period, the amount of interest (net of related Servicing Fees) that accrues
S-37
<PAGE>
on the amount of such principal prepayment will be less (such shortfall, a
"Prepayment Interest Shortfall") than the corresponding amount of interest
accruing on the Certificates. If such a principal prepayment occurs during any
Due Period after the Due Date for such Mortgage Loan in such Due Period, the
amount of interest (net of related Servicing Fees) that accrues on the amount of
such principal prepayment will exceed (such excess, a "Prepayment Interest
Excess") the corresponding amount of interest accruing on the Certificates. As
to any Due Period, to the extent Prepayment Interest Excesses and Prepayment
Premiums collected for all Mortgage Loans are greater than Prepayment Interest
Shortfalls incurred, such excess will be paid to the Master Servicer as
additional servicing compensation. To the extent Prepayment Interest Shortfalls
incurred during any Due Period are greater than Prepayment Interest Excesses and
Prepayment Premiums collected in such Due Period, the Master Servicer will be
required to deposit into the Certificate Account (such deposit, a "Compensating
Interest Payment"), without any right of reimbursement therefor, an amount equal
to the lesser of (i) its servicing compensation for such Due Period, and (ii) an
amount sufficient to eliminate such net shortfall. Compensating Interest
Payments will not cover shortfalls in Mortgage Loan interest accruals that
result from any liquidation of a defaulted Mortgage Loan, or of any REO Property
acquired in respect thereof, that occurs during a Due Period prior to the
related Due Date therein.]
[As and to the extent described herein under "Description of the
Certificates-P&I Advances", the Master Servicer will be entitled to receive
interest on P&I Advances, and the Master Servicer and the Special Servicer will
be entitled to receive interest on reimbursable servicing expenses, any such
interest to be paid, contemporaneously with the reimbursement of the related P&I
Advance or servicing expense, in the first instance out of late charges and
penalty interest ("Penalty Charges") received on the Mortgage Pool as a whole
during the Due Period of reimbursement, and thereafter out of any other
collections on the Mortgage Loans. As to any Due Period, to the extent that
Penalty Charges collected for all Mortgage Loans are greater than the amount of
interest paid to the Master Servicer in respect of P&I Advances and to the
Master Servicer and Special Servicer in respect of reimbursable servicing
expenses, such excess will be paid to the Special Servicer as additional
servicing compensation.]
The Master Servicer and the Special Servicer generally will each be
required to pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement, including the fees of any
sub-servicers retained by it, and will not be entitled to reimbursement therefor
except as expressly provided in the Pooling and Servicing Agreement. However,
the Master Servicer and the Special Servicer will each be permitted to pay, or
to direct the payment of, certain such expenses directly out of the Certificate
Account and at times without regard to the relationship between the expense and
the funds from which it is being paid. See "Description of the Pooling
Agreements-Certificate Account" and "Servicing Compensation and Payment of
Expenses" in the Prospectus.
Modifications, Waivers and Amendments
The Master Servicer or the Special Servicer may agree to modify, waive or
amend any term of any Mortgage Loan being serviced thereby in a manner
consistent with the servicing standard described herein, provided that such
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Mortgage Loan or (ii) in
its judgment, materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon. The Special Servicer also
may agree to any other modification, waiver or amendment of the terms of a
Specially Serviced Mortgage Loan, but only if, in its judgment, a material
default on the Mortgage Loan has occurred or a payment default is imminent, and
such modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than would
liquidation.
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To the extent consistent with the foregoing, the Special Servicer will be
permitted: (1) to reduce scheduled monthly payments of principal and interest on
any Specially Serviced Mortgage Loan, provided that [(a) no such payment may be
reduced to an amount less than [1/12 of 5%] of the unpaid principal balance of
such Mortgage Loan and (b) no single modification or amendment may provide for a
reduction of more than [12] consecutive monthly payments]; and (2) to extend the
date on which any Balloon Payment is scheduled to be due on a Specially Serviced
Mortgage Loan for a period of not more than [36] months, but only if:
[(x) the related mortgagor is required to continue to make monthly
payments of principal and/or interest thereon in an amount at least equal to the
greater of (i) the amount of the Monthly Payment due on the Due Date immediately
preceding the scheduled maturity date and (ii) an amount equal to thirty days'
interest at the related Mortgage Rate;
(y) no Monthly Payment due during the preceding 12 months has been more
than 30 days delinquent (without regard to any grace period provided for in the
related Mortgage Note); and
(z) the Special Servicer has previously determined in its good faith
judgment that:
(i) such extension is reasonably likely to produce a greater
recovery than liquidation of the related Mortgage Loan;
(ii) on the basis of an inspection report, no deferred maintenance,
material damage or waste exists at the related Mortgaged
Property; and
(iii) on the basis of a review of the most recent annual operating
statement for the related Mortgaged Property, and calculated
with respect to the amount described in clause (x) above, the
debt service coverage ratio for the Mortgage Loan is not less
than ___x.]
The Master Servicer and the Special Servicer are each required to. notify
the Trustee of any modification, waiver or amendment of any term of any Mortgage
Loan to which it has agreed, and must deliver to the Trustee or the related
Custodian for deposit in the related Mortgage File (with a copy to the other
such party), an original counterpart of the agreement related to such
modification, waiver or amendment, promptly (and in any event within [10]
business days) following the execution thereof. Copies of each agreement whereby
any such modification, waiver or amendment of any term of any Mortgage Loan is
effected are to be available for review during normal business hours at the
offices of the Trustee. See "Description of the Certificates-Reports to
Certificateholders; Available Information" herein.
Inspections; Collection of Operating Information
The Special Servicer is required to perform a physical inspection of each
Mortgaged Property at such times and in such manner as are consistent with the
servicing standard set forth herein, but in any event (i) at least once per
calendar year and (ii), if any scheduled payment becomes more than 60 days
delinquent on the related Mortgage Loan, as soon as practicable thereafter. The
Special Servicer will be required to prepare a written report of each such
inspection describing the condition of the Mortgaged Property and specifying the
existence of any material vacancies in the Mortgaged Property, of any sale,
transfer or abandonment of the Mortgaged Property, of any material change in the
condition or value of the Mortgaged Property, or of any waste committed thereon.
With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Special Servicer is also required to collect and review the
annual operating statements of the related Mortgaged Property. Most of the
Mortgages obligate the related borrower to deliver annual property operating
statements. However, there can be no assurance that any operating statements
required to be delivered will in fact be delivered, nor is
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the Special Servicer likely to have any practical means of compelling such
delivery in the case of an otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Certificateholders during normal
business hours at the offices of the Trustee. See "Description of the
Certificates-Reports to Certificateholders; Available Information" herein.
Additional Obligations of the Master Servicer with Respect to ARM Loans
The Master Servicer is responsible for calculating adjustments in the
Mortgage Rate and the Monthly Payment for each ARM Loan and for notifying the
related borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable, then the Master Servicer is required to
select a comparable alternative index over which it has no direct control, that
is readily verifiable and that is acceptable under the terms of the related
Mortgage Note. If the Mortgage Rate or the Monthly Payment with respect to any
ARM Loan is not properly adjusted by the Master Servicer pursuant to the terms
of such Mortgage Loan and applicable law, the Master Servicer is required to
deposit in the Certificate Account on or prior to the Due Date of the affected
Monthly Payment, an amount equal to the excess, if any, of (i) the amount that
would have been received from the borrower if the Mortgage Rate or Monthly
Payment had been properly adjusted, over (ii) the amount of such improperly
adjusted Monthly Payment, subject to reimbursement only out of such amounts as
are recovered from the borrower in respect of such excess.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off Date, among the Sponsor, the Master
Servicer, the Special Servicer, the Trustee and the REMIC Administrator (the
"Pooling and Servicing Agreement"), and will represent in the aggregate the
entire beneficial ownership interest in a Trust Fund consisting of: (i) the
Mortgage Loans and all payments under and proceeds of the Mortgage Loans
received after the Cut-off Date (exclusive of payments of principal and interest
due on or before the Cut-off Date); (ii) any Mortgaged Property acquired on
behalf of the Trust Fund through foreclosure, deed in lieu of foreclosure or
otherwise (upon acquisition, an "REO Property"); (iii) such funds or assets as
from time to time are deposited in the Certificate Account; (iv) the rights of
the mortgagee under all insurance policies with respect to the Mortgage Loans;
and (v) certain rights of the Sponsor under the Mortgage Loan Purchase Agreement
relating to Mortgage Loan document delivery requirements and the representations
and warranties of the Mortgage Loan Seller regarding the Mortgage Loans.
The Certificates will consist of four classes to be designated as the
Class A Certificates, the Class B Certificates, the Class C Certificates and the
Class R Certificates. The Class A Certificates will have an initial Certificate
Balance of $_____, which represents ____% of the Initial Pool Balance; the Class
B Certificates will have an initial Certificate Balance of $_____, which
represents ___% of the Initial Pool Balance; the Class C Certificates will have
an initial Certificate Balance of $ ____, which represents ___% of the Initial
Pool Balance; and the Class R Certificates will have an initial Certificate
Balance of [zero]. The Certificate Balance of any Class of Certificates
outstanding at any time represents the maximum amount which the holders thereof
are entitled to receive as distributions allocable to principal from the cash
flow on the Mortgage Loans and the other assets in the Trust Fund. On each
Distribution Date, the respective Certificate Balances of the Class A, Class B
and Class C Certificates (the "REMIC Regular Certificates") will in each case be
(a) increased by any amounts allocated to such Class of Certificates on such
Distribution Date in respect of negative amortization on the Mortgage Loans, and
(b) reduced by any amounts actually distributed on such Class of Certificates on
such Distribution Date that are allocable to principal. The Certificate Balance
of the Class R Certificates will at all times equal the
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amount, if any, by which the aggregate Stated Principal Balance of the Mortgage
Pool exceeds the aggregate Certificate Balance of the REMIC Regular Certificates
(the "Excess Pool Balance").
Only the Class A and Class B Certificates (the "Offered Certificates") are
offered hereby. The Class C and Class R Certificates (the "Private
Certificates") have not been registered under the Securities Act of 1933 and are
not offered hereby.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of $1,000 and in
integral multiples thereof. The Class B Certificates will be issuable in fully
registered, certificated form in denominations of $____ and integral multiples
of $1,000 in excess thereof, with one Class B Certificate evidencing an
additional amount equal to the remainder of the initial Certificate Balance of
such Class.
The Class A Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Sponsor
has been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Definitive Class A Certificate
representing its interest in such Class, except under the limited circumstances
described in the Prospectus under "Description of the Certificates-Book-Entry
Registration and Definitive Certificates". Unless and until Definitive Class A
Certificates are issued, all references to actions by holders of the Class A
Certificates will refer to actions taken by DTC upon instructions received from
Class A Certificate Owners through its Participants, and all references herein
to payments, notices, reports and statements to holders of the Class A
Certificates will refer to payments notices, reports and statements to DTC or
Cede & Co., as the registered holder of the Class A Certificates, for
distribution to Class A Certificate Owners through its Participants in
accordance with DTC procedures. See "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the Prospectus.
Until Definitive Class A Certificates are issued, interests in such Class
will be transferred on the book-entry records of DTC and its Participants. The
Class B Certificates may be transferred or exchanged, subject to certain
restrictions on the transfer of such Certificates to Plans (see "ERISA
Considerations" herein), at the offices of _____ located at _____, without the
payment of any service charges, other than any tax or other governmental charge
payable in connection therewith. _____ will initially serve as registrar (in
such capacity, the "Certificate Registrar") for purposes of recording and
otherwise providing for the registration of the Offered Certificates and of
transfers and exchanges of the Class B and, if issued, the Definitive Class A
Certificates.
Distributions
Method, Timing and Amount. Distributions on the Certificates will be made
by the Master Servicer, to the extent of available funds, on the 25th day of
each month or, if any such 25th day is not a business day, then on the next
succeeding business day, commencing in _____ 199__ (each, a "Distribution
Date"). All such distributions (other than the final distribution on any
Certificate) will be made to the persons in whose names the Certificates are
registered at the close of business on each Record Date, which will be the last
business day of the month preceding the month in which the related Distribution
Date occurs. Each such distribution will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
will have provided the Master Servicer with wiring instructions [no less than
five business days prior to the related Record Date (which wiring instructions
may be in the form of a standing order applicable to all subsequent
distributions) and is the registered owner of Certificates with an aggregate
initial principal amount of at least $5,000,000], or otherwise by check mailed
to such Certificateholder. The final distribution on any Certificate will be
made in like manner, but only upon presentation and surrender of such
Certificate at the location that will be specified in a notice of the pendency
of such final distribution. All distributions made with respect to a Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class based on their respective Percentage Interests. The "Percentage
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Interest" evidenced by any Offered Certificate is equal to the initial
denomination thereof as of the Delivery Date, divided by the initial Certificate
Balance of the Class to which it belongs.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage Loans and
any REO Properties that is on deposit in the Certificate Account as of the
related Determination Date, exclusive of:
(i) all Monthly Payments collected but due on a Due Date
subsequent to the related Due Period,
(ii) all principal prepayments (together with related
payments of the interest thereon and related Prepayment
Premiums), Liquidation Proceeds, Insurance Proceeds and
other unscheduled recoveries received subsequent to the
related Due Period, and
(iii) all amounts in the Certificate Account that are due or
reimbursable to any person other than the
Certificateholders;
(b) all P&I Advances made by the Master Servicer with respect to
such Distribution Date; and
(c) any Compensating Interest Payment made by the Master Servicer to
cover or reduce the amount, if any, by which Prepayment Interest
Shortfalls incurred during the related Due Period exceed Prepayment
Interest Excesses and Prepayment Premiums collected during the related Due
Period. See "Description of the Pooling Agreements-Certificate Account" in
the Prospectus.
The "Due Period" for each Distribution Date will be the period that begins
on the __ day of the month preceding the month in which such Distribution Date
occurs and ends on the __ day of the month in which such Distribution Date
occurs. The "Determination Date" for each Distribution Date is the __ day of the
month in which such Distribution Date occurs or, if any such ___ day is not a
business day, then the next preceding business day.
Priority. On each Distribution Date, for so long as the Class A and/or
Class B Certificates are outstanding, the Master Servicer will (except as
otherwise described under "-Termination" below) apply amounts on deposit in the
Certificate Account, to the extent of the Available Distribution Amount, in the
following order of priority:
(1) to distributions of interest to the holders of the Class A
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class A Certificates for such
Distribution Date and, to the extent not previously paid, for all
prior Distribution Dates;
(2) to distributions of principal to the holders of the Class A
Certificates in an amount equal to the sum of (a) the product of (i)
the Class A Certificates' Ownership Percentage (as calculated
immediately prior to such Distribution Date), multiplied by (ii) the
Scheduled Principal Distribution Amount for such Distribution Date,
plus (b) the entire Unscheduled Principal Distribution Amount for
such Distribution Date (but not more than would be necessary to
reduce the Certificate Balance of the Class A Certificates to zero);
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(3) to distributions of principal to the holders of the Class A
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class A Certificates immediately prior to
such Distribution Date;
(4) to distributions of interest to the holders of the Class B
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class B Certificates for such
Distribution Date and, to the extent not previously paid, for all
prior Distribution Dates;
(5) to distributions of principal to the holders of the Class B
Certificates in an amount equal to the sum of (a) the product of (i)
the Class B Certificates' Ownership Percentage (as calculated
immediately prior to such Distribution Date), multiplied by (ii) the
Scheduled Principal Distribution Amount for such Distribution Date,
plus (b) if the Class A Certificates have been retired, then to the
extent not distributed in retirement thereof on such Distribution
Date, the entire Unscheduled Principal Distribution Amount for such
Distribution Date (but not more than would be necessary to reduce
the Certificate Balance of the Class B Certificates to zero);
(6) to distributions of principal to the holders of the Class A
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class B Certificates immediately prior to
such Distribution Date (but not more than would be necessary to
reduce the Certificate Balance of the Class A Certificates to zero);
(7) to distributions of principal to the holders of the Class B
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class B Certificates immediately prior to
such Distribution Date, net of any distributions of principal made
on such Distribution Date in respect of the Class A Certificates as
described in the immediately preceding clause (6);
(8) to distributions of interest to the holders of the Class C
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class C Certificates for such
Distribution Date and, to the extent not previously distributed, for
all prior Distribution Dates;
(9) to distributions of principal to the holders of the Class C
Certificates in an amount equal to the product of (a) the Class C
Certificates' Ownership Percentage (as calculated immediately prior
to such Distribution Date), multiplied by (b) the Scheduled
Principal Distribution Amount for such Distribution Date;
(10) to distributions of principal to the holders of the respective
Classes of REMIC Regular Certificates, in reverse alphabetical order
of their Class designations (i.e., C, B, A), in an aggregate amount
equal to the product of (a) the Class R Certificates' Ownership
Percentage (as calculated immediately prior to such Distribution
Date), multiplied by (b) the Scheduled Principal Distribution Amount
for such Distribution Date (but, in each case, not more than would
be necessary to reduce the related Certificate Balance to zero);
(11) to distributions of principal to the holders of the respective
Classes of REMIC Regular Certificates, in alphabetical order of
their Class designations (i.e., A, B, C), in an aggregate amount
equal to any Uncovered Portion of the Certificate Balance of the
Class C Certificates immediately prior to such Distribution Date
(but, in each case, not more than would be necessary to reduce the
related Certificate Balance to zero);
(12) to distributions of principal to the holders of the respective
Classes of REMIC Regular Certificates, in reverse alphabetical order
of their Class designations (i.e., C, B, A,), in
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an aggregate amount equal to __% of the balance, if any, of the
Available Distribution Amount remaining after the distributions to
be made as described in clauses (1) through (11) above (such
remaining balance, if any, herein referred to as "Excess Funds")
(but, in each case, not more than would be necessary to reduce the
related Certificate Balance to zero); and
(13) to distributions to the holders of the Class R Certificates in an
amount equal to the remaining balance of any Excess Funds.
Pass-Through Rates. The Pass-Through Rates applicable to the Class A and
Class B Certificates for the initial Distribution Date will equal __ % and __%
per annum, respectively. With respect to any Distribution Date subsequent to the
initial Distribution Date, the Pass-Through Rate for the Class A Certificates
will equal LIBOR for such Distribution Date, plus __ basis points (i.e., ___
percentage points), subject to a maximum of __% per annum and a minimum of __%
per annum; unless, however, the rate so calculated exceeds the Funds-Available
Cap Rate in respect of the Class A Certificates for such Distribution Date, in
which case the Pass-Through Rate for the Class A Certificates will equal the
Weighted Average Effective Net Mortgage Rate for such Distribution Date. With
respect to any Distribution Date subsequent to the initial Distribution Date,
the Pass-Through Rate for the Class B Certificates will equal the Weighted
Average Effective Net Mortgage Rate for such Distribution Date.
[The Pass-Through Rate applicable to the Class C Certificates for any
Distribution Date will equal the Weighted Average Effective Net Mortgage Rate
for such Distribution Date. The Class R Certificates will have no specified
Pass-Through Rate.]
"LIBOR" for each Distribution Date will be the average of the interbank
offered rates for one month United States dollar deposits in the London market
as determined during the preceding month in accordance with the method described
below. The "Weighted Average Effective Net Mortgage Rate" for each Distribution
Date is the weighted average of the applicable Effective Net Mortgage Rates for
the Mortgage Loans, weighted on the basis of their respective Stated Principal
Balances immediately prior to such Distribution Date. For purposes of
calculating the Weighted Average Effective Net Mortgage Rate for any
Distribution Date, the "applicable Effective Net Mortgage Rate" for each
Mortgage Loan is: (a) if such Mortgage Loan accrues interest on the basis of a
360-day year consisting of twelve 30-day months (a "360/360 basis", which is the
basis of accrual for interest on the REMIC Regular Certificates), the Net
Mortgage Rate in effect for such Mortgage Loan as of the commencement of the
related Due Period; and (b) if such Mortgage Loan does not accrue interest on a
360/360 basis, the annualized rate at which interest would have to accrue during
the one month period preceding the Due Date for such Mortgage Loan during the
related Due Period on a 360/360 basis in order to produce the aggregate amount
of interest (adjusted to the actual Net Mortgage Rate) accrued during such
period. The "Net Mortgage Rate" for each Mortgage Loan is equal to the related
Mortgage Rate in effect from time to time less ___ basis points.
The "Funds-Available Cap Rate" applicable to the determination of the
Pass-Through Rate on the Class A Certificates for each Distribution Date will be
an annualized rate equal to the product of (a) the Weighted Average Effective
Net Mortgage Rate for such Distribution Date, multiplied by (b) a fraction,
expressed in decimal form, the numerator of which is the sum of (i) the
Certificate Balance of the Class A Certificates immediately prior to such
Distribution Date and (ii) the Excess Pool Balance immediately prior to such
Distribution Date, and the denominator of which is the Certificate Balance of
the Class A Certificates immediately prior to such Distribution Date.
Accordingly, if the Excess Pool Balance is zero (i. e., the aggregate Stated
Principal Balance of the Mortgage Pool is less than or equal to the aggregate
Certificate Balance of the REMIC Regular Certificates), the Funds-Available Cap
Rate applicable to the determination of the Pass-Through Rate for the Class A
Certificates for any Distribution Date will be the Weighted Average Effective
Net Mortgage Rate for such Distribution Date.
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Determination of LIBOR. LIBOR for the initial Distribution Date will equal
___% per annum. LIBOR for each subsequent Distribution Date will be determined
as described below on' the second LIBOR business day preceding the Distribution
Date in the prior month (each, a "LIBOR Adjustment Date"). A "LIBOR business
day" is any day on which banking institutions in London, New York City and ___,
are open for dealing in foreign currency and exchange.
On each LIBOR Adjustment Date, the Master Servicer will determine LIBOR on
the basis of the LIBOR quotations of the Reference Banks (as defined below), as
such quotations are available to the Master Servicer as of 11:00 a.m. (London
time) on such LIBOR Adjustment Date. As used herein with respect to a LIBOR
Adjustment Date, "Reference Banks" means four leading banks engaged in
transactions in one-month Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) whose
quotations appear on the Reuters Screen LIBO Page on the LIBOR Adjustment Date
in question and (iii) which have been designated as such by the Master Servicer
and are able and willing to provide such quotations to the Master Servicer on
each LIBOR Adjustment Date, and "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rate quotations of major banks). The initial
Reference Banks will be ______, ____, ____ and ___. If any Reference Bank
designated by the Master Servicer should be removed from the Reuters Screen LIBO
Page or in any other way fails to meet the qualifications of a Reference Bank,
the Master Servicer will be required to designate an alternative Reference Bank.
On each LIBOR Adjustment Date, LIBOR will be established by the Master
Servicer as follows:
(i) if on any LIBOR Adjustment Date two or more of the Reference
Banks provide such offered rate quotations, LIBOR will be the
arithmetic mean of such offered rate quotations (rounding such
arithmetic mean upwards if necessary to the nearest whole
multiple of 1/16%);
(ii) if on any LIBOR Adjustment Date only one of the Reference
Banks provides such offered rate quotations, LIBOR will be
whichever is the higher of (A) LIBOR as determined on the
previous LIBOR Adjustment Date and (B) a rate per annum (the
"Reserve Interest Rate") determined by the Master Servicer to
be either (1) the arithmetic mean (rounding such arithmetic
mean upwards if necessary to the nearest whole multiple of
1/16 % ) of the one-month Eurodollar lending rates that the
New York City banks selected by the Master Servicer are
quoting, on the relevant LIBOR Adjustment Date, to the
principal London offices of leading banks in the London
interbank market or (2) if the Master Servicer can determine
no such arithmetic mean, the lowest one-month Eurodollar
lending rate that the New York City banks selected by the
Master Servicer are quoting on such LIBOR Adjustment Date to
leading European banks; and
(iii) if on any LIBOR Adjustment Date the Master Servicer is
required but is unable to determine the Reserve Interest Rate
in the manner provided in the immediately preceding clause
(ii), LIBOR will be LIBOR as determined on the previous LIBOR
Adjustment Date, or, in the case of the first LIBOR Adjustment
Date, __% per annum.
The establishment of LIBOR by the Master Servicer on any LIBOR Adjustment
Date, in the absence of manifest error, will be final and binding.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date represents that portion of the Accrued Certificate Interest
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in respect of such Class of Certificates for such Distribution Date that is net
of such Class's allocable share (calculated as described below) of (i) the
aggregate of any Prepayment Interest Shortfalls resulting from voluntary
principal prepayments made on the Mortgage Loans during the related Due Period
that are not offset by Prepayment Interest Excesses and Prepayment Premiums
collected during the related Due Period or covered by the Master Servicer's
Compensating Interest Payment for such Distribution Date (the aggregate of such
Prepayment Interest Shortfalls that are not so offset or covered, as to such
Distribution Date, the "Net Aggregate Prepayment Interest Shortfall"), and (ii)
the aggregate of any negative amortization in respect of the Mortgage Loans for
their respective Due Dates during the related Due Period (the aggregate of such
negative amortization, as to such Distribution Date, the "Aggregate Mortgage
Loan Negative Amortization").
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to 30 days' interest at
the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date accrued on the related Certificate Balance outstanding
immediately prior to such Distribution Date.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of REMIC Regular Certificates
will equal the product of (a) such Net Aggregate Prepayment Interest Shortfall,
multiplied by (b) a fraction, the numerator of which is equal to 30 days'
interest at the Pass-Through Rate applicable to such Class of REMIC Regular
Certificates for such Distribution Date accrued on the related Certificate
Balance (net of any Uncovered Portion thereof) outstanding immediately prior to
such Distribution Date, and the denominator of which is equal to 30 days'
interest at the Weighted Average Effective Net Mortgage Rate for such
Distribution Date accrued on the aggregate Stated Principal Balance of the
Mortgage Pool outstanding immediately prior to such Distribution Date. Any
portion of the Net Aggregate Prepayment Interest Shortfall for any Distribution
Date that is not otherwise allocated to the REMIC Regular Certificates will be
deemed to be allocated to the Class R Certificates.
The Aggregate Mortgage Loan Negative Amortization, if any, for each
Distribution Date will be allocated among the respective Classes of Certificates
in a manner identical to that described in the preceding paragraph for the
allocation of any Net Aggregate Prepayment Interest Shortfall. That portion of
the Aggregate Mortgage Loan Negative Amortization for any Distribution Date that
is allocable to a Class of REMIC Regular Certificates will be added to the
Certificate Balance of such Class of REMIC Regular Certificates and,
accordingly, will constitute the "Certificate Negative Amortization" in respect
thereof for such Distribution Date.
Scheduled Principal Distribution Amount and Unscheduled Principal
Distribution Amount. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments (including Balloon Payments)[, net of any related Workout Fees
payable therefrom to the Special Servicer,] due during or, if and to the extent
not previously received or advanced and distributed to Certificateholders on a
preceding Distribution Date, prior to the related Due Period, in each case to
the extent paid by the related borrower or advanced by the Master Servicer and
included in the Available Distribution Amount for such Distribution Date. The
Scheduled Principal Distribution Amount from time to time will include all late
payments of principal made by a borrower, including late payments in respect of
a delinquent Balloon Payment, regardless of the timing of such late payments,
except to the extent such late payments are otherwise reimbursable to the Master
Servicer for prior P&I Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate off: (a) all voluntary prepayments of principal
received on the Mortgage Loans during the related Due Period [, net of any
related Workout Fees payable therefrom to the Special Servicer]; and (b) any
other collections (exclusive of payments by borrowers) received on the Mortgage
Loans and any REO Properties during the related Due Period, whether in the form
of Liquidation Proceeds, Insurance Proceeds, net income from REO Property or
otherwise, that were identified and applied by the Master Servicer as recoveries
of previously unadvanced
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principal of the related Mortgage Loan[, net of any related Workout Fees payable
therefrom to the Special Servicer].
The respective amounts which constitute the Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount for any
Distribution Date are herein collectively referred to from time to time as the
"Distributable Principal Collections and Advances".
The "Ownership Percentage" evidenced by any Class of Certificates as of
any date of determination will equal a fraction, expressed as a percentage, the
numerator of which is the then Certificate Balance of such Class of
Certificates, net (in the case of a Class of REMIC Regular Certificates) of any
Uncovered Portion of such Certificate Balance, and the denominator of which is
the then aggregate Stated Principal Balance of the Mortgage Pool.
Certain Calculations with Respect to Individual Mortgage Loans. The
"Stated Principal Balance" of each Mortgage Loan outstanding at any time
represents the principal balance of such Mortgage Loan ultimately due and
payable to the Certificateholders, subject to the Special Servicer's right to
receive any Workout Fee with respect to such Mortgage Loan. The Stated Principal
Balance of each Mortgage Loan will initially equal the Cut-off Date Balance
thereof and, on each Distribution Date, will be increased by any negative
amortization experienced by such Mortgage Loan that is allocated to the
Certificates on such date, and reduced by any payments or other collections (or
advances in lieu thereof) of principal of such Mortgage Loan that are
distributed on the Certificates on such date (or that would have been so
distributed if they had not otherwise been paid to the Special Servicer in
respect of any related Workout Fees). The Stated Principal Balance of a Mortgage
Loan may also be reduced in connection with any forced reduction of the actual
unpaid principal balance thereof imposed by a court presiding over a bankruptcy
proceeding wherein the related borrower is the debtor. See "Certain Legal
Aspects of Mortgage Loans-Foreclosure-Bankruptcy Laws" in the Prospectus.
For purposes of calculating distributions on the Certificates, as well as
the amount of Servicing Fees and Workout Fees payable each month, each REO
Property will be treated as if there exists with respect thereto an outstanding
mortgage loan (an "REO Loan"), and all references to "Mortgage Loan", "Mortgage
Loans" and "Mortgage Pool" herein and in the Prospectus, when used in such
context, will be deemed to also be references to or to also include, as the case
may be, any "REO Loans". Each REO Loan will generally be deemed to have the same
characteristics as its actual predecessor Mortgage Loan, including the same
adjustable or fixed Mortgage Rate (and, accordingly, the same Net Mortgage Rate
and Effective Net Mortgage Rate) and the same unpaid principal balance and
Stated Principal Balance. Amounts due on such predecessor Mortgage Loan,
including any portion thereof payable or reimbursable to the Master Servicer or
the Special Servicer, will continue to be "due" in respect of the REO Loan; and
amounts received in respect of the related REO Property, net of payments to be
made, or reimbursement to the Special Servicer for payments previously advanced,
in connection with the operation and management of such property, generally will
be applied by the Master Servicer as if received on the predecessor Mortgage
Loan. However, notwithstanding the terms of the predecessor Mortgage Loan, the
Monthly Payment "due" on an REO Loan will in all cases, for so long as the
related Mortgaged Property is part of the Trust Fund, equal one month's interest
thereon at the applicable Mortgage Rate.
Subordination
The rights of holders of the Class B Certificates and each Class of the
Private Certificates (collectively, the "Subordinate Certificates") to receive
distributions of amounts collected or advanced on the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Class A Certificates and each other Class of Subordinate Certificates with an
earlier alphabetical Class designation. This subordination is intended to
enhance the likelihood of timely receipt by the holders of the Class A
Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
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ultimate receipt by such holders of principal in an amount equal to the entire
Certificate Balance of the Class A Certificates. Similarly, but to a lesser
degree, this subordination is also intended to enhance the likelihood of timely
receipt by the holders of the Class B Certificates of the full amount of all
Distributable Certificate Interest payable in respect of such Certificates on
each Distribution Date, and the ultimate receipt by such holders of principal in
an amount equal to the entire Certificate Balance of the Class B Certificates.
The protection afforded to the holders of each Class of Offered Certificates by
means of the subordination of each other Class of Certificates with a later
alphabetical Class designation, will be accomplished by the application of the
Available Distribution Amount on each Distribution Date in accordance with the
order of priority described under "-Distributions-Priority" above. No other form
of Credit Support will be available for the benefit of the holders of the
Offered Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Unscheduled Principal Distribution Amount for each
Distribution Date will generally accelerate the amortization of the Class A
Certificates relative to the actual amortization of the Mortgage Loans. To the
extent that the Class A Certificates are amortized faster than the Mortgage
Loans, the percentage interest evidenced by the Class A Certificates in the
Trust Fund will be decreased (with a corresponding increase in the interest in
the Trust Fund evidenced by the Subordinate Certificates), thereby increasing,
relative to their respective Certificate Balances, the subordination afforded
the Class A Certificates by the Subordinate Certificates. Following retirement
of the Class A Certificates, allocation to the Class B Certificates, for so long
as they are outstanding, of the entire Unscheduled Principal Distribution Amount
for each Distribution Date will provide a similar benefit to such Class of
Certificates as regards the relative amount of subordination afforded thereto by
the Private Certificates.
Losses and other shortfalls experienced with respect to the Mortgage Loans
will not, with the exception of any Net Aggregate Prepayment Interest
Shortfalls, be applied to reduce either the Certificate Balance or the absolute
entitlement to interest of any Class of REMIC Regular Certificates, even though
such losses and shortfalls may cause one or more of such Classes to receive less
than the full amount of principal and interest to which it is entitled. As a
result, the aggregate Stated Principal Balance of the Mortgage Pool at any time
may be less than the aggregate Certificate Balance of the REMIC Regular
Certificates. Such deficit will be allocated to the respective Classes of REMIC
Regular Certificates (in each case to the extent of its Certificate Balance) in
reverse alphabetical order of their Class designations (i.e., C, B, A). Such
allocation will not reduce the Certificate Balance of any such Class and is
intended solely to identify the portion (the "Uncovered Portion") of the
Certificate Balance of each such Class for which there is at such time no
corresponding principal amount of Mortgage Loans.
P&I Advances
[On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, a "P&I Advance") out of
its own funds or, subject to the replacement thereof as provided in the Pooling
and Servicing Agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of: (i) all Monthly Payments (net of
related Servicing Fees and any related Workout Fees), other than Balloon
Payments, which were due on the Mortgage Loans during the related Due Period and
delinquent as of the related Determination Date; (ii) in the case of each
Mortgage Loan delinquent in respect of its Balloon Payment as of the related
Determination Date, an amount equal to 30 days' interest thereon at the related
Mortgage Rate in effect as of the commencement of the related Due Period (net of
related Servicing Fees), but only to the extent that the related mortgagor has
not made a payment sufficient to cover such amount under any forbearance
arrangement or otherwise that has been included in the Available Distribution
Amount for such Distribution Date; and (iii) in the case of each REO Property,
an amount equal to thirty days' imputed interest with respect thereto at the
related Mortgage Rate in effect as of the commencement of the related Due Period
(net of related Servicing Fees), but only to the extent
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that such amount is not covered by any net income from such REO Property
included in the Available Distribution Amount for such Distribution Date. The
Master Servicer's obligations to make P&I Advances in respect of any Mortgage
Loan or REO Property will continue through liquidation of such Mortgage Loan or
disposition of such REO Property, as the case may be.
The Master Servicer will be entitled to recover any P&I Advance made out
of its own funds from any amounts collected in respect of the Mortgage Loan as
to which such P&I Advance was made, whether in the form of late payments,
Insurance Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer will not be obligated to make
any P&I Advance that it determines in its reasonable good faith judgment would,
if made, not be recoverable out of Related Proceeds (a "Nonrecoverable P&I
Advance"), and the Master Servicer will be entitled to recover any P&I Advance
that it so determines to be a Nonrecoverable P&I Advance out of general funds on
deposit in the Certificate Account. See "Description of the
Certificates-Advances in Respect of Delinquencies" and "Description of the
Pooling Agreements-Certificate Account" in the Prospectus.
In connection with its recovery of any P&I Advance made by it (in the case
of the Master Servicer only) or any reimbursable servicing expense incurred by
it (each, an "Advance"), each of the Master Servicer and the Special Servicer
will be entitled to retain, out of any amounts then on deposit in the
Certificate Account, interest at a per annum rate equal to ___ (the
"Reimbursement Rate"), accrued on the amount of such Advance from the date made
to but not including the date of reimbursement. The Special Servicer is entitled
to receive as additional servicing compensation the aggregate amount of Penalty
Charges received during each Due Period, but only to the extent that such
Penalty Charges exceed the aggregate amount of interest paid to the Master
Servicer and/or the Special Servicer during such Due Period in respect of
unreimbursed Advances. Accordingly, Penalty Charges are deemed to be the first
source of funds for paying the Master Servicer and Special Servicer interest on
Advances. However, if the aggregate amount of interest paid to the Master
Servicer and/or the Special Servicer in respect of unreimbursed Advances during
any Due Period exceeds the aggregate amount of Penalty Charges collected during
such Due Period, such excess will likely be paid out of amounts received on the
Mortgage Loans representing previously unadvanced interest (net of related
Servicing Fees) and principal (net of any related Workout Fees). If such is the
case, shortfalls on the Certificates will result.
To the extent not offset or covered by Penalty Charges or amounts
otherwise payable on the Private Certificates, interest accrued on outstanding
Advances will result in a reduction in amounts payable on the Class B
Certificates; and to the extent not offset or covered by Penalty Charges or
amounts otherwise payable on the Class B and the Private Certificates, interest
accrued on outstanding Advances will result in a reduction in amounts payable on
the Class A Certificates. To the extent that any holder of an Offered
Certificate must bear the cost of the Master Servicer's and/or Special
Servicer's Advances, the benefits of such Advances to such holder will be
contingent on the ability of such holder to reinvest the amounts received as a
result of such Advances at a rate of return equal to or greater than the
Reimbursement Rate to the Master Servicer and Special Servicer.]
Reports to Certificateholders; Certain Available Information
On each Distribution Date, the Master Servicer will be required to forward
by mail to each holder of an Offered Certificate a statement (a "Distribution
Date Statement") providing various items of information relating to
distributions made on such date with respect to the relevant Class and the
recent status of the Mortgage Pool. For a more detailed discussion of the
particular items of information to be provided in each Distribution Date
Statement, as well as a discussion of certain annual information reports to be
furnished by the Master Servicer to persons who at any time during the prior
calendar year were holders of the Offered Certificates, see "Description of the
Certificates-Reports to Certificateholders" in the Prospectus.
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The Pooling and Servicing Agreement requires that the Trustee make
available at its Corporate Trust Office, during normal business hours, for
review by any holder of an Offered Certificate or any person identified to the
Trustee as a prospective transferee of an Offered Certificate, originals or
copies of, among other things, the following items: (a) the Pooling and
Servicing Agreement and any amendments thereto, (b) all Distribution Date
Statements delivered to holders of the relevant Class of Offered Certificates
since the Delivery Date, (c) all officer's certificates delivered to the Trustee
since the Delivery Date as described under "Description of the Pooling
Agreements-Evidence as to Compliance" in the Prospectus, (d) all accountants'
reports delivered to the Trustee since the Delivery Date as described under
"Description of the Pooling Agreements-Evidence as to Compliance" in the
Prospectus, (e) the most recent property inspection report prepared by or on
behalf of the Special Servicer in respect of each Mortgaged Property, (f) the
most recent Mortgaged Property annual operating statements, if any, collected by
or on behalf of the Special Servicer, and (g) any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into by the Master
Servicer or the Special Servicer. Copies of any and all of the foregoing items
will be available from the Trustee upon request; however, the Trustee will be
permitted to require payment of a sum sufficient to cover the reasonable costs
and expenses of providing such copies.
Until such time as Definitive Class A Certificates are issued, the
foregoing information will be available to Class A Certificate Owners only to
the extent it is forwarded by or otherwise available through DTC and its
Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Class A Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee, the Sponsor, the REMIC Administrator and the
Certificate Registrar are required to recognize as Certificateholders only those
persons in whose names the Certificates are registered on the books and records
of the Certificate Registrar. The initial registered holder of the Class A
Certificates will be Cede & Co. as nominee for DTC.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, the
Voting Rights for the series offered hereby shall be allocated among the
respective Classes of Certificateholders in proportion to the Certificate
Balances of their Certificates (net, in the case of a Class of REMIC Regular
Certificates, of any Uncovered Portion of the related Certificate Balance).
Voting Rights allocated to a Class of Certificateholders shall be allocated
among such Certificateholders in proportion to the Percentage Interests
evidenced by their respective Certificates. See "Description of the Certificates
- - Voting Rights" in the Prospectus.
Termination
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer. Written notice of termination of the Pooling and Servicing
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the Certificates at the
office of the Certificate Registrar or other location specified in such notice
of termination.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
excess of (a) the sum of (i) the aggregate Purchase Price of all the Mortgage
Loans then included in the Trust Fund and (ii) the fair market value of all REO
Properties then included in the Trust Fund, as determined by an appraiser
mutually agreed upon by the Master Servicer and the Trustee, over (b) the
aggregate of amounts payable or reimbursable to the Master Servicer under the
Pooling and Servicing Agreement. Such purchase will effect early retirement of
the then outstanding Offered Certificates, but the right
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of the Master Servicer to effect such termination is subject to the requirement
that the then aggregate Stated Principal Balance of the Mortgage Pool be less
than ___% of the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer for the Mortgage Loans and other assets in the Trust Fund (if the Trust
Fund is to be terminated as a result of the purchase described in the preceding
paragraph), together with all other amounts on deposit in the Certificate
Account and not otherwise payable to a person other than the Certificateholders
(see "Description of the Pooling Agreements-Certificate Account" in the
Prospectus), will be applied: first, to distributions of interest to the holders
of the Class A Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class A Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates; second, to
distributions of principal to the holders of the Class A Certificates in an
amount equal to the sum of the Certificate Balance of the Class A Certificates
outstanding immediately prior to such Distribution Date, plus any Certificate
Negative Amortization in respect of the Class A Certificates for such
Distribution Date; third, to distributions of interest to the holders of the
Class B Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class B Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates; fourth, to
distributions of principal to the holders of the Class B Certificates in an
amount equal to the sum of the Certificate Balance of the Class B Certificates
outstanding immediately prior to such Distribution Date, plus any Certificate
Negative Amortization in respect of the Class B Certificates for such
Distribution Date; and thereafter, to distributions to holders of the Private
Certificates.
The Trustee
______, a ______, will act as Trustee on behalf of the Certificateholders.
[The Master Servicer will be responsible for the fees and normal disbursements
of the Trustee.] The Corporate Trust Office of the Trustee is located at _____.
See "Description of the Pooling Agreements-the Trustee", "-Duties of the
Trustee", "-Certain Matters Regarding the Trustee" and "-Resignation and Removal
of the Trustee" in the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to the Class A
Certificates for any Distribution Date will equal LIBOR for such Distribution
Date, plus __ basis points, subject to a maximum of __% per annum and a minimum
of ___% per annum; unless, however, the rate so calculated exceeds the
Funds-Available Cap Rate applicable to the Class A Certificates for such
Distribution Date, in which case the Pass-Through Rate for the Class A
Certificates for such Distribution Date will equal the Weighted Average
Effective Net Mortgage Rate for such date. See "Description of the
Certificates-Distributions-Pass- Through Rates" herein. Accordingly, the yield
on the Class A Certificates, in general, will be highly sensitive to monthly
changes in LIBOR.
Listed below are some historical values of LIBOR since January 1986. LIBOR
values may fluctuate significantly over time and may not increase or decrease in
a constant pattern from period to period. The following does not purport to be
representative of future values of LIBOR, and no assurance can be given as to
the value of LIBOR on any LIBOR Adjustment Date.
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Month 1990 1991 1992 1993 1994 1995 1996 1997
- ------ ---- ---- ---- ---- ---- ---- ---- ----
January ... % % % % % % % %
February ..
March .....
April .....
May .......
June ......
July ......
August ....
September..
October....
November...
December...
Whether the Pass-Through Rate for the Class A Certificates for any
Distribution Date will equal the Weighted Average Effective Net Mortgage Rate
rather than the LIBOR-based rate described above will depend on whether and to
what extent LIBOR for that Distribution Date plus __ basis points (subject to
the maximum and minimum rates per annum described above) exceeds the then
Weighted Average Effective Net Mortgage Rate and, if so, whether and to what
extent there then exists an Excess Pool Balance.
Although ___ of the Mortgage Loans, which represent __% of the Initial
Pool Balance, are ARM Loans, future fluctuations in LIBOR will not necessarily
be accompanied by corresponding proportionate changes in the then Weighted
Average Effective Net Mortgage Rate because the Indices upon which adjustments
to the Mortgage Rates for the ARM Loans are based may not rise and fall in a
manner consistent with LIBOR. In particular, the COFI Index, which serves as the
Index for ARM Loans that represent __% of the Initial Pool Balance, is generally
referred to as a lagging index because it tends to rise and fall more slowly
than LIBOR, which is generally referred to as a market index. See "Description
of the Mortgage Pool- Certain Payment Characteristics" and "-The Eleventh
District Cost of Funds Index" herein. Furthermore, the Mortgage Rates on the ARM
Loans may not fully and promptly reflect changes in the corresponding Indices
due to the effect of periodic and lifetime floors and caps on changes to such
Mortgage Rates and the periodicity of Interest Rate Adjustment Dates for the ARM
Loans. [For example, although the initial Weighted Average Effective Net
Mortgage Rate exceeds by __ percentage points the initial Pass-Through Rate for
the Class A Certificates, most of the Mortgage Rates in effect for the ARM Loans
that provide for minimum lifetime Mortgage Rates are at their minimum permitted
lifetime levels. Consequently, an increase of __ percentage points in each of
the Indices applicable to the ARM Loans would result, even if the Mortgage Rates
thereon could be contemporaneously adjusted, in an increase of only ___
percentage points in the Weighted Average Effective Net Mortgage Rate. A
simultaneous increase of ___ percentage points in LIBOR would therefore narrow,
to __ percentage points, the gap between the Pass-Through Rate for the Class A
Certificates and the Weighted Average Effective Net Mortgage Rate. In addition,
changes in the Weighted Average Effective Net Mortgage Rate from time to time
will depend on changes in the relative composition of the Mortgage Pool as a
result of scheduled amortization, voluntary prepayments and involuntary
liquidations of the Mortgage Loans. See "Description of the Mortgage Pool"
herein and "-Yield Considerations-Rate and Timing of Principal Payments" below.
As described above, whether the Pass-Through Rate on the Class A
Certificates at any time is based on LIBOR or is equal to the then applicable
Weighted Average Effective Net Mortgage Rate may depend in part upon the
presence of Excess Pool Balance, that is, an excess of the aggregate Stated
Principal Balance of the Mortgage Pool over the aggregate Certificate Balance of
all of the Classes of REMIC Regular Certificates. If the sum of monthly LIBOR
for any Distribution Date plus ___ basis points exceeds the Weighted Average
Effective Net Mortgage Rate for such Distribution Date, then the Pass-Through
Rate for the Class A Certificates will equal (subject to a maximum rate of __%
per annum) the higher LIBOR-based rate rather than the lower Weighted Average
Effective Net Mortgage Rate only if the LIBOR-based rate does not exceed the
applicable Funds-Available Cap Rate. The Funds-Available Cap Rate applicable to
the calculation of the Pass-Through Rate in respect of the Class A Certificates
for any Distribution Date is an annualized rate equal to the product of the
Weighted Average Effective Net Mortgage Rate and a fraction, expressed as a
decimal, the numerator of which is the sum of the Certificate Balance of the
Class A Certificates and the Excess Pool Balance immediately prior to such
Distribution Date, and the denominator of which is the Certificate Balance of
the Class A Certificates immediately prior to such Distribution Date.
Accordingly, the Funds-Available Cap Rate rises with the expansion of the Excess
Pool Balance; and, for any Distribution Date, 30 days' interest at the Weighted
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Average Effective Net Mortgage Rate for such Distribution Date accrued on the
Excess Pool Balance, if any, immediately prior thereto represents the maximum
amount by which interest accrued on the Class A Certificates at a LIBOR-based
Pass-Through Rate can exceed interest accrued on such Certificates at the
Weighted Average Effective Net Mortgage Rate. See "Description of the
Certificates-Distributions -Pass-Through Rates" herein. The amount of Excess
Pool Balance outstanding from time to time will depend on the aggregate amount
of Excess Funds, and on the aggregate amount of the Class R Certificates'
allocable share (based on the Ownership Percentage evidenced thereby from time
to time) of Distributable Principal Collections and Advances, in each case
applied to amortize the Certificate Balances of the respective Classes of REMIC
Regular Certificates. As discussed under "Description of the
Certificates-Distributions-Priority" herein, __% of Excess Funds, and 100% of
the Class R Certificates' allocable share of Distributable Principal Collections
and Advances, will be so applied on each Distribution Date. Excess Funds for any
Distribution Date will generally equal the amount, if any, by which (a) the
portion of the Available Distribution Amount that represents interest on the
Mortgage Loans, exceeds (b) the sum of (i) the aggregate amount of Distributable
Certificate Interest to be paid in respect of the REMIC Regular Certificates on
such Distribution Date, and (ii) the aggregate Uncovered Portion of the
Certificate Balances of the REMIC Regular Certificates immediately prior to such
Distribution Date.
The Pass-Through Rate applicable to the Class B Certificates for any
Distribution Date will equal the Weighted Average Effective Net Mortgage Rate
for such date. Accordingly, the yield on the Class B Certificates will be
sensitive to (x) adjustments to the Mortgage Rates on the ARM Loans and (y)
changes in the relative composition of the Mortgage Pool as a result of
scheduled amortization, voluntary prepayments and involuntary liquidations of
the Mortgage Loans. See "Description of the Mortgage Pool" herein and "-Yield
Considerations-Rate and Timing of Principal Payments" below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on such Certificates. As and to the extent
described herein, the holders of each Class of Offered Certificates will be
entitled to receive on each Distribution Date their allocable share (calculated
on the basis of the Ownership Percentage evidenced by such Class of Certificates
immediately prior to such date) of the Scheduled Principal Distribution Amount
for such Distribution Date; however, the Unscheduled Principal Distribution
Amount for each Distribution Date will be distributable entirely in respect of
the Class A Certificates, until the Certificate Balance thereof is reduced to
zero, and will thereafter be distributable entirely in respect of the Class B
Certificates. In addition, as and to the extent described herein, distributions
of the Class R Certificates' allocable share of the Scheduled Principal
Distribution Amount for each Distribution Date will be applied in reduction of
the Certificate Balances of the respective Classes of REMIC Regular
Certificates, in reverse alphabetical order of their Class designations. See
"Description of the Certificates-Distributions- Priority" and
"-Distributions-Scheduled Principal Distribution Amount and Unscheduled
Principal Distribution Amount" herein. Consequently, the rate and timing of
principal payments on the Offered Certificates will be directly related to the
rate and timing of principal payments on or in respect of the Mortgage Loans
(including principal prepayments on the Mortgage Loans resulting from both
voluntary prepayments by the mortgagors and involuntary liquidations). The rate
and timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage
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Loans due to defaults, casualties or condemnations affecting the Mortgaged
Properties, or purchases of Mortgage Loans out of the Trust Fund). Prepayments
and, assuming the respective stated maturity dates therefor have not occurred,
liquidations and purchases of the Mortgage Loans, will result in distributions
on the Offered Certificates of amounts that would otherwise be distributed over
the remaining terms of the Mortgage Loans. Defaults on the Mortgage Loans,
particularly at or near their stated maturity dates, may result in significant
delays in payments of principal on the Mortgage Loans (and, accordingly, on the
Offered Certificates) while work-outs are negotiated or foreclosures are
completed. See "Servicing of the Mortgage Loans-Modifications, Waivers and
Amendments" herein and "Description of the Pooling Agreements- Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage
Loans-Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed on such
Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments 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
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. In general, the earlier a
payment of principal on the Mortgage Loans is distributed on an Offered
Certificate purchased at a discount or premium, the greater will be the effect
on an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments (to the extent distributable on such investor's
Offered Certificates) occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described more fully
below), no assurance can be given as to such rate or the rate of principal
prepayments in particular. The Sponsor is not aware of any relevant publicly
available or authoritative statistics with respect to the historical prepayment
experience of a large group of mortgage loans comparable to the Mortgage Loans.
The yield to maturity of Offered Certificates that are purchased at a
discount or premium will be similarly affected by payments of principal thereon
made with funds in excess of the Distributable Principal Collections and
Advances to which the holders of such Certificates may be then entitled. As
described herein under "Description of the Certificates-Distributions-Priority",
if there exists an Uncovered Portion of the Certificate Balance of any Class of
REMIC Regular Certificates outstanding immediately prior to a Distribution Date,
distributions will be made, to the extent of the lesser of available funds and
such Uncovered Portion, in reduction of the Certificate Balance(s) of such Class
of REMIC Regular Certificates and each other Class of REMIC Regular
Certificates, if any, with an earlier alphabetical Class designation, in
alphabetical order of such Class designations. Accordingly, losses incurred in
respect of the Mortgage Pool, to the extent creating an Uncovered Portion of the
Certificate Balance of [the Class C] Certificates, could speed amortization of
the Offered Certificates, to the extent described above, beyond any positive
effect on such amortization that would generally result from liquidations of
Mortgage Loans prior to their maturity.
In addition, ___% of the Excess Funds, if any, for each Distribution Date
will be applied in reduction of the Certificate Balances of the respective
Classes of REMIC Regular Certificates, in reverse alphabetical order of their
Class designations. See "Description of the Certificates-Distributions-Priority"
herein. The aggregate amount of Excess Funds on each Distribution Date will
largely be a function of (i) whether the Class A Certificates are outstanding as
of such Distribution Date and, if so, the extent to which the Pass-Through Rate
on the Class A Certificates for such Distribution Date is higher or lower than
the Weighted Average Effective Net Mortgage Rate for such date, and (ii) the
size of the Excess Pool Balance or, conversely, of the aggregate Uncovered
Portion of the Certificate Balances of the REMIC Regular Certificates
immediately prior to such Distribution Date. Because such variables are in turn
dependent on a variety of factors, including, among other
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things, monthly fluctuations in LIBOR, adjustments of the Mortgage Rates on the
ARM Loans, the relative composition of the Mortgage Pool from time to time, and
the rate and timing of principal payments and the severity of losses on the
Mortgage Loans, no assurance can be given as to the amount of Excess Funds that
will be available on any Distribution Date.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: first, by the holders of the
Private Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; second, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; and last, by the holders of the Class A Certificates. As
more fully described herein under "Description of the Certificates-
Distributions-Distributable Certificate Interest", Net Aggregate Prepayment
Interest Shortfalls will generally be borne by the respective Classes of
Certificateholders on a pro rata basis.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates, amortization terms that require balloon payments and provisions
that permit negative amortization), the demographics and relative economic
vitality of the areas in which the Mortgaged Properties are located and the
general supply and demand for rental units in such areas, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. See "Risk
Factors-The Mortgage Loans" and "Description of the Mortgage Pool" herein and
"Yield and Maturity Considerations-Principal Prepayments" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool-Certain
Payment Characteristics" and "-The Eleventh District Cost of Funds Index"
herein. As a result, the Mortgage Rates on the ARM Loans at any time may not be
comparable to prevailing market interest rates. In addition, as prevailing
market interest rates decline, and without regard to whether the Mortgage Rates
on the ARM Loans decline in a manner consistent therewith, related borrowers may
have an increased incentive to refinance for purposes of either (i) converting
to a fixed rate loan and thereby "locking in" such rate, or (ii) taking
advantage of an initial "teaser rate" (a mortgage interest rate below what it
would otherwise be if the applicable index and gross margin were applied) on
another adjustable rate mortgage loan. The Mortgage Loans may be prepaid at any
time and, in [most] cases (approximately __% of the Initial Pool Balance), may
be prepaid in whole or in part without payment of a Prepayment Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Sponsor makes no representation as to the particular factors that will
affect the rate and timing of prepayments and defaults on the Mortgage Loans, as
to the
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relative importance of such factors, as to the percentage of the principal
balance of the Mortgage Loans that will be prepaid or as to which a default will
have occurred as of any date or as to the overall rate of prepayment or default
on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least __
days and as many as __ days following the Due Dates for the Mortgage Loans
during the related Due Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass- Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates- Distributions-Priority" herein, if the portion of the
Available Distribution Amount distributable in respect of interest on either
Class of Offered Certificates on any Distribution Date is less than the
Distributable Certificate Interest then payable for such Class, the shortfall
will be distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of available funds. Any such shortfall will
not bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Certificates for so long as it is outstanding.
Weighted Average Life
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of such Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected or advanced and by the availability of any amounts other
than Distributable Principal Collections and Advances to amortize the
Certificate Balance of its Class. As and to the extent described herein, the
holders of each Class of Offered Certificates will be entitled to receive on
each Distribution Date their allocable share (calculated on the basis of the
Ownership Percentage evidenced by such Class of Certificates immediately prior
to such date) of the Scheduled Principal Distribution Amount for such
Distribution Date; however, the Unscheduled Principal Distribution Amount for
each Distribution Date will be distributable entirely in respect of the Class A
Certificates, until the Certificate Balance thereof is reduced to zero, and will
thereafter be distributable entirely in respect of the Class B Certificates. In
addition, as and to the extent described herein, distributions of the Class R
Certificates' allocable share of the Scheduled Principal Distribution Amount for
each Distribution Date, together with __% of all Excess Funds, if any, for such
Distribution Date, will be applied in reduction of the Certificate Balances of
the respective Classes of REMIC Regular Certificates, in reverse alphabetical
order of their Class designations; while any distributions in respect of an
Uncovered Portion of the Certificate Balance of any Class of REMIC Regular
Certificates will be applied, to the extent of such Uncovered Portion, in
reduction of the Certificate Balance(s) of such Class of REMIC Regular
Certificates and each other Class of REMIC Regular Certificates, if any, with an
earlier alphabetical Class designation, in alphabetical order of such Class
designations. See "Description of the Certificates-Distributions-Priority" and
"-Distributions-Scheduled Principal Distribution Amount and Unscheduled
Principal Distribution Amount" herein. As a consequence of the foregoing, the
weighted average life of the Class A Certificates will be shorter, and the
weighted average life of the Class B Certificates may be longer, than would
otherwise be the case if Distributable Principal Collections and Advances and
any other amounts being applied in reduction of the Certificate Balances of the
REMIC Regular Certificates were being distributed on a pro rata basis among the
respective Classes thereof.
__ Mortgage Loans, which represent __% of the Initial Pool Balance, permit
negative amortization. Although it is impossible to predict the degree of
Mortgage Loan negative amortization that will actually be experienced with
respect to the Mortgage Pool following the Cut-off Date, the allocation of
negative amortization to any Class of Offered Certificates (and the
corresponding increase in the Certificate Balance of such Class) will have the
effect of extending the weighted average life of such Certificates. As more
fully described herein under
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"Description of the Certificates-Distributions-Distributable Certificate
Interest", any negative amortization experienced by the Mortgage Loans during a
particular Due Period will be allocated among the respective Classes of
Certificates generally on a pro rata basis on the related Distribution Date.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the ["Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loan is prepaid before maturity. The columns headed "__ %", "__ %", "__ %" and
"__%" assume that prepayments on the Mortgage Loans are made at those CPRs.
There is no assurance, however, that prepayments of the Mortgage Loan will
conform to any level of CPR, and no representation is made that the Mortgage
Loans will prepay at the CPRs shown or at any other prepayment rate.]
The following tables indicate the percentage of the initial Certificate
Balance of each Class of Offered Certificates that would be outstanding after
each of the dates shown at various CPRs and the corresponding weighted average
life of each such Class of Offered Certificates. The tables have been prepared
on the basis of the following assumptions, among others: [(i) scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely received
(with no defaults) and will be distributed on the 25th day of each month
commencing in ____ 199__ ; (ii) the Mortgage Rate in effect for each Mortgage
Loan as of the Cut-off Date will remain in effect (a) in the case of each Fixed
Rate Loan, to maturity and, (b) in the case of each ARM Loan, until its next
Interest Rate Adjustment Date, when a new Mortgage Rate that is to remain in
effect to maturity will be calculated reflecting the value of the related Index
as of _____,199__, subject to such Mortgage Loan's lifetime and/or periodic rate
caps and floors, if any; (iii) all Mortgage Loans accrue and pay interest on a
360/360 basis; (iv) the monthly principal and interest payment due for each
Mortgage Loan on the first Due Date following the Cut-off Date will continue to
be due (a) in the case of each Fixed Rate Loan, on each Due Date until maturity
and, (b) in the case of each ARM Loan, until its next Payment Adjustment Date,
when a new payment that is to be due on each Due Date until maturity will be
calculated reflecting the appropriate Mortgage Rate and remaining amortization
term, subject to such Mortgage Loan's periodic payment cap or negative
amortization limits, if any; (v) principal prepayments on the Mortgage Loans
will be received on their respective Due Dates at the respective CPRs set forth
in the tables, and there will be no Net Aggregate Prepayment Interest Shortfalls
in connection therewith; (vi) the Mortgage Loan Seller will not be required to
repurchase any Mortgage Loan, and the Master Servicer will not exercise its
option to purchase all the Mortgage Loans and thereby cause an early termination
of the Trust Fund; and (vii) the Pass-Through Rate for the Class A Certificates
will remain at ___% per annum.] To the extent that the Mortgage Loans have
characteristics that differ from those assumed in preparing the tables set forth
below, each Class of the Offered Certificates may mature earlier or later than
indicated by the tables. It is highly unlikely that the Mortgage Loans will
prepay at any constant rate until maturity or that all the Mortgage Loans will
prepay at the same rate. In addition, variations in the actual prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentages of initial Certificate Balances (and weighted average
lives) shown in the following tables. Such variations may occur even if the
average prepayment experience of the Mortgage Loans were to equal any of the
specified CPR percentages.
Investors are urged to conduct their own analyses of the rates at which
the Mortgage Loans may be expected to prepay.
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Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class A Certificates at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- ----- ----- ----- ----- -----
Delivery Date........................ 100.0 100.0 100.0 100.0 100.0
____________25, 1998.................
____________25, 1999.................
____________25, 2000.................
____________25, 2001.................
____________25, 2002.................
____________25, 2003.................
____________25, 2004.................
____________25, 2005.................
Weighted Average Life (years)(A) ....
- ----------
(A) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class A Certificates to
the related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the aggregate amount of the reductions in the principal balance
of such Class A Certificate.
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Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class B Certificates at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- ----- ----- ----- ----- -----
Delivery Date........................ 100.0 100.0 100.0 100.0 100.0
____________25, 1998.................
____________25, 1999.................
____________25, 2000.................
____________25, 2001.................
____________25, 2002.................
____________25, 2003.................
____________25, 2004.................
____________25, 2005.................
Weighted Average Life (years)(A) ....
- --------------
(A) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class B Certificates to
the related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the aggregate amount of the reductions in the principal balance
of such Class B Certificate.
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USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered
Certificates will be used by the Sponsor to purchase the Mortgage Loans and to
pay certain expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, ________________, counsel
to the Sponsor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a REMIC under the
Internal Revenue Code of 1986 (the "Code"). For federal income tax purposes, the
Class R Certificates will be the sole class of "residual interests" in the Trust
Fund, and the Class A, Class B and Class C Certificates will be the "regular
interests" in the Trust Fund and will be treated as debt instruments of the
REMIC. See "Material Federal Income Tax Consequences-REMICs" in the Prospectus.
The _____ Certificates [may] [will] [will not] be treated as having been
issued with original issue discount for Federal income tax reporting purposes.
The prepayment assumption that will be used in determining the rate of accrual
of [original issue discount,] market discount and premium, if any, for federal
income tax purposes will be based on the assumption that subsequent to the date
of any determination the Mortgage Loans will prepay at a rate equal to [a CPR of
__%]. No representation is made that the Mortgage Loans will prepay at that rate
or at any other rate. See "Material Federal Income Tax Consequences-
REMICs-Taxation of Owners of REMIC Regular Certificates-Original Issue Discount"
in the Prospectus.
The _____ Certificates may be treated for Federal income tax purposes as
having been issued at a premium. Whether any holder of [either] such Class of
Certificates will be treated as holding a Certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their own tax advisors regarding the possibility of
making an election to amortize such premium. See "Material Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "loans secured by an interest
in real property" within the meaning of Section 7701(a)(19)(C) of the Code, and
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
interest (including original issue discount, if any) on the Offered Certificates
will be interest described in Section 856(c)(3)(B) of the Code. Moreover, the
Offered Certificates will be "obligation[s]....which....[are] principally
secured by an interest in real property" within the meaning of Section
860(A)(3)(C) of the Code. See "Material Federal Income Tax Consequences-REMICs-
Characterization of Investments in REMIC Certificates" in the Prospectus.
_____, a _____, will act as REMIC Administrator for the Trust Fund. [The
Master Servicer will be responsible for the fees and normal disbursements of the
REMIC Administrator.] See "Material Federal Income Tax
Consequences-REMICs-Reporting and Other Administrative Matters" and "Description
of the Pooling Agreements-Certain Matters Regarding the Master Servicer, the
Special Servicer, the REMIC Administrator and the Sponsor", "-Events of Default"
and "-Rights Upon Event of Default" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Material Federal Income Tax
Consequences-REMICs" in the Prospectus.
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ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code (each, a "Plan") should carefully review with its legal advisors
whether the purchase or holding of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under ERISA
or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
[The U.S. Department of Labor issued to Citicorp an individual prohibited
transaction exemption, Prohibited Transaction Exemption 90-88 (the "Exemption"),
which generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes imposed on such
prohibited transactions pursuant to Sections 4975(a) and (b) of the Code and
Section 501 (i) of ERISA, certain transactions, among others, relating to the
servicing and operation of mortgage pools, such as the Mortgage Pool, and the
purchase, sale and holding of mortgage pass-through certificates, such as the
Class A Certificates, underwritten by an Underwriter (as hereinafter defined),
provided that certain conditions set forth in the Exemption are satisfied. For
purposes of this Section "ERISA Considerations", the term "Underwriter" shall
include (a) Citicorp, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Citicorp
(such as [Citicorp Securities, Inc.] [Citibank, N.A.]), and (c) any member of
the underwriting syndicate or selling group of which a person described in (a)
or (b) is a manager or co-manager with respect to the Class A Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the Class
A Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Class A Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by Standard & Poor's Corporation ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit
Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc. ("Fitch"). Fourth,
the Trustee cannot be an affiliate of any other member of the "Restricted
Group", which consists of any Underwriter, the Sponsor, the Trustee, the Master
Servicer, the Special Servicer, any sub-servicer, and any mortgagor with respect
to Mortgage Loans constituting more than 5 % of the aggregate unamortized
principal balance of the Mortgage Loans as of the date of initial issuance of
the Class A Certificates. Fifth, the sum of all payments made to and retained by
the Underwriter must represent not more than reasonable compensation for
underwriting the Class A Certificates; the sum of all payments made to and
retained by the Sponsor pursuant to the assignment of the Mortgage Loans to the
Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class A Certificates are not subordinated to any other Class
of Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "__" by ___________. As of the
Delivery Date, the fourth general condition set forth above will be satisfied
with respect to the Class A Certificates. A fiduciary of a Plan contemplating
purchasing a Class A Certificate in the secondary market must make its own
determination
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that, at the time of such purchase, the Class A Certificates continue to satisfy
the third and fourth general conditions set forth above. A fiduciary of a Plan
contemplating purchasing a Class A Certificate, whether in the initial issuance
of such Certificates or in the secondary market, must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to such Class A Certificate.
[The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates. [The Sponsor has confirmed to its satisfaction that such
requirements have been satisfied as of the date hereof.]]
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in
connection with (i) the direct or indirect sale, exchange or transfer of Class A
Certificates in the initial issuance of Certificates between the Sponsor or an
Underwriter and a Plan when the Sponsor, the Underwriter, the Trustee, the
Master Servicer, the Special Servicer, a Sub-Servicer or a mortgagor is a Party
in Interest with respect to the investing Plan, (ii) the direct or indirect
acquisition or disposition in the secondary market of the Class A Certificates
by a Plan and (iii) the holding of Class A Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Class A Certificate on
behalf of an "Excluded Plan" by any person who has discretionary authority or
renders investment advice with respect to the assets of such Excluded Plan. For
purposes hereof, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates between
the Sponsor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the secondary market of
Class A Certificates by a Plan and (3) the holding of Class A Certificates by a
Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
[The Sponsor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Class A Certificates.]
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (A) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of Offered Certificates.
[Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions
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and the other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of the exemptive
relief provided in the Exemption, the Plan fiduciary should consider the
availability of any other prohibited transaction exemptions. See "ERISA
Considerations" in the Prospectus. A purchaser of a Class A Certificate should
be aware, however, that even if the conditions specified in one or more
exemptions are satisfied, the scope of relief provided by an exemption may not
cover all acts which might be construed as prohibited transactions.]
[Because the characteristics of the Class B Certificates do not meet the
requirements of the Exemption, the purchase or holding of such Certificates by a
Plan may result in prohibited transactions or the imposition of excise taxes or
civil penalties. As a result,] no transfer of a [Class B] Certificate or any
interest therein may be made to a Plan or to any person who is directly or
indirectly purchasing such [Class B] Certificate or interest therein on behalf
of, as named fiduciary of, as trustee of, or with assets of a Plan, unless the
prospective transferee provides the Certificate Registrar with a certification
of facts and an opinion of counsel which establish to the satisfaction of the
Certificate Registrar that such transfer will not result in a violation of
Section 406 of ERISA or Section 4975 of the Code or cause the Master Servicer,
the Special Servicer or the Trustee to be deemed a fiduciary of such Plan or
result in the imposition of an excise tax under Section 4975 of the Code. See
"ERISA Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
LEGAL INVESTMENT
[As long as the Class A Certificates are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, the Class A Certificates will constitute "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA"), and as such 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 whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under SMMEA, however, if
a State enacted legislation on or prior to October 3, 1991 specifically limiting
the legal investment authority of any such entities with respect to "mortgage
related securities," such securities will constitute legal investments for
entities subject to such legislation only to the extent provided therein.
Certain States have enacted legislation which overrides the preemption
provisions of SMMEA.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.]
The [Class B] Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the [Class
B] Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the [Class B]
Certificates, is subject to significant interpretive uncertainties.
S-63
<PAGE>
The Sponsor makes no representation as to the ability of particular
investors to purchase the Offered Certificates under applicable legal investment
or other restrictions. All institutions whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for them or are subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Sponsor and the Underwriter, the Offered Certificates will
be purchased from the Sponsor by the Underwriter, an affiliate of the Sponsor,
upon issuance. Proceeds to the Sponsor from the sale of the Offered
Certificates, before deducting expenses payable by the Sponsor estimated to be
approximately $____, will be __ % of the initial aggregate Certificate Balance
thereof, plus accrued interest.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect such transactions
by selling the Offered Certificates to or through dealers, and such dealers' may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the purchase and sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Sponsor in the form of underwriting discounts. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act").
Purchasers of the Offered Certificates, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to he "underwriters"
within the meaning of the Securities Act in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The Sponsor also has been advised by the Underwriter that it presently
intends to make a market in the Offered Certificates; however, it has no
obligation to do so, any market making may be discontinued at any time and there
can be no assurance that an active public market for the Offered Certificates
will develop. See "Risk Factors-Limited Liquidity" herein and "Risk
Factors-Certain Factors Adversely Affecting Resale of the Offered Certificates"
in the Prospectus.
The Sponsor has agreed to indemnify the Underwriter and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to the Underwriter and each such
controlling person with respect to, certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Sponsor by Stephen E.
Dietz, as an Associate General Counsel of Citibank, N.A., and for the
Underwriter by __________, New York, New York. Mr. Dietz owns or has the right
to acquire a number of shares of common stock of Citicorp equal to less than
.01% of the outstanding common stock of Citicorp. __________ will act as special
tax counsel to the Sponsor with respect to certain federal income tax and ERISA
matters.
S-64
<PAGE>
RATING
It is a condition to issuance that the Class A Certificates be rated not
lower than "__", and the Class B Certificates be rated not lower than "_", by
______.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding frequency of
prepayments on the Mortgage Loans.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to either or both
Classes thereof and, if so, what such rating or ratings would be. A rating
assigned to either Class of Offered Certificates by a rating agency that has not
been requested by the Sponsor to do so may be lower than the rating assigned
thereto by ______.
The ratings on 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 assigning rating agency. See "Risk Factors-Limited
Nature of Credit Ratings" in the Prospectus.
S-65
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
360/360 basis ............................................ S-45
Accrued Certificate Interest ............................. S-46
Advance .................................................. S-50
Aggregate Mortgage Loan Negative Amortization ............ S-6, S-46
ARM Loans ................................................ ii, S-3, S-21
Available Distribution Amount ............................ S-9, S-42
Balloon Payment .......................................... S-4, S-22
Certificate Balance ...................................... ii
Certificate Negative Amortization ........................ S-6, S-47
Certificate Registrar .................................... S-41
Certificates ............................................. i, S-1
Class .................................................... i
Class A Certificate Owner ................................ S-2
Code ..................................................... S-14, S-62
COFI ARM Loans ........................................... ii, S-3, S-21
COFI Index ............................................... ii, S-3
Compensating Interest Payment ............................ S-13, S-38
Constant Prepayment Rate ................................. S-58
Corporate Trust Office ................................... S-52
CPR ...................................................... S-58
Custodian ................................................ S-33
Cut-off Date ............................................. ii
Cut-off Date Balance ..................................... S-4
Cut-off Date LTV Ratio ................................... S-30
Debt Service Coverage Ratio .............................. S-30
Definitive Class A Certificate ........................... S-2
Delivery Date ............................................ i
Determination Date ....................................... S-42
Distributable Certificate Interest ....................... S-11, S-46
Distributable Principal Collections and Advances ......... S-12, S-47
Distribution Date ........................................ S-2, S-8, S-42
Distribution Date Statement .............................. S-50
DTC ...................................................... S-1
Due Date ................................................. S-3
Due Period ............................................... S-8, S-42
Duff & Phelps ............................................ S-63
Effective Net Mortgage Rate .............................. S-8, S-45
ERISA .................................................... S-15, S-63
ERISA Considerations ..................................... S-63
Exemption ................................................ S-63
Excess Funds ............................................. S-11, S-44
Excess Pool Balance ...................................... S-6, S-41
FHILB of San Francisco ................................... S-22
Fitch .................................................... S-63
Fixed Rate Loans ......................................... ii, S-3, S-21
Form 8-K ................................................. S-35
Funds-Available Cap Rate ................................. ii, S-8, S-45
Gross Margin ............................................. S-3
Index .................................................... ii, S-3, S-20
Initial Pool Balance ..................................... ii
Interest Rate Adjustment Date ............................ S-3
LIBO ..................................................... S-45
LIBOR .................................................... S-8, S-44
LIBOR Adjustment Date .................................... S-45
Master Servicing Fee ..................................... S-39
Monthly Payments ......................................... ii, S-3
Moody's .................................................. S-63
Mortgage ................................................. S-20
Mortgage File ............................................ S-33
Mortgage Loan Purchase Agreement ......................... S-2, S-32
Mortgage Loan Seller ..................................... ii, S-21
Mortgage Loan(s) ......................................... ii, S-48
Mortgage Note ............................................ S-20
Mortgage Pool ............................................ ii, S-58
Mortgage Rate ............................................ ii, S-3
Mortgaged Property ....................................... S-3, S-20
Net Aggregate Prepayment Interest Shortfall .............. S-13, S-46
Net Mortgage Rate ........................................ S-8, S-45
Net Operating Income ..................................... S-30
Nonrecoverable P&I Advance ............................... S-49
Offered Certificates ..................................... i, S-1, S-41
Ownership Percentage ..................................... S-47
P&I Advance .............................................. S-12, S-49
Participants ............................................. S-2
Pass-Through Rate ........................................ ii
Payment Adjustment Date .................................. S-3
Payment Cap(s) ........................................... S-3, S-22
Penalty Charges .......................................... S-38
Percentage Interest ...................................... S-44
Permitted Investments .................................... S-37
Plan ..................................................... S-15, S-63
Pooling and Servicing Agreement .......................... S-5, S-40
Prepayment Interest Excess ............................... S-13, S-38
Prepayment Interest Shortfall ............................ S-13, S-38
Prepayment Premiums ...................................... S-22
Private Certificates ..................................... S-1, S-41
Purchase Price ........................................... S-33
Rating Agenc[ies] ........................................ S-16
Record Date .............................................. S-9
Reimbursement Rate ....................................... S-13, S-50
Related Proceeds ......................................... S-49
REMIC .................................................... iii, S-14
REMIC Regular Certificates ............................... iii, S-2, S-41
REO Loan(s) .............................................. S-48
REO Property ............................................. S-12, S-36, S-40
Reserve Interest Rate .................................... S-46
Scheduled Principal Distribution Amount .................. S-11, S-47
Securities Act ........................................... S-66
Servicing Fees ........................................... S-37
SMMEA .................................................... S-16, S-65
Special Servicing Fee .................................... S-37
Specially Serviced Mortgage Assets ....................... S-36
Specially Serviced Mortgage Loans ........................ S-36
Sponsor .................................................. ii
Standard & Poor's ........................................ S-63
Stated Principal Balance ................................. S-7, S-47
Subordinate Certificates ................................. S-13, S-48
The Depositor ............................................ i
Treasury Index ........................................... S-3
Trust Fund ............................................... ii, S-6
Uncovered Portion ........................................ S-6, S-49
Underwriter .............................................. i, S-1, S-63
Unscheduled Principal Distribution Amount ................ S-11, S-47
Weighted Average Effective Net Mortgage Rate ............. S-45
Workout Fee .............................................. S-7, S-37
Workout Fee Rate ......................................... S-37
S-66
<PAGE>
P R O S P E C T U S
MORTGAGE CAPITAL UNDING, INC.
(Sponsor)
Mortgage Pass-Through Certificates
(Issuable in Series)
The mortgage pass-through certificates (the "Offered Certificates")
offered hereby and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of each
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "Certificates".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting primarily of a segregated pool (a "Mortgage Asset
Pool") of one or more of various types of multifamily or commercial mortgage
loans or participations therein (the "Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). If so
specified in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof (with
respect to any series, collectively, "Credit Support"), and currency or interest
rate exchange agreements and other financial assets, or any combination thereof
(with respect to any series, collectively, "Cash Flow Agreements"). See
"Description of the Trust Funds", "Description of the Certificates" and
"Description of Credit Support". (cover continued on next page)
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 11 AND SUCH
INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED
PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, as more fully
described under "Method of Distribution" and in the related Prospectus
Supplement.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. See
"Risk Factors".
This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
APRIL 3, 1997
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of
each series, including the Offered Certificates of such series, may consist of
one or more classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionately small, nominal or no
distributions of interest; (iv) are entitled to distributions of interest, with
disproportionately small, nominal or no distributions of principal; (v) provide
for distributions of interest thereon or principal thereof that commence only
following the occurrence of certain events, such as the retirement of one or
more other classes of Certificates of such series; (vi) provide for
distributions of principal thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. See "Description of the
Certificates".
Distributions in respect of the Certificates of each series will be made
on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, such distributions will be made only from the
assets of the related Trust Fund. No series of Certificates will represent an
obligation of or interest in the Sponsor or any of its affiliates, except to the
limited extent described herein and in the related Prospectus Supplement.
Neither the Certificates of any series nor the assets in any Trust Fund will be
guaranteed or insured by any governmental agency or instrumentality or by any
other person, unless otherwise provided in the related Prospectus Supplement.
The assets in each Trust Fund will be held in trust for the benefit of the
holders of the related series of Certificates (the "Certificateholders")
pursuant to a Pooling Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. See "Material Federal Income Tax Consequences" herein.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) a description of the class or classes of such
Offered Certificates, including the payment provisions with respect to each such
class, the aggregate principal amount of each such class (the "Certificate
Balance"), the rate at which interest accrues from time to time, if at all, with
respect to each such class (the "Pass-Through Rate") or the method of
determining such rate, and whether interest with respect to each such class will
accrue from time to time on its aggregate principal amount or a specified
notional amount, if at all; (ii) information with respect to any other classes
of Certificates of the same series; (iii) the respective dates on which
distributions are to be made; (iv) information as to the assets constituting the
related Trust Fund, including the general characteristics of the assets included
therein, including the Mortgage Assets and any Credit Support and Cash Flow
Agreements (with respect to the Certificates of any series, the "Trust Assets");
(v) the circumstances, if any, under which the related Trust Fund may be subject
to early termination; (vi) additional information with respect to the method of
distribution of such
ii
<PAGE>
Offered Certificates; (vii) the initial percentage ownership interest in the
related Trust Fund to be evidenced by each class of Certificates of such series;
(viii) information concerning the trustee (as to any series, the "Trustee") of
the related Trust Fund; (ix) if the related Trust Fund includes Mortgage Loans,
information concerning the master servicer (as to any series, the "Master
Servicer") and, if different than the Master Servicer, the special servicer (as
to any series, the "Special Servicer") of such Mortgage Loans and the
circumstances under which all or a portion, as specified, of the servicing of a
Mortgage Loan would transfer from the Master Servicer to the Special Servicer;
(x) whether one or more REMIC elections will be made, the designation of the
"regular interests" and "residual interests" in each REMIC to be created and the
identity of the person (the "REMIC Administrator") responsible for the various
tax-related administrative duties in respect of each REMIC to be created; (xi)
information as to the nature and extent of subordination of any class of
Certificates of such series, including a class of Offered Certificates; and
(xii) whether such Offered Certificates will be initially issued in definitive
or book-entry form.
AVAILABLE INFORMATION
The Sponsor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional
Office, Seven World Trade Center, Suite 1300, New York, New York 10048. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Sponsor, that file electronically with the Commission.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representation must not be
relied upon. This Prospectus and any related Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the Offered Certificates, or an offer of the Offered Certificates to
any person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date; however, if
any material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
The related Master Servicer or Trustee will be required to mail to holders
of the Offered Certificates of each series periodic unaudited reports concerning
the related Trust Fund. If beneficial interests in a class or series of Offered
Certificates are being held and transferred in book-entry format through the
facilities of The Depository Trust Company ("DTC") as described herein, then
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to a nominee of DTC as the
registered holder of the Offered Certificates. Conveyance of notices and other
communications by DTC to its participating organizations, and directly or
indirectly through such participating organizations to the beneficial owners of
the applicable Offered Certificates, will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time. See "Description of the Certificates -- Reports to
Certificateholders" and "--Book-Entry Registration and Definitive Certificates"
and "Description of the Pooling Agreements -- Evidence as to Compliance."
iii
<PAGE>
The Sponsor or the Trustee will file or cause to be filed with the
Commission such periodic reports with respect to each Trust Fund as are required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder. The Sponsor intends to
make a written request to the staff of the Commission that the staff either (i)
issue an order pursuant to Section 12(h) of the Exchange Act exempting the
Sponsor from certain reporting requirements under the Exchange Act with respect
to each Trust Fund or (ii) state that the staff will not recommend that the
Commission take enforcement action if the Sponsor fulfills its reporting
obligations as described in its written request. If such request is granted, the
Sponsor will file or cause to be filed with the Commission as to each Trust Fund
the periodic unaudited reports to holders of the Offered Certificates referenced
in the preceding paragraph; however, because of the nature of the Trust Funds,
it is unlikely that any significant additional information will be filed. In
addition, because of the limited number of Certificateholders expected for each
series, the Sponsor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Sponsor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests therein.
The Sponsor will provide or cause to be provided without charge to each person
to whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, upon written or oral request of such
person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such classes of such Offered Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests to the Sponsor should be directed in writing to its
principal executive offices specified herein under "Mortgage Capital Funding,
Inc." The Sponsor has determined that its financial statements will not be
material to the offering of any Offered Certificates.
iv
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT .................................................. ii
AVAILABLE INFORMATION .................................................. iii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ...................... iv
SUMMARY OF PROSPECTUS .................................................. 1
RISK FACTORS ........................................................... 11
Certain Factors Adversely Affecting Resale of the
Offered Certificates ............................................... 11
Limited Assets for Payment of Certificates ........................... 12
Prepayments; Average Life of Certificates; Yields .................... 12
Limited Nature of Credit Ratings ..................................... 14
Certain Risks Associated with Mortgage Loans Secured
by Commercial and Multifamily Properties ........................... 14
Balloon Payments; Borrower Default ................................... 15
Credit Support Limitations ........................................... 16
Enforceability; Leases and Rents as Security for a
Mortgage Loan ........................................................ 16
Environmental Risks .................................................. 17
Special Hazard Losses ................................................ 17
ERISA Considerations ................................................. 17
Certain Federal Tax Considerations Regarding REMIC Residual
Certificates ....................................................... 17
Book-Entry Registration .............................................. 18
Conflicts of Interest Involving Parties to a Pooling Agreement ....... 18
Delinquent and Non-Performing Mortgage Loans ......................... 19
DESCRIPTION OF THE TRUST FUNDS ......................................... 19
General .............................................................. 19
Mortgage Loans ....................................................... 19
MBS .................................................................. 22
Certificate Accounts ................................................. 23
Credit Support ....................................................... 23
Cash Flow Agreements ................................................. 23
YIELD AND MATURITY CONSIDERATIONS ...................................... 24
General .............................................................. 24
Pass-Through Rate .................................................... 24
Payment Delays ....................................................... 24
Certain Shortfalls in Collections of Interest ........................ 24
Yield and Prepayment Considerations .................................. 25
Weighted Average Life and Maturity ................................... 26
Controlled Amortization Classes and Companion Classes ................ 27
Other Factors Affecting Yield, Weighted Average Life
and Maturity ....................................................... 28
MORTGAGE CAPITAL FUNDING, INC .......................................... 30
USE OF PROCEEDS ........................................................ 31
v
<PAGE>
DESCRIPTION OF THE CERTIFICATES ........................................ 31
General .............................................................. 31
Distributions ........................................................ 31
Distributions of Interest on the Certificates ........................ 32
Distributions of Principal of the Certificates ....................... 33
Distributions on the Certificates in Respect of Prepayment
Premiums or in Respect of Equity Participations ...................... 34
Allocation of Losses and Shortfalls .................................. 34
Advances in Respect of Delinquencies ................................. 34
Reports to Certificateholders ........................................ 35
Voting Rights ........................................................ 36
Termination .......................................................... 37
Book-Entry Registration and Definitive Certificates .................. 37
DESCRIPTION OF THE POOLING AGREEMENTS .................................. 39
General .............................................................. 39
Assignment of Mortgage Loans; Repurchases ............................ 39
Representations and Warranties; Repurchases .......................... 41
Collection and Other Servicing Procedures ............................ 41
Sub-Servicers ........................................................ 42
Certificate Account .................................................. 43
Escrow Accounts ...................................................... 46
Modifications, Waivers and Amendments of Mortgage Loans .............. 46
Realization Upon Defaulted Mortgage Loans ............................ 47
Hazard Insurance Policies ............................................ 49
Due-on-Sale and Due-on-Encumbrance Provisions ........................ 50
Servicing Compensation and Payment of Expenses ....................... 50
Evidence as to Compliance ............................................ 51
Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Sponsor .................. 51
Events of Default .................................................... 52
Rights Upon Event of Default ......................................... 53
Amendment ............................................................ 54
List of Certificateholders ........................................... 54
The Trustee ............................................................ 54
Duties of the Trustee .................................................. 55
Certain Matters Regarding the Trustee .................................. 55
Resignation and Removal of the Trustee ................................. 55
DESCRIPTION OF CREDIT SUPPORT .......................................... 56
General ................................................................ 56
Subordinate Certificates ............................................... 56
Cross-Support Provisions ............................................... 57
Insurance or Guarantees with Respect to Mortgage Loans ................. 57
Letter of Credit ....................................................... 57
Certificate Insurance and Surety Bonds ................................. 57
Reserve Funds .......................................................... 58
Credit Support with Respect to MBS ..................................... 58
vi
<PAGE>
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ................................ 58
General .............................................................. 58
Types of Mortgage Instruments ........................................ 59
Leases and Rents ..................................................... 59
Personalty ........................................................... 60
Foreclosure .......................................................... 60
Bankruptcy Laws ...................................................... 63
Environmental Risks .................................................. 64
Due-on-Sale and Due-on-Encumbrance ................................... 66
Subordinate Financing ................................................ 66
Default Interest and Limitations on Prepayments ...................... 67
Applicability of Usury Laws .......................................... 67
Soldiers' and Sailors' Civil Relief Act of 1940 ...................... 67
Americans with Disabilities Act ...................................... 68
Forfeitures in Drug and RICO Proceedings ............................. 68
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ............................... 68
General .............................................................. 68
REMICs ............................................................... 69
Taxation of Owners of REMIC Regular Certificates ..................... 70
Taxation of Owners of REMIC Residual Certificates .................... 75
Grantor Trust Funds .................................................. 86
Characterization of Investments in Grantor Trust Certificates ........ 86
Taxation of Owners of Grantor Trust Fractional Interest Certificates . 87
STATE AND OTHER TAX CONSEQUENCES ....................................... 95
ERISA CONSIDERATIONS ................................................... 96
General .............................................................. 96
Plan Asset Regulations ............................................... 96
LEGAL INVESTMENT ....................................................... 97
METHOD OF DISTRIBUTION ................................................. 98
FINANCIAL INFORMATION .................................................. 100
RATING ................................................................. 100
vii
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Title of Certificates............ Mortgage Pass-Through Certificates,
issuable in series (the "Certificates").
Sponsor.......................... Mortgage Capital Funding, Inc., a
wholly-owned subsidiary of Citicorp
Banking Corporation, which in turn is a
wholly-owned subsidiary of Citicorp. See
"Mortgage Capital Funding, Inc."
Master Servicer.................. The master servicer (the "Master
Servicer"), if any, for a series of
Certificates will be named in the related
Prospectus Supplement. Any Master Servicer
may be an affiliate of the Sponsor. See
"Description of the Pooling
Agreements--Collection and Other Servicing
Procedures".
Special Servicer................. The special servicer (the "Special
Servicer"), if any, for a series of
Certificates will be named in the related
Prospectus Supplement. Any Special
Servicer may be an affiliate of the
Sponsor and/or may also be acting as
Master Servicer. See "Description of the
Pooling Agreements--Collection and Other
Servicing Procedures".
Trustee ......................... The trustee (the "Trustee") for each
series of Certificates will be named in
the related Prospectus Supplement. See
"Description of the Pooling
Agreements--The Trustee".
REMIC Administrator.............. The person (the "REMIC Administrator")
responsible for the various tax-related
administrative duties for a series of
Certificates as to which one or more REMIC
elections have been made, will be named in
the related Prospectus Supplement. Any
REMIC Administrator may be an affiliate of
the Sponsor and/or may also be acting as
Master Servicer, Special Servicer or
Trustee. See "Material Federal Income Tax
Consequences--REMICs--Reporting and Other
Administrative Matters."
The Trust Assets ................ Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
A. Mortgage Assets............. The Mortgage Assets with respect to each
series of Certificates will, in general,
consist of a pool of mortgage loans,
including participations therein
(collectively, the "Mortgage Loans"),
secured by liens on, or security interests
in, without limitation, (i) residential
properties consisting of five or more
rental or cooperatively-owned dwelling
units (the "Multifamily Properties") or
(ii) office
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buildings, shopping centers, retail
stores, hotels or motels, nursing homes,
hospitals or other health-care related
facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities or
self-storage facilities, industrial
facilities, mixed use or various other
types of income-producing properties or
unimproved land (the "Commercial
Properties"). If so specified in the
related Prospectus Supplement, a Trust
Fund may include Mortgage Loans secured by
liens on real estate projects under
construction. The Mortgage Loans will not
be guaranteed or insured by the Sponsor or
any of its affiliates or, unless otherwise
provided in the related Prospectus
Supplement, by any governmental agency or
instrumentality or by any other person. If
so specified in the related Prospectus
Supplement, some Mortgage Loans may be
delinquent or non-performing as of the
date the related Trust Fund is formed.
As and to the extent described in the
related Prospectus Supplement, a Mortgage
Loan (i) may provide for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its
term or that adjusts from time to time, or
that may be converted at the borrower's
election from an adjustable to a fixed
Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, and in some
cases back again, (ii) may provide for
level payments to maturity or for payments
that adjust from time to time to
accommodate changes in the Mortgage Rate
or to reflect the occurrence of certain
events, and may permit negative
amortization, (iii) may be fully
amortizing over its term to maturity or
may require a balloon payment on its
stated maturity date, (iv) may provide for
no amortization prior to its stated
maturity date, (v) may contain a
prohibition on prepayment and/or require
payment of a premium or a yield
maintenance penalty in connection with a
prepayment and (vi) may provide for
payments of principal, interest or both,
on due dates that occur monthly,
quarterly, semi-annually, annually or at
such other interval as is specified in the
related Prospectus Supplement. Unless
otherwise provided in the related
Prospectus Supplement, each Mortgage Loan
will have had an original term to maturity
of not more than 40 years. Unless
otherwise provided in the related
Prospectus Supplement, no Mortgage Loan
will have been originated by the Sponsor;
however, some or all of the Mortgage Loans
in any Trust Fund may have been originated
by an affiliate of the Sponsor. See
"Description of the Trust Funds--Mortgage
Loans".
If and to the extent specified in the
related Prospectus Supplement, the
Mortgage Assets with respect to a series
of Certificates may also include, or
consist of, (i) mortgage pass-through
certificates or other mortgage-backed
securities or (ii) certificates insured or
guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association
("FNMA"), the Government National Mortgage
Association ("GNMA") or the Federal
Agricultural Mortgage Corporation
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<PAGE>
("FAMC") (collectively, the
mortgage-backed securities referred to in
clauses (i) and (ii), "MBS"), provided
that each MBS will evidence an interest
in, or will be secured by a pledge of, one
or more mortgage loans that conform to the
descriptions of the Mortgage Loans
contained herein. See "Description of the
Trust Funds--MBS".
Each Mortgage Asset will be selected by
the Sponsor for inclusion in a Trust Fund
from among those purchased, either
directly or indirectly, from a prior
holder thereof (a "Mortgage Asset
Seller"), which prior holder may or may
not be the originator of such Mortgage
Loan or the issuer of such MBS and may be
an affiliate of the Sponsor.
B. Certificate Account......... Each Trust Fund will include one or more
accounts (collectively, the "Certificate
Account") established and maintained on
behalf of the Certificateholders into
which the person or persons designated in
the related Prospectus Supplement will, to
the extent provided in the related Pooling
Agreement (as defined below) described
herein and in the related Prospectus
Supplement, deposit all payments and other
collections received or advanced with
respect to the Mortgage Assets and other
assets in such Trust Fund. A Certificate
Account may be maintained as an interest
bearing or a non-interest bearing account,
and funds held therein may be held as cash
or invested in certain obligations
acceptable to each Rating Agency (as
defined below) rating one or more classes
of the related series of Offered
Certificates. See "Description of the
Trust Funds--Certificate Accounts" and
"Description of the Pooling
Agreements--Certificate Account".
C. Credit Support.............. If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or
more classes of Offered Certificates, or
by one or more other types of credit
support, such as a letter of credit,
insurance policy, guarantee, reserve fund
or another type of credit support, or a
combination thereof (any such coverage
with respect to the Certificates of any
series, "Credit Support"). If so specified
in the related Prospectus Supplement, any
form of Credit Support may offer
protection only against specific types of
losses and shortfalls. The amount and
types of any Credit Support, the coverage
afforded by it, the identification of the
entity providing it (if applicable) and
related information will be set forth in
the Prospectus Supplement for a series of
Offered Certificates. See "Risk
Factors--Credit Support Limitations",
"Description of the Trust Funds--Credit
Support" and "Description of Credit
Support".
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<PAGE>
D. Cash Flow Agreements........ If so provided in the related Prospectus
Supplement, a Trust Fund may include
guaranteed investment contracts pursuant
to which moneys held in the funds and
accounts established for the related
series will be invested at a specified
rate. The Trust Fund may also include
certain other agreements, such as interest
rate exchange agreements, interest rate
cap or floor agreements, currency exchange
agreements or similar agreements designed
to reduce the effects of interest rate or
currency exchange rate fluctuations on the
Mortgage Assets or on one or more classes
of Certificates. The principal terms of
any such guaranteed investment contract or
other agreement (any such agreement, a
"Cash Flow Agreement"), including, without
limitation, provisions relating to the
timing , manner and amount of payments
thereunder and provisions relating to the
termination thereof, will be described in
the Prospectus Supplement for the related
series. In addition, the related
Prospectus Supplement will contain certain
information that pertains to the obligor
under any such Cash Flow Agreement. See
"Description of the Trust Funds--Cash Flow
Agreements".
Description of Certificates...... Each series of Certificates will be issued
in one or more classes pursuant to a
pooling and servicing agreement or other
agreement specified in the related
Prospectus Supplement (in either case, a
"Pooling Agreement") and will represent in
the aggregate the entire beneficial
ownership interest in the related Trust
Fund. As described in the related
Prospectus Supplement, the Certificates of
each series, including the Offered
Certificates of such series, may consist
of one or more classes of Certificates
that: (i) are senior (collectively,
"Senior Certificates") or subordinate
(collectively, "Subordinate Certificates")
to one or more other classes of
Certificates in entitlement to certain
distributions on the Certificates; (ii)
are entitled to distributions of
principal, with disproportionately small,
nominal or no distributions of interest
(collectively, "Stripped Principal
Certificates"); (iii) are entitled to
distributions of interest, with
disproportionately small, nominal or no
distributions of principal (collectively,
"Stripped Interest Certificates"); (iv)
provide for distributions of interest
thereon or principal thereof that commence
only after the occurrence of certain
events, such as the retirement of one or
more other classes of Certificates of such
series; (v) provide for distributions of
principal thereof to be made, from time to
time or for designated periods, at a rate
that is faster (and, in some cases,
substantially faster) or slower (and, in
some cases, substantially slower) than the
rate at which payments or other
collections of principal are received on
the Mortgage Assets in the related Trust
Fund; or (vi) provide for distributions of
principal thereof to be made, subject to
available funds, based on a specified
principal payment schedule or other
method.
Each class of Certificates, other than
certain classes of Stripped Interest
Certificates and certain classes of REMIC
Residual
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<PAGE>
Certificates (as defined below), will have
a stated principal amount (a "Certificate
Balance"); and each class of Certificates,
other than certain classes of Stripped
Principal Certificates and certain REMIC
Residual Certificates, will accrue
interest at a fixed, variable or
adjustable interest rate (a "Pass-Through
Rate") on its Certificate Balance or, in
the case of certain classes of Stripped
Interest Certificates, on a hypothetical
or notional amount (a "Notional Amount")
used solely for such purpose and not
evidencing a right to receive
distributions of principal. The related
Prospectus Supplement will specify the
Certificate Balance, Notional Amount
and/or Pass-Through Rate (or, in the case
of a variable or adjustable Pass-Through
Rate, the method for determining such), as
applicable, for each class of Offered
Certificates.
The Certificates will not be guaranteed or
insured by the Sponsor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets for Payment of
Certificates" and "Description of the
Certificates".
Distributions of Interest
on the Certificates............ Interest on each class of Offered
Certificates (other than certain classes
of Stripped Principal Certificates and
certain classes of REMIC Residual
Certificates) of each series will accrue
at the applicable Pass-Through Rate on the
Certificate Balance or, in the case of
certain classes of Stripped Interest
Certificates, the Notional Amount thereof
outstanding from time to time and will be
distributed to Certificateholders as
provided in the related Prospectus
Supplement (each of the specified dates on
which distributions are to be made, a
"Distribution Date"). Distributions of
interest with respect to one or more
classes of Certificates (collectively,
"Accrual Certificates") may not commence
until the occurrence of certain events,
such as the retirement of one or more
other classes of Certificates, and
interest accrued with respect to a class
of Accrual Certificates prior to the
occurrence of such an event will either be
added to the Certificate Balance thereof
or otherwise deferred. Distributions of
interest with respect to one or more
classes of Certificates may be reduced to
the extent of certain delinquencies,
losses and other contingencies described
herein and in the related Prospectus
Supplement. See "Risk
Factors--Prepayments; Average Life of
Certificates; Yields", "Yield and Maturity
Considerations", and "Description of the
Certificates--Distributions of Interest on
the Certificates". Distributions of
Principal of the
Certificates................... Each class
of Certificates of each series (other than
certain classes of Stripped Interest
Certificates and certain classes of REMIC
Residual Certificates) will have a
Certificate Balance. The Certificate
Balance of a class of Certificates
outstanding from time to time will
represent the maximum amount that the
holders thereof
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<PAGE>
are then entitled to receive in respect of
principal from future cash flow on the
assets in the related Trust Fund. Unless
otherwise specified in the related
Prospectus Supplement, the initial
aggregate Certificate Balance of all
classes of a series of Certificates will
not be greater than the outstanding
principal balance of the related Mortgage
Assets as of a specified date (the
"Cut-off Date"), after application of
scheduled payments due on or before such
date, whether or not received. As and to
the extent described in the related
Prospectus Supplement, distributions of
principal with respect to each series of
Certificates will be made on each
Distribution Date to the holders of the
class or classes of Certificates of such
series entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Distributions
of principal with respect to one or more
classes of Certificates may be made at a
rate that is faster (and, in some cases,
substantially faster) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund.
Distributions of principal with respect to
one or more classes of Certificates may
not commence until the occurrence of
certain events, such as the retirement of
one or more other classes of Certificates
of the same series, or may be made at a
rate that is slower (and, in some cases,
substantially slower) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund.
Distributions of principal with respect to
one or more classes of Certificates (each
such class, a "Controlled Amortization
Class") may be made, subject to available
funds, based on a specified principal
payment schedule. Distributions of
principal with respect to one or more
classes of Certificates (each such class,
a "Companion Class") may be contingent on
the specified principal payment schedule
for a Controlled Amortization Class of the
same series and the rate at which payments
and other collections of principal on the
Mortgage Assets in the related Trust Fund
are received. Unless otherwise specified
in the related Prospectus Supplement,
distributions of principal of any class of
Certificates will be made on a pro rata
basis among all of the Certificates of
such class. See "Description of the
Certificates--Distributions of Principal
of the Certificates".
Advances......................... If and to the extent provided in the
related Prospectus Supplement, if a Trust
Fund includes Mortgage Loans, the Master
Servicer, the Special Servicer, the
Trustee, any provider of Credit Support
and/or any other specified person may be
obligated to make, or have the option of
making, certain advances with respect to
delinquent scheduled payments of principal
and/or interest on such Mortgage Loans.
Any such advances made with respect to a
particular Mortgage Loan will be
reimbursable from subsequent recoveries in
respect of such Mortgage Loan and
otherwise to the extent described herein
and in the related Prospectus Supplement.
If and to the extent provided in the
Prospectus Supplement for a series of
Certificates, any entity making such
advances may be entitled to
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<PAGE>
receive interest thereon for the period
that such advances are outstanding,
payable from amounts in the related Trust
Fund. See "Description of the
Certificates--Advances in Respect of
Delinquencies". If a Trust Fund includes
MBS, any comparable advancing obligation
of a party to the related Pooling
Agreement, or of a party to the related
MBS Agreement, will be described in the
related Prospectus Supplement.
Termination...................... If so specified in the related Prospectus
Supplement, a series of Certificates may
be subject to optional early termination
through the repurchase of the Mortgage
Assets in the related Trust Fund by the
party or parties specified therein, under
the circumstances and in the manner set
forth therein. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount, a
party specified therein may be authorized
or required to solicit bids for the
purchase of all of the Mortgage Assets of
the related Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire
such class or classes, under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates--Termination."
Registration of Book-Entry
Certificates................... If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates of any series will be
offered in book-entry format
(collectively, "Book-Entry Certificates")
through the facilities of The Depository
Trust Company ("DTC"). Each class of
Book-Entry Certificates will be initially
represented by one or more Certificates
registered in the name of a nominee of
DTC. No person acquiring an interest in a
class of Book-Entry Certificates (a
"Certificate Owner") will be entitled to
receive a Certificate of such class in
fully registered, definitive form (a
"Definitive Certificate"), except under
the limited circumstances described
herein. See "Risk Factors--Book-Entry
Registration" and "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates".
Tax Status of the Certificates... The Certificates of each series will
constitute either (i) "regular interests"
("REMIC Regular Certificates") and
"residual interests" ("REMIC Residual
Certificates") in a Trust Fund, or a
designated portion thereof, treated as a
real estate mortgage investment conduit (a
"REMIC") under Sections 860A through 860G
of the Internal Revenue Code of 1986 (the
"Code"), or (ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as
a grantor trust under applicable
provisions of the Code.
A. REMIC...................... REMIC Regular Certificates generally will
be treated as debt obligations of the
applicable REMIC for federal income tax
purposes. In general, to the extent the
assets and income of the REMIC are treated
as qualifying assets and income under the
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<PAGE>
following sections of the Code, REMIC
Regular Certificates owned by a real
estate investment trust will be treated as
"real estate assets" for purposes of
Section 856(c)(5)(A) of the Code and
interest income therefrom will be treated
as "interest on obligations secured by
mortgages on real property" for purposes
of Section 856(c)(3)(B) of the Code. In
addition, REMIC Regular Certificates will
be "qualified mortgages" within the
meaning of Section 860G(a)(3) of the Code.
Moreover, if 95% or more of the assets and
the income of the REMIC qualify for any of
the foregoing treatments, the REMIC
Regular Certificates will qualify for the
foregoing treatments in their entirety.
However, REMIC Regular Certificates owned
by a thrift institution will constitute
"loans . . . secured by an interest in
real property" for purposes of Section
7701(a)(19)(C)(v) of the Code only if so
specified in the related Prospectus
Supplement. Holders of REMIC Regular
Certificates must report income with
respect thereto on the accrual method,
regardless of their method of tax
accounting generally. Holders of any class
of REMIC Regular Certificates issued with
original issue discount generally will be
required to include the original issue
discount in income as it accrues, which
will be determined using an initial
prepayment assumption and taking into
account, from time to time, actual
prepayments occurring at a rate different
than the prepayment assumption. See
"Material Federal Income Tax
Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates" and
"--REMICs--Foreign Investors in REMIC
Certificates".
REMIC Residual Certificates generally will
be treated as representing an interest in
qualifying assets and income to the same
extent described above for institutions
subject to Sections 856(c)(5)(a) and
856(c)(3)(B) of the Code, but not for
purposes of Section 7701(a)(19)(C)(v) of
the Code unless otherwise stated in the
related Prospectus Supplement. A portion
(or, in certain cases, all) of the income
from REMIC Residual Certificates (i) may
not be offset by any losses from other
activities of the holder of such REMIC
Residual Certificates, (ii) may be treated
as unrelated business taxable income for
holders of REMIC Residual Certificates
that are subject to tax on unrelated
business taxable income (as defined in
Section 511 of the Code), and (iii) may be
subject to foreign withholding rules. In
addition, transfers of certain REMIC
Residual Certificates may be prohibited,
or may be disregarded under some
circumstances for federal income tax
purposes. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners
of REMIC Residual Certificates" and
"--REMICs--Foreign Investors in REMIC
Certificates".
B. Grantor Trust............... Unless otherwise provided in the related
Prospectus Supplement, Grantor Trust
Certificates may be either (i)
Certificates that have a Certificate
Balance and a Pass-Through Rate or that
are Stripped
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<PAGE>
Principal Certificates (collectively,
"Grantor Trust Fractional Interest
Certificates") or (ii) Stripped Interest
Certificates.
Owners of Grantor Trust Fractional
Interest Certificates will be treated for
federal income tax purposes as owners of
an undivided pro rata interest in the
assets of the related Trust Fund, and
generally will be required to report their
pro rata share of the entire gross income
(including amounts incurred as servicing
or other fees and expenses) from the
Mortgage Assets and will be entitled,
subject to certain limitations, to deduct
their pro rata shares of any servicing or
other fees and expenses incurred during
the year. Holders of Grantor Trust
Fractional Interest Certificates generally
will be treated as owning an interest in
qualifying assets and income under
Sections 856(c)(5)(A), 856(c)(3)(B) and
860G(a)(3)(A) of the Code, but will not be
so treated for purposes of Section
7701(a)(19)(C)(v) of the Code unless
otherwise stated in the related Prospectus
Supplement.
It is unclear whether Stripped Interest
Certificates will be treated as
representing an ownership interest in
qualifying assets and income under
Sections 856(c)(5)(A) and 856(c)(3)(B) of
the Code. However, such Certificates will
not be treated as representing an
ownership interest in assets described in
Section 7701(a)(19)(C)(v) of the Code
unless otherwise stated in the related
Prospectus Supplement. The taxation of
holders of Stripped Interest Certificates
is uncertain in various respects,
including in particular the method such
holders should use to recover their
purchase price and to report their income
with respect to such Stripped Interest
Certificates. See "Material Federal Income
Tax Consequences--Grantor Trust Funds".
Investors are advised to consult their tax
advisors and to review "Material Federal
Income Tax Consequences" herein and
"Certain Federal Income Tax Consequences"
in the related Prospectus Supplement.
ERISA Considerations............. Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code, should carefully review with their
legal advisors whether the purchase or
holding of Offered Certificates could give
rise to a transaction that is prohibited
or is not otherwise permissible either
under ERISA or Section 4975 of the Code.
See "ERISA Considerations" herein and in
the related Prospectus Supplement.
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<PAGE>
Legal Investment................. The Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 only if so
specified in the related Prospectus
Supplement. Investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
Rating........................... At their respective dates of issuance,
each class of Offered Certificates will be
rated not lower than investment grade by
one or more nationally recognized
statistical rating agencies (each, a
"Rating Agency"). See "Rating" herein and
in the related Prospectus Supplement.
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<PAGE>
RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following factors and any
other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
Certain Factors Adversely Affecting Resale of the Offered Certificates
There can be no assurance that a secondary market for the Offered
Certificates of any series will develop or, if it does develop, that it will
provide holders with liquidity of investment or will continue for as long as
such Certificates remain outstanding. The Prospectus Supplement for any series
of Offered Certificates may indicate that an underwriter specified therein
intends to make a secondary market in such Offered Certificates; however, no
underwriter will be obligated to do so. Any such secondary market may provide
less liquidity to investors than any comparable market for securities that
evidence interests in single-family mortgage loans.
The primary source of ongoing information regarding the Offered
Certificates of any series, including information regarding the status of the
related Mortgage Assets and any Credit Support for such Certificates, will be
the periodic reports to Certificateholders to be delivered pursuant to the
related Pooling Agreement as described herein under the heading "Description of
the Certificates--Reports to Certificateholders". There can be no assurance that
any additional ongoing information regarding the Offered Certificates of any
series will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely affect
the liquidity thereof, even if a secondary market for such Certificates does
develop.
Insofar as a secondary market does develop for any series of Offered
Certificates or class thereof, the market value of such Certificates will be
affected by several factors, including the perceived liquidity and riskiness
thereof, the anticipated cash flow thereon (which may vary widely depending upon
the prepayment and default assumptions applied in respect of the underlying
Mortgage Loans) and prevailing interest rates. The price payable at any given
time in respect of certain classes of Offered Certificates (in particular, a
class with a relatively long average life, a Companion Class or a class of
Stripped Interest Certificates or Stripped Principal Certificates) may be
extremely sensitive to small fluctuations in prevailing interest rates; and the
relative change in price for an Offered Certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for such Offered Certificate in response to an equal
but opposite movement in such rates. Accordingly, the sale of Offered
Certificates by a holder in any secondary market that may develop may be at a
discount from the price paid by such holder. The Sponsor is not aware of any
source through which price information about the Offered Certificates will be
generally available on an ongoing basis.
Except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates--Termination".
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<PAGE>
Limited Assets for Payment of Certificates
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Sponsor or any of its
affiliates, by any governmental agency or instrumentality or by any other
person; and no Offered Certificate of any series will represent a claim against
or security interest in the Trust Funds for any other series. Accordingly, if
the related Trust Fund has insufficient assets to make payments on a series of
Offered Certificates, no other assets will be available for payment of the
deficiency. Additionally, certain amounts on deposit from time to time in
certain funds or accounts constituting part of a Trust Fund, including the
Certificate Account and any accounts maintained as Credit Support, may be
withdrawn under certain conditions, as described in the related Prospectus
Supplement, for purposes other than the payment of principal of or interest on
the related series of Certificates. If so provided in the Prospectus Supplement
for a series of Certificates consisting of one or more classes of Subordinate
Certificates, on any Distribution Date in respect of which losses or shortfalls
in collections on the Mortgage Assets have been incurred, the amount of such
losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations specified
in such Prospectus Supplement.
Prepayments; Average Life of Certificates; Yields
As a result of, among other things, prepayments on the Mortgage Loans in
any Trust Fund, the amount and timing of distributions of principal and/or
interest on the Offered Certificates of the related series may be highly
unpredictable. Prepayments on the Mortgage Loans in any Trust Fund will result
in a faster rate of principal payments on one or more classes of the related
series of Certificates than if payments on such Mortgage Loans were made as
scheduled. Thus, the prepayment experience on the Mortgage Loans may affect the
average life of each class of such Certificates, including a class of Offered
Certificates. The rate of principal payments on pools of mortgage loans varies
among pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax and legal factors, as well as acts of God.
For example, if prevailing interest rates fall significantly below the Mortgage
Rates borne by the Mortgage Loans included in a Trust Fund, principal
prepayments thereon are likely to be higher than if prevailing interest rates
remain at or above the rates borne by those Mortgage Loans. Conversely, if
prevailing interest rates rise significantly above the Mortgage Rates borne by
the Mortgage Loans included in a Trust Fund, principal prepayments thereon are
likely to be lower than if prevailing interest rates remain at or below the
rates borne by those Mortgage Loans. The foregoing is subject, however, to,
among other things, the particular terms of the Mortgage Loans (e.g., provisions
which prohibit voluntary prepayments during specified periods or impose
penalties in connection therewith) and the ability of borrowers to get new
financing. There can be no assurance as to the actual rate of prepayment on the
Mortgage Loans in any Trust Fund or that such rate of prepayment will conform to
any model described herein or in any Prospectus Supplement. As a result,
depending on the anticipated rate of prepayment for the Mortgage Loans in any
Trust Fund, the retirement of any class of Certificates of the related series
could occur significantly earlier or later than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms of such Certificates. A class of Certificates,
including a class of Offered Certificates, may provide that on any Distribution
Date the holders of such Certificates are entitled to a pro rata share of the
prepayments on the Mortgage Loans in the related Trust Fund that are
distributable on such date, to a disproportionately large share (which, in some
cases, may be all) of such prepayments, or to a disproportionately small share
(which, in some cases, may be none) of such prepayments. A class of Certificates
that entitles the holders thereof to a disproportionately large share of the
prepayments on the Mortgage Loans in the related Trust Fund enhances the risk of
early retirement of such class ("call risk") if the rate of prepayment is
relatively fast; while a class of Certificates that entitles the holders thereof
to a disproportionately small share of the prepayments on the Mortgage Loans in
the related Trust Fund enhances
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the risk of an extended average life of such class ("extension risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
classes of Certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more classes of Certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such Mortgage
Loans).
A series of Certificates may include one or more Controlled Amortization
Classes that will entitle the holders thereof to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of Certificates, a Controlled
Amortization Class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the Mortgage Loans in the related Trust Fund
remains relatively constant at the rate, or within the range of rates, of
prepayment used to establish the specific principal payment schedule for such
Certificates. Prepayment risk with respect to a given Mortgage Asset Pool does
not disappear, however, and the stability afforded to a Controlled Amortization
Class comes at the expense of one or more Companion Classes of the same series,
any of which Companion Classes may also be a class of Offered Certificates. In
general, and as more specifically described in the related Prospectus
Supplement, a Companion Class may entitle the holders thereof to a
disproportionately large share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Mortgage Loans in the related Trust Fund when the rate of prepayment is
relatively slow. As and to the extent described in the related Prospectus
Supplement, a Companion Class absorbs some (but not all) of the "call risk"
and/or "extension risk" that would otherwise belong to the related Controlled
Amortization Class if all payments of principal of the Mortgage Loans in the
related Trust Fund were allocated on a pro rata basis.
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recoup its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which they are purchased at a discount or premium and
the amount and timing of distributions thereon. An investor should consider, in
the case of any Offered Certificate purchased at a discount, the risk that a
slower than anticipated rate of principal payments 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 any Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments could result in
an actual yield to such investor that is lower than the anticipated yield. See
"Yield and Maturity Considerations" herein.
When considering the effects of prepayments on the average life and yield
of an Offered Certificate, an investor should also consider provisions of the
related Pooling Agreement that permit the optional early termination of the
class of Certificates to which such Offered Certificate belongs. If so specified
in the related Prospectus Supplement, a series of Certificates may be subject to
optional early termination through the repurchase of the Mortgage Assets in the
related Trust Fund by the party or parties specified therein, under the
circumstances and in the manner set forth therein. If so provided in the related
Prospectus Supplement, upon the reduction of the Certificate Balance of a
specified class or classes of Certificates by a specified percentage or amount,
a party specified therein may be authorized or required to solicit bids for the
purchase of all of the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such class or classes,
under the circumstances and in the manner set forth therein. See "Description of
the Certificates--Termination".
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Limited Nature of Credit Ratings
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such Offered
Certificates will receive payments to which such Certificateholders are entitled
under the related Pooling Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Mortgage
Loans will be made, the degree to which the rate of such prepayments might
differ from that originally anticipated or the likelihood of early optional
termination of the related Trust Fund. Furthermore, such rating will not address
the possibility that prepayment of the related Mortgage Loans at a higher or
lower rate than anticipated by an investor may cause such investor to experience
a lower than anticipated yield or that an investor that purchases an Offered
Certificate at a significant premium might fail to recoup its initial investment
under certain prepayment scenarios.
The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. If the commercial
or multifamily residential real estate markets should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans 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 by institutional lenders. In
addition, adverse economic conditions (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 rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by Credit Support, such losses may be
borne, at least in part, by the holders of one or more classes of Offered
Certificates of the related series. See "Description of Credit Support" and
"Rating".
Certain Risks Associated with Mortgage Loans Secured by Commercial and
Multifamily Properties
Mortgage Loans made on the security of multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with loans made on the
security of single-family property. See "Description of the Trust
Funds--Mortgage Loans". The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower; thus, the value of an income-producing property is
directly related to the net operating income derived from such property. If the
net operating income of the property is reduced (for example, if rental or
occupancy rates decline or real estate tax rates or other operating expenses
increase), the borrower's ability to repay the loan may be impaired. A number of
the Mortgage Loans may be secured by liens on owner-occupied Mortgaged
Properties or on Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the borrower or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by risks generally incident to
interests in real property, including various events which the Sponsor, a Master
Servicer and a Special Servicer may be unable to predict or control such as
changes in general or local economic conditions and/or specific industry
segments; declines in real estate values; declines in rental or occupancy rates;
increases
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in interest rates, real estate tax rates and other operating expenses; changes
in governmental rules, regulations and fiscal policies, including environmental
legislation; acts of God; environmental hazards; and social unrest and civil
disturbances.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance and
financing of health care institutions. Hotel and motel properties are often
operated pursuant to franchise, management or operating agreements which may be
terminable by the franchisor or operator. Moreover, the transferability of a
hotel's operating, liquor and other licenses upon a transfer of the hotel,
whether through purchase or foreclosure, is subject to local law requirements.
It is anticipated that some or all of the Mortgage Loans included in any
Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to those Mortgage Loans, recourse in the event
of borrower default will be limited to the specific real property and other
assets, if any, that were pledged to secure the Mortgage Loan. However, even
with respect to those Mortgage Loans that provide for recourse against the
borrower and its assets generally, there can be no assurance that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery in respect of a defaulted Mortgage Loan
in excess of the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Balloon Payments; Borrower Default
Certain of the Mortgage Loans included in a Trust Fund may not be fully
amortizing, and in some cases may provide for no amortization over their terms
to maturity and, thus, will require substantial principal payments (that is,
balloon payments) at their stated maturity. Mortgage Loans of this type involve
a greater degree of risk than self-amortizing loans because the ability of a
borrower to make a balloon payment typically will depend upon its ability either
to refinance the loan or to sell the related Mortgaged Property. The ability of
a borrower to accomplish either of these goals will be affected by a number of
factors, including the value of the related Mortgaged Property, the level of
available mortgage rates at the time of sale or refinancing, the borrower's
equity in the related Mortgaged Property, the financial condition and operating
history of the borrower and the related Mortgaged Property, tax laws, rent
control laws (with respect to certain residential properties), Medicaid and
Medicare reimbursement rates (with respect to hospitals and nursing homes),
prevailing general economic conditions and the availability of credit for loans
secured by commercial or multifamily, as the case may be, real properties
generally. Neither the Sponsor nor any of its affiliates will be required to
refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer and/or Special Servicer for a Trust Fund will be permitted
(within prescribed limits) to extend and modify the Mortgage Loans in such Trust
Fund that are in default or as to which a payment default is either reasonably
foreseeable or imminent. In addition, if any such Mortgage Loan thereafter comes
current in accordance with its modified terms, the Special Servicer may receive
a workout fee based on receipts from or proceeds of such Mortgage Loans. While a
Master Servicer and/or Special Servicer generally will be required to determine
that any such extension or modification is reasonably likely to produce a
greater recovery on a present value basis than liquidation, there can be no
assurance that any such extension or modification (particularly taking account
of the payment of a workout fee to the Special Servicer) will in fact increase
the present value of receipts from or proceeds of the affected Mortgage Loans.
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Credit Support Limitations
The Prospectus Supplement for a series of Offered Certificates will
describe any Credit Support provided with respect thereto. Use of Credit Support
will be subject to the conditions and limitations described herein and in the
related Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates) if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the later paid classes of
Certificates of such series has been repaid in full. As a result, the impact of
losses and shortfalls experienced with respect to the Mortgage Assets may fall
primarily upon those classes of Certificates having a later right of payment.
Moreover, if a form of Credit Support covers more than one series of
Certificates, holders of Certificates of one series will be subject to the risk
that such Credit Support will be exhausted by the claims of the holders of
Certificates of one or more other series.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates that take into account an
assumed level of defaults, delinquencies and losses on the underlying Mortgage
Assets. There can, however, be no assurance that the loss experience on the
related Mortgage Assets will not exceed such assumed levels. See "--Limited
Nature of Credit Ratings", "Description of the Certificates" and "Description of
Credit Support".
Enforceability
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will generally enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
Notes and mortgages may contain provisions that obligate the Mortgagor to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the Mortgagor's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a Mortgagor
for delinquent payments. Certain states also limit the amounts that a lender may
collect from a Mortgagor as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Leases and Rents as Security for a Mortgage Loan
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The Mortgage Loans included in any Trust Fund typically will be secured by
an assignment of leases and rents pursuant to which the borrower assigns to the
lender its right, title and interest as landlord under the leases of the related
Mortgaged Property, and the income derived therefrom, as further security for
the related Mortgage Loan, while retaining a license to collect rents for so
long as there is no default. If the borrower defaults, the license terminates
and the lender is entitled to collect rents. Some state laws may require that
the lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the borrower, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
Environmental Risks
Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances on a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage. Unless
otherwise specified in the related Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, then the related Pooling Agreement will contain
provisions generally to the effect that neither the Master Servicer nor the
Special Servicer may, on behalf of the Trust Fund, acquire title to a Mortgaged
Property or assume control of its operation unless the Special Servicer, based
upon a report prepared by a person who regularly conducts environmental site
assessments, has made the determination that it is appropriate to do so, as
described under "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans". See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks".
Special Hazard Losses
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and Special Servicer for any Trust Fund will each be required to
cause the borrower on each Mortgage Loan serviced by it to maintain such
insurance coverage in respect of the related Mortgaged Property as is required
under the related Mortgage, including hazard insurance; provided that, as and to
the extent described herein and in the related Prospectus Supplement, each of
the Master Servicer and the Special Servicer may satisfy its obligation to cause
hazard insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke, windstorm and
hail, and riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies covering the
Mortgaged Properties will be underwritten by different insurers under different
state laws in accordance with different applicable state forms, and therefore
will not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic animals
and other kinds of risks not specified in the preceding sentence. Unless the
related Mortgage specifically requires the mortgagor to insure against physical
damage arising from such causes, then, to the extent any consequent losses are
not covered by Credit Support, such losses may be borne, at least in part, by
the holders of one or more classes of Offered Certificates of the related
series. See "Description of the Pooling Agreements--Hazard Insurance Policies".
ERISA Considerations
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Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. See "ERISA Considerations".
Certain Federal Tax Considerations Regarding REMIC Residual Certificates
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described under "Material Federal Income Tax
Consequences--REMICs". Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. The requirement that
holders of REMIC Residual Certificates report their pro rata share of the
taxable income and net loss of the REMIC will continue until the Certificate
Balances of all classes of Certificates of the related series have been reduced
to zero, even though holders of REMIC Residual Certificates have received full
payment of their stated interest and principal. A portion (or, in certain
circumstances, all) of such Certificateholder's share of the REMIC taxable
income may be treated as "excess inclusion" income to such holder, which (i)
generally will not be subject to offset by losses from other activities, (ii)
for a tax-exempt holder, will be treated as unrelated business taxable income
and (iii) for a foreign holder, will not qualify for exemption from withholding
tax. Individual holders of REMIC Residual Certificates may be limited in their
ability to deduct servicing fees and other expenses of the REMIC. In addition,
REMIC Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the taxable
income arising in a given year on a REMIC Residual Certificate will not be equal
to the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield. REMIC
Residual Certificates may have "phantom income" associated with them, which is
to say that taxable income may be reportable with respect to a REMIC Residual
Certificate early in the term of the related REMIC with a corresponding amount
of tax losses reportable in later years of that REMIC's term. Under these
circumstances, the present value of the tax detriments with respect to the
related REMIC Residual Certificates exceeds the present value of the related tax
benefits accruing later. Therefore, the after-tax yield on a REMIC Residual
Certificate may be significantly less than that of a corporate bond or stripped
instrument having similar cash flow characteristics, and certain REMIC Residual
Certificates may have a negative "value".
Book-Entry Registration
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be issued as Book-Entry
Certificates. Each class of Book-Entry Certificates will be initially
represented by one or more Certificates registered in the name of a nominee for
DTC. As a result, unless and until corresponding Definitive Certificates are
issued, the Certificate Owners with respect to any class of Book-Entry
Certificates will be able to exercise the rights of Certificateholders only
indirectly through DTC and its participating organizations ("Participants"). In
addition, the access of Certificate Owners to information regarding the
Book-Entry Certificates in which they hold interests may be limited. Conveyance
of notices and other communications by DTC to its Participants, and directly and
indirectly through such Participants to Certificate Owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Furthermore, as described herein,
Certificate Owners may suffer delays in the receipt of payments on the
Book-Entry Certificates, and the ability of any Certificate Owner to pledge or
otherwise take actions with respect to its interest in the Book-Entry
Certificates may be limited due to the lack of a physical certificate evidencing
such interest. See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
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Potential Conflicts of Interest
If so specified in the related Prospectus Supplement, the Master Servicer
may also perform the duties of Special Servicer, and the Master Servicer, the
Special Servicer or the Trustee may also perform the duties of REMIC
Administrator. If so specified in the related Prospectus Supplement, an
affiliate of the Sponsor, or the Mortgage Asset Seller or an affiliate thereof,
may perform the functions of Master Servicer, Special Servicer and/or REMIC
Administrator. In addition, any party to a Pooling Agreement or any affiliate
thereof may own Certificates. Investors in the Offered Certificates should
consider that any resulting conflicts of interest could affect the performance
of duties under the related Pooling Agreement. For example, if the same party
serves as both Master Servicer and Special Servicer for any Trust Fund and, as
Master Servicer, such party is obligated to make advances in respect of
delinquent payments on the Mortgage Loans in such Trust Fund, or if the Master
Servicer or Special Servicer for any Trust Fund owns a significant portion of
any class of Offered Certificates of the related series, then, notwithstanding
the applicable servicing standard imposed by the related Prospectus Supplement,
either such fact could influence servicing decisions in respect of the Mortgage
Loans in such Trust Fund. Also, as specified in the related Prospectus
Supplement, the holders of interests in a specified class or classes of
Subordinate Certificates may have the ability to replace the Special Servicer or
direct the Special Servicer's actions in connection with liquidating or
modifying defaulted Mortgage Loans. Accordingly, investors in those Classes of
Offered Certificates more senior thereto should consider that, although the
Special Servicer will be obligated to act in accordance with the terms of the
Pooling Agreement and will be governed by the servicing standard described
therein, it may have interests when dealing with defaulted Mortgage Loans that
are in conflict with those of holders of the Offered Certificates.
Delinquent and Non-Performing Mortgage Loans
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. Unless otherwise described in the related Prospectus
Supplement, the servicing of such Mortgage Loans as to which a specified number
of payments are delinquent will be performed by the Special Servicer; however,
the same entity may act as both Master Servicer and Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or non-performing Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage Loans
in the Trust Fund may adversely affect the rate of defaults and prepayments on
the Mortgage Assets in such Trust Fund and the yield on the Offered Certificates
of such series. See "Description of the Trust Funds--Mortgage Loans--General".
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) one or more
various types of multifamily or commercial mortgage loans or participations
therein (the "Mortgage Loans"), (ii) mortgage pass-through certificates or other
mortgage-backed securities ("MBS") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or commercial
mortgage loans or (iii) a combination of Mortgage Loans and MBS (collectively,
"Mortgage Assets"). Each Trust Fund will be established by Mortgage Capital
Funding, Inc. (the "Sponsor"). Each Mortgage Asset will be selected by the
Sponsor for inclusion in a Trust Fund from among those purchased, either
directly or indirectly, from a prior holder thereof (a "Mortgage Asset Seller"),
which prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such MBS and may be an affiliate of the Sponsor. The Mortgage Assets
will not be guaranteed or insured by the Sponsor or any of its affiliates or,
unless otherwise provided in the related Prospectus Supplement, by any
governmental agency or instrumentality or by any other person. The discussion
below under the heading "--Mortgage Loans", unless otherwise noted, applies
equally to mortgage loans underlying any MBS included in a particular Trust
Fund.
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Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create liens on fee or leasehold estates in
properties (the "Mortgaged Properties") consisting of, without limitation, (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores, hotels or motels, nursing homes, hospitals or other health
care-related facilities, mobile home parks, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, mixed use or various
other types of income-producing properties or unimproved land ("Commercial
Properties"). The Multifamily Properties may include mixed commercial and
residential structures and may include apartment buildings owned by private
cooperative housing corporations ("Cooperatives"). Unless otherwise specified in
the related Prospectus Supplement, each Mortgage will create a first priority
mortgage lien on a borrower's fee estate in a Mortgaged Property. If a Mortgage
creates a lien on a borrower's leasehold estate in a property, then, unless
otherwise specified in the related Prospectus Supplement, the term of any such
leasehold will exceed the term of the Mortgage Note by at least ten years.
Unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan will have been originated by a person (the "Originator") other than the
Sponsor; however, the Originator may be or may have been an affiliate of the
Sponsor.
If so specified in the related Prospectus Supplement, Mortgage Assets for
a series of Certificates may include Mortgage Loans made on the security of real
estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing as
of the date such Certificates are issued. In that case, the related Prospectus
Supplement will set forth, as to each such Mortgage Loan, available information
as to the period of such delinquency or non-performance, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income.) Moreover, some or all of the Mortgage Loans
included in a particular Trust Fund may be non-recourse loans, which means that,
absent special facts, recourse in the case of default will be limited to the
Mortgaged Property and such other assets, if any, that were pledged to secure
repayment of the Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments on the Mortgage Loan and any other loans senior thereto that are
secured by the related Mortgaged Property. Unless otherwise defined in the
related Prospectus Supplement, "Net Operating Income" means, for any given
period, the total operating revenues derived from a Mortgaged Property during
such period, minus the total operating expenses incurred in respect of such
Mortgaged Property during such period other than (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt service
on the related Mortgage Loan or on any other loans that are secured by such
Mortgaged Property. The Net Operating Income of a Mortgaged Property will
fluctuate over time and may or may not be sufficient to cover debt service on
the related Mortgage Loan at any given time. As the primary source of the
operating revenues of a non-owner occupied, income-producing property, rental
income (and maintenance payments from
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tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis (i.e., six months or
less) such as certain health care-related facilities, hotels and motels, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties typically leased for
longer periods, such as warehouses, retail stores, office buildings and
industrial facilities. Commercial Properties may be owner-occupied or leased to
a single tenant. Thus, the Net Operating Income of such a Mortgaged Property may
depend substantially on the financial condition of the borrower or the single
tenant, and Mortgage Loans secured by liens on such properties may pose greater
risks than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Mortgage Loan. As may
be further described in the related Prospectus Supplement, in some cases leases
of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
measure of risk of loss if a property must be liquidated following a default.
Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans pari passu therewith or senior thereto that
are secured by the related Mortgaged Property to (ii) the Value of the related
Mortgaged Property. The "Value" of a Mortgaged Property is generally its fair
market value determined in an appraisal obtained by the Originator at the
origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus the
greater the cushion provided to the lender against loss on liquidation following
a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the risk of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
changes in economic conditions and the real estate market. Moreover, even when
current, an appraisal is not necessarily a reliable estimate of value. Appraised
values of income-producing properties are generally based on the market
comparison method (recent resale value of comparable properties at the date of
the appraisal), the cost replacement method (the cost of replacing the property
at such date), the income capitalization method (a projection of value based
upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods can present analytical difficulties. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and provide significantly different results, an
accurate determination of value and, correspondingly, a reliable analysis of
default and loss risks, is even more difficult.
While the Sponsor believes that the foregoing considerations are important
factors that generally distinguish loans secured by liens on income-producing
real estate from single-family mortgage loans there is no assurance that all of
such factors will in fact have been prudently considered by the Originators of
the Mortgage Loans, or that, for a particular Mortgage Loan, they are complete
or relevant. See "Risk Factors--Certain Risks
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Associated with Mortgage Loans Secured by Commercial and Multifamily Properties"
and "--Balloon Payments; Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will have had
original terms to maturity of not more than 40 years, and will provide for
scheduled payments of principal, interest or both, to be made on specified dates
("Due Dates") that occur monthly, quarterly, semi-annually or annually. A
Mortgage Loan (i) may provide for accrual of interest thereon at an interest
rate (a "Mortgage Rate") that is fixed over its term or that adjusts from time
to time, or that may be converted at the borrower's election from an adjustable
to a fixed Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, and in
some cases back again, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing over its term to maturity or may
require a balloon payment on its stated maturity date, (iv) may provide for no
amortization prior to its stated maturity date, and (v) may contain a
prohibition on prepayment (the period of such prohibition, a "Lock-out Period"
and its date of expiration, a "Lock-out Date") and/or require payment of a
premium or a yield maintenance penalty (a "Prepayment Premium") in connection
with a prepayment, in each case as described in the related Prospectus
Supplement. A Mortgage Loan may also contain a provision that entitles the
lender to a share of profits realized from the operation or disposition of the
Mortgaged Property (an "Equity Participation"), as described in the related
Prospectus Supplement. If holders of any class or classes of Offered
Certificates of a series will be entitled to all or a portion of an Equity
Participation in addition to normal payments of interest on and/or principal of
such Offered Certificates, the related Prospectus Supplement will describe the
Equity Participation and the method or methods by which distributions in respect
thereof will be made to such holders.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans
which will generally be current as of a date specified in the related Prospectus
Supplement and which, to the extent then applicable and specifically known to
the Sponsor, will include the following: (i) the aggregate outstanding principal
balance and the largest, smallest and average outstanding principal balance of
the Mortgage Loans, (ii) the type or types of property that provide security for
repayment of the Mortgage Loans, (iii) the origination date and maturity date of
the Mortgage Loans, (iv) the original and remaining terms to maturity of the
Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the current
Loan-to-Value Ratios of the Mortgage Loans, or the range thereof, and the
weighted average current Loan-to-Value Ratio of the Mortgage Loans, in each case
based on an appraisal done at origination or, in some instances, a more recent
appraisal, (vi) the Mortgage Rates borne by the Mortgage Loans, or the range
thereof, and the weighted average Mortgage Rate borne by the Mortgage Loans,
(vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including without limitation
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will, as to certain
Mortgage Loans, provide the information described above on a loan-by-loan basis
and will also contain certain information available to the Sponsor that pertains
to the provisions of leases and the nature of tenants of the Mortgaged
Properties. If the Sponsor is unable to tabulate the specific information
described above at the time Offered Certificates of a series are initially
offered, more general information of the nature described above will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report which will be available to purchasers of those Certificates at or
before the initial issuance thereof and will be filed as part of a Current
Report on Form 8-K with the Commission within fifteen days following such
issuance.
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MBS
MBS may include (i) private (that is, not guaranteed or insured by the
United States or any agency or instrumentality thereof) mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured or
guaranteed by FHLMC, FNMA, GNMA or FAMC, provided that each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a pooling and servicing
agreement, an indenture or similar agreement (an "MBS Agreement"). The issuer of
the MBS (the "MBS Issuer") and/or the servicer of the underlying mortgage loans
(the "MBS Servicer") will have entered into the MBS Agreement, generally with a
trustee (the "MBS Trustee") or, in the alternative, with the original purchaser
or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Servicer or the MBS Trustee on the
dates specified in the related Prospectus Supplement. The MBS Issuer or the MBS
Servicer or another person specified in the related Prospectus Supplement may
have the right or obligation to repurchase or substitute assets underlying the
MBS after a certain date or under other circumstances specified in the related
Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will reflect the characteristics of the MBS and the
underlying mortgage loans and generally will have been established on the basis
of the requirements of any Rating Agency that may have assigned a rating to the
MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate of the
MBS or the formula for determining such rates, (iv) the payment characteristics
of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vi) a description of the credit support, if any, (vii) the circumstances under
which the related underlying mortgage loans, or the MBS themselves, may be
purchased prior to their maturity, (viii) the terms on which mortgage loans may
be substituted for those originally underlying the MBS, (ix) the type of
mortgage loans underlying the MBS and, to the extent available to the Sponsor
and appropriate under the circumstances, such other information in respect of
the underlying mortgage loans described under "--Mortgage Loans--Mortgage Loan
Information in Prospectus Supplements" and (x) the characteristics of any cash
flow agreements that relate to the MBS.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will, to the extent provided in the related Pooling
Agreement and described herein and in the related Prospectus Supplement, deposit
all payments and collections received or advanced with respect to the Mortgage
Assets and other assets in the Trust Fund. A Certificate Account may be
maintained as an interest bearing or a non-interest bearing account, and funds
held therein may be held as cash or invested in certain obligations acceptable
to each Rating Agency rating one or more classes of the related series of
Offered Certificates.
Credit Support
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If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more classes of Certificates in the
related series in the form of subordination of one or more other classes of
Certificates in such series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee or reserve fund, among
others, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). If so specified in the related
Prospectus Supplement, any form of Credit Support may offer protection only
against specific types of losses and shortfalls. The amount and types of Credit
Support, the coverage afforded by it, the identification of the entity providing
it (if applicable) and related information with respect to each type of Credit
Support, if any, will be set forth in the Prospectus Supplement for a series of
Offered Certificates. See "Risk Factors--Credit Support Limitations" and
"Description of Credit Support".
Cash Flow Agreements
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements designed to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets on one or more classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), and the identity of the Cash Flow Agreement obligor, will be
described in the Prospectus Supplement for a series of Offered Certificates.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors--Prepayments;
Average Life of Certificates; Yields". The following discussion contemplates a
Trust Fund that consists solely of Mortgage Loans. While the characteristics and
behavior of mortgage loans underlying MBS can generally be expected to have the
same effect on the yield to maturity and/or weighted average life of a Class of
Certificates as will the characteristics and behavior of comparable Mortgage
Loans, the effect may differ due to the payment characteristics of the MBS. If a
Trust Fund includes MBS, the related Prospectus Supplement will discuss the
effect that the MBS payment characteristics may have on the yield to maturity
and weighted average lives of the Offered Certificates offered thereby.
Pass-Through Rate
The Certificates of any class within a series may have a fixed, variable
or adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Offered Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a class
of Offered Certificates with a variable or adjustable Pass-Through Rate, the
method of determining the Pass-Through Rate; the effect, if any, of the
prepayment of any Mortgage Loan on the Pass-Through Rate of one or more classes
of Offered Certificates; and whether the distributions of interest on the
Offered Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
Payment Delays
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With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on or near the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest only for the period from the Due Date
of the preceding scheduled payment up to the date of such prepayment, instead of
up to the Due Date for the next succeeding scheduled payment. However, interest
accrued on any series of Certificates and distributable thereon on any
Distribution Date will generally correspond to interest accrued on the Mortgage
Loans to their respective Due Dates during the related Due Period. Unless
otherwise specified in the related Prospectus Supplement, a "Due Period" is a
specified time period generally corresponding in length to the time period
between Distribution Dates, and all scheduled payments on the Mortgage Loans in
any Trust Fund that are due during a given Due Period will, to the extent
received by a specified date (the "Determination Date") or otherwise advanced by
the related Master Servicer, Special Servicer or other specified person, be
distributed to the related series of Certificateholders on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for a series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. If so
specified in the related Prospectus Supplement, the Master Servicer will be
required to apply some or all of its servicing compensation for the
corresponding period to offset the amount of any such shortfalls. The related
Prospectus Supplement will also describe any other amounts available to offset
such shortfalls. See "Description of the Pooling Agreements--Servicing
Compensation and Payment of Expenses".
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of
principal payments on the Mortgage Loans in the related Trust Fund and the
allocation thereof to reduce the principal balance (or notional amount, if
applicable) of such Certificate. The rate of principal payments on the Mortgage
Loans in any Trust Fund will in turn be affected by the amortization schedules
thereof (which, in the case of ARM Loans, will change periodically to
accommodate adjustments to the Mortgage Rates thereon), the dates on which any
balloon payments are due, and the rate of principal prepayments thereon
(including for this purpose, prepayments resulting from liquidations of Mortgage
Loans due to defaults, casualties or condemnations affecting the Mortgaged
Properties, or purchases of Mortgage Loans out of the related Trust Fund).
Because the rate of principal prepayments on the Mortgage Loans in any Trust
Fund will depend on future events and a variety of factors (as described more
fully below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related
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Trust Fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
Offered Certificate at a discount (or premium), and principal payments are made
or otherwise result in reduction of the principal balance or notional amount of
such investor's Offered Certificates at a rate slower (or faster) than the rate
anticipated by the investor during any particular period, the consequent adverse
effects on such investor's yield would not be fully offset by a subsequent like
increase (or decrease) in the rate of such principal payments at a later date.
A class of Certificates, including a class of Offered Certificates, may
provide that on any Distribution Date the holders of such Certificates are
entitled to a pro rata share of the prepayments on the Mortgage Loans in the
related Trust Fund that are distributable on such date, to a disproportionately
large share (which, in some cases, may be all) of such prepayments, or to a
disproportionately small share (which, in some cases, may be none) of such
prepayments. As and to the extent described in the related Prospectus
Supplement, the respective entitlements of the various classes of
Certificateholders of any series to receive payments (and, in particular,
prepayments) of principal of the Mortgage Loans in the related Trust Fund may
vary based on the occurrence of certain events (e.g., the retirement of one or
more classes of Certificates of such series) or subject to certain contingencies
(e.g., prepayment and default rates with respect to such Mortgage Loans).
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various assumed levels of prepayment on yields on
such Certificates. Such tables will be intended to illustrate the sensitivity of
yields to various assumed prepayment rates and will not be intended to predict,
or provide information that will enable investors to predict, yields or
prepayment rates.
The Sponsor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a large group of multifamily or commercial mortgage loans. However, the extent
of prepayments of principal of the Mortgage Loans in any Trust Fund may be
affected by a number of factors, including, without limitation, the availability
of mortgage credit, the relative economic vitality of the area in which the
Mortgaged Properties are located, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. In addition, the rate of principal
payments on the Mortgage Loans in any Trust Fund may be affected by the
existence of Lock-out Periods and requirements that principal prepayments be
accompanied by Prepayment Premiums, and by the extent to which such provisions
may be practicably enforced.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Even in the case of ARM Loans, as prevailing market interest rates
decline, and without regard to whether the Mortgage Rates
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on such ARM Loans decline in a manner consistent therewith, the related
borrowers may have an increased incentive to refinance for purposes of either
(i) converting to a fixed rate loan and thereby "locking in" such rate or (ii)
taking advantage of the initial "teaser rate" (a mortgage interest rate below
what it would otherwise be if the applicable index and gross margin were
applied) on another adjustable rate mortgage loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Sponsor
will make no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Weighted average life
refers to the average amount of time that will elapse from the date of issuance
of an instrument until each dollar allocable as principal of such instrument is
repaid to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments, liquidations due
to default and purchases of Mortgage Loans out of the related Trust Fund), is
paid to such class. Prepayment rates on loans are commonly measured relative to
a prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model or the Standard Prepayment Assumption ("SPA") prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of loans, with different
prepayment assumptions often expressed as percentages of SPA. For example, a
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month, and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of loans. Moreover, the
CPR and SPA models were developed based upon historical prepayment experience
for single-family loans. Thus, it is unlikely that the prepayment experience of
the Mortgage Loans included in any Trust Fund will conform to any particular
level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series and the percentage of the
initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage Loans
are made at rates corresponding to various percentages of CPR or SPA, or at such
other rates specified in such Prospectus Supplement. Such tables and assumptions
will illustrate the sensitivity of the weighted average lives of the
Certificates to various assumed prepayment rates and will not be intended
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to predict, or to provide information that will enable investors to predict, the
actual weighted average lives of the Certificates.
Controlled Amortization Classes and Companion Classes
A series of Certificates may include one or more Controlled Amortization
Classes that will entitle the holders thereof to receive principal distributions
according to a specified principal payment schedule, which schedule is protected
by prioritizing, as and to the extent described in the related Prospectus
Supplement, the principal payments from the Mortgage Loans in the related Trust
Fund. Unless otherwise specified in the related Prospectus Supplement, each
Controlled Amortization Class will either be a Planned Amortization Class (a
"PAC") or a Targeted Amortization Class (a "TAC"). In general, a PAC has a
"prepayment collar" (that is, a range of prepayment rates that can be sustained
without disruption) that determines the principal cash flow of such
Certificates. Such a prepayment collar is not static, and may expand or contract
after the issuance of the PAC depending upon the actual prepayment experience
for the underlying Mortgage Loans. Distributions of principal on a PAC would be
made in accordance with the specified schedule so long as prepayments on the
underlying Mortgage Loans remain at a relatively constant rate within the
prepayment collar and, as described below, Companion Classes exist to absorb
"excesses" or "shortfalls" in principal payments on the underlying Mortgage
Loans. If the rate of prepayment on the underlying Mortgage Loans from time to
time falls outside the prepayment collar, or fluctuates significantly within the
prepayment collar, especially for any extended period of time, such an event may
have material consequences in respect of the anticipated weighted average life
and maturity for a PAC. A TAC is structured so that principal distributions
generally will be payable thereon in accordance with its specified principal
payment schedule so long as the rate of prepayments on the related Mortgage
Assets remains relatively constant at the particular rate used in establishing
such schedule. A TAC will generally afford the holders thereof some protection
against early retirement or some protection against an extended average life,
but not both.
Although prepayment risk cannot be eliminated entirely for any class of
Certificates, a Controlled Amortization Class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
Mortgage Loans in the related Trust Fund remains relatively constant at the
rate, or within the range of rates, of prepayment used to establish the specific
principal payment schedule for such Certificates. Prepayment risk with respect
to a given Mortgage Asset Pool does not disappear, however, and the stability
afforded to a Controlled Amortization Class comes at the expense of one or more
Companion Classes of the same series, any of which Companion Classes may also be
a class of Offered Certificates. In general, and as more particularly described
in the related Prospectus Supplement, a Companion Class will entitle the holders
thereof to a disproportionately large share of prepayments on the Mortgage Loans
in the related Trust Fund when the rate of prepayment is relatively fast, and
will entitle the holders thereof to a disproportionately small share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively slow. A class of Certificates that entitles the holders
thereof to a disproportionately large share of the prepayments on the Mortgage
Loans in the related Trust Fund enhances the risk of early retirement of such
class ("call risk") if the rate of prepayment is relatively fast; while a class
of Certificates that entitles the holders thereof to a disproportionately small
share of the prepayments on the Mortgage Loans in the related Trust Fund
enhances the risk of an extended average life of such class ("extension risk")
if the rate of prepayment is relatively slow. Thus, as and to the extent
described in the related Prospectus Supplement, a Companion Class absorbs some
(but not all) of the "call risk" and/or "extension risk" that would otherwise
belong to the related Controlled Amortization Class if all payments of principal
of the Mortgage Loans in the related Trust Fund were allocated on a pro rata
basis.
Other Factors Affecting Yield, Weighted Average Life and Maturity
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Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a risk that Mortgage Loans that require
balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer and/or Special Servicer for a Trust Fund, to the extent and under the
circumstances set forth herein and in the related Prospectus Supplement, may be
authorized to modify Mortgage Loans in such Trust Fund that are in default or as
to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan may delay
distributions of principal on a class of Offered Certificates and thereby extend
the weighted average life of such Certificates and, if such Certificates were
purchased at a discount, reduce the yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative amortization
to occur. A Mortgage Loan that permits negative amortization would be expected
during a period of increasing interest rates to amortize at a slower rate (and
perhaps not at all) than if interest rates were declining or were remaining
constant. Such slower rate of Mortgage Loan amortization would correspondingly
be reflected in a slower rate of amortization for one or more classes of
Certificates of the related series. In addition, negative amortization on one or
more Mortgage Loans in any Trust Fund may result in negative amortization on the
Certificates of the related series. The related Prospectus Supplement will
describe, if applicable, the manner in which negative amortization in respect of
the Mortgage Loans in any Trust Fund is allocated among the respective classes
of Certificates of the related series. The portion of any Mortgage Loan negative
amortization allocated to a class of Certificates (other than certain classes of
REMIC Residual Certificates) will result in a deferral of some or all of the
interest payable thereon, which deferred interest may be added to the
Certificate Balance thereof. Accordingly, the weighted average lives of Mortgage
Loans that permit negative amortization (and that of the classes of Certificates
to which any such negative amortization would be allocated or which would bear
the effects of a slower rate of amortization on such Mortgage Loans) may
increase as a result of such feature.
Notwithstanding the foregoing, negative amortization generally occurs in
respect of those ARM Loans that allow for such because the related Mortgage Note
limits the amount by which the scheduled payment thereon may adjust in response
to a change in the Mortgage Rate thereon and/or the related Mortgage Note
provides that the scheduled payment thereon will adjust less frequently than the
Mortgage Rate thereon. Accordingly, during a period of declining interest rates,
the scheduled payment on a Mortgage Loan that permits negative amortization may
exceed the amount necessary to amortize the loan fully over its remaining
amortization schedule and pay interest at the then applicable Mortgage Rate,
thereby resulting in the accelerated amortization of such Mortgage Loan. Any
such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the amortization of the notional amount
thereof). See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in
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accordance with their terms will affect the weighted average lives of those
Mortgage Loans and, accordingly, the weighted average lives of and yields on the
Certificates of the related series. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average lives of and yields on the Certificates of the
related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may result in reductions in the entitlements to interest and/or Certificate
Balances of one or more such classes of Certificates, or may be effected simply
by a prioritization of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may range from none to all) of the
principal payments received on the Mortgage Assets in the related Trust Fund,
one or more classes of Certificates of any series, including one or more classes
of Offered Certificates of such series, may provide for distributions of
principal thereof from (i) amounts attributable to interest accrued but not
currently distributable on one or more classes of Accrual Certificates, (ii)
Excess Funds or (iii) any other amounts described in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
"Excess Funds" will, in general, represent that portion of the amounts
distributable in respect of the Certificates of any series on any Distribution
Date that represent (i) interest received or advanced on the Mortgage Assets in
the related Trust Fund that is in excess of the interest currently distributable
on the Certificates of such series, as well as any interest accrued but not
currently distributable on any Accrual Certificates of such series, or (ii)
Prepayment Premiums, payments from Equity Participations or any other amounts
received on the Mortgage Assets in the related Trust Fund that do not constitute
interest thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources would have any material effect on
the rate at which such Certificates are amortized.
Optional Early Termination. If so specified in the related Prospectus
Supplement, a series of Certificates may be subject to optional early
termination through the repurchase of the Mortgage Assets in the related Trust
Fund by the party or parties specified therein, under the circumstances and in
the manner set forth therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate Balance of a specified class
or classes of Certificates by a specified percentage or amount, a party
specified therein may be authorized or required to solicit bids for the purchase
of all of the Mortgage Assets of the related Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire such class or classes, under the
circumstances and in the
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manner set forth therein. In the absence of other factors, any such early
retirement of a class of Offered Certificates would shorten the weighted average
life thereof and, if such Certificates were purchased at premium, reduce the
yield thereon.
MORTGAGE CAPITAL FUNDING, INC
The Sponsor was incorporated in the State of Delaware on October 7, 1986
under its former name of CitiCMO, Inc., and is a direct wholly-owned subsidiary
of Citicorp Banking Corporation, which in turn is a direct wholly-owned
subsidiary of Citicorp. The principal executive offices of the Sponsor are
located at 399 Park Avenue, 3rd floor, New York, New York 10043, and its
telephone number is (212) 559-6899. All inquiries, requests and other
communications to the Sponsor regarding the matters described herein should be
made or sent to the attention of "Real Estate Capital Markets". The Sponsor does
not have, nor is it expected in the future to have, any significant assets.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Sponsor to the purchase of Trust Assets or will be
used by the Sponsor for general corporate purposes. The Sponsor expects to sell
the Certificates 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 Sponsor, prevailing interest rates, availability
of funds and general market conditions.
DESCRIPTION OF THE CERTIFICATES
General
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling Agreement. As
described in the related Prospectus Supplement, the Certificates of each series,
including the Offered Certificates of such series, may consist of one or more
classes of Certificates that: (i) provide for the accrual of interest thereon at
a fixed, variable or adjustable rate; (ii) are senior (collectively, "Senior
Certificates") or subordinate (collectively, "Subordinate Certificates") to one
or more other classes of Certificates in entitlement to certain distributions on
the Certificates; (iii) are entitled to distributions of principal, with
disproportionately small, nominal or no distributions of interest (collectively,
"Stripped Principal Certificates"); (iv) are entitled to distributions of
interest, with disproportionately small, nominal or no distributions of
principal (collectively, "Stripped Interest Certificates"); (v) provide for
distributions of interest thereon or principal thereof that commence only after
the occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such series; (vi) provide for distributions of
principal thereof to be made, from time to time or for designated periods, at a
rate that is faster (and, in some cases, substantially faster) or slower (and,
in some cases, substantially slower) than the rate at which payments or other
collections of principal are received on the Mortgage Assets in the related
Trust Fund; or (vii) provide for distributions of principal thereof to be made,
subject to available funds, based on a specified principal payment schedule or
other methodology.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of Stripped
Interest Certificates or certain REMIC Residual Certificates, notional amounts
or percentage interests, specified in the related Prospectus Supplement. As
provided in the related Prospectus Supplement, one or more classes of Offered
Certificates of any series may be issued in fully registered, definitive form
(such Certificates, "Definitive Certificates") or may be offered in book-entry
format (such Certificates, "Book-Entry Certificates") through the facilities of
The Depository Trust Company ("DTC").
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The Offered Certificates of each series (if issued as Definitive Certificates)
may be transferred or exchanged, subject to any restrictions on transfer
described in the related Prospectus Supplement, at the location specified in the
related Prospectus Supplement, without the payment of any service charges, other
than any tax or other governmental charge payable in connection therewith.
Interests in a class of Book-Entry Certificates will be transferred on the
book-entry records of DTC and its participating organizations ("Participants").
See "Risk Factors--Limited Assets for Payment of Certificates" and "--Book-Entry
Registration".
Distributions
Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided in
the related Prospectus Supplement, the "Available Distribution Amount" for any
series of Certificates and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Assets and any other assets included in the related
Trust Fund that are available for distribution to the Certificateholders of such
series on such date. The particular components of the Available Distribution
Amount for any series on each Distribution Date will be more specifically
described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made 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 in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has provided the
person required to make such payments with wiring instructions (which may be
provided in the form of a standing order applicable to all subsequent
distributions) no later than the date specified in the related Prospectus
Supplement (and, if so provided in the related Prospectus Supplement, such
Certificateholder holds Certificates in the requisite amount or denomination
specified therein), or by check mailed to the address of such Certificateholder
as it appears on the Certificate Register; provided, however, that the final
distribution in retirement of any class of Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of such Certificates at the location specified in the notice to
Certificateholders of such final distribution.
Distributions of Interest on the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates of each series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than certain classes of Certificates that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Stripped Principal Certificates or
REMIC Residual Certificates that is not entitled to any distributions of
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interest) will be made on each Distribution Date based on the Accrued
Certificate Interest for such class and such Distribution Date, subject to the
sufficiency of the portion of the Available Distribution Amount allocable to
such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates (other than certain classes of Stripped Interest
Certificates and certain classes of REMIC Residual Certificates), the "Accrued
Certificate Interest" for each Distribution Date will be equal to interest at
the applicable Pass-Through Rate accrued for a specified period (generally equal
to the time period between Distribution Dates) on the outstanding Certificate
Balance of such class of Certificates immediately prior to such Distribution
Date. Unless otherwise provided in the related Prospectus Supplement, the
Accrued Certificate Interest for each Distribution Date on a class of Stripped
Interest Certificates will be similarly calculated except that it will accrue on
a hypothetical or notional amount (a "Notional Amount") that is either (i) based
on the principal balances of some or all of the Mortgage Assets in the related
Trust Fund or (ii) equal to the Certificate Balances of one or more other
classes of Certificates of the same series. Reference to a Notional Amount with
respect to a class of Stripped Interest Certificates is solely for convenience
in making certain calculations and does not represent the right to receive any
distributions of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) one or more classes of the Certificates of
a series will be reduced to the extent that any Prepayment Interest Shortfalls,
as described under "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest", exceed the amount of any sums (including, if and to
the extent specified in the related Prospectus Supplement, the Master Servicer's
servicing compensation) that are applied to offset such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the classes of Certificates of that series will be specified in the related
Prospectus Supplement. The related Prospectus Supplement will also describe the
extent to which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) a class of Offered Certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the Mortgage Assets in the related
Trust Fund. Unless otherwise provided in the related Prospectus Supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of Certificates by reason of the allocation to such class of a
portion of any deferred interest on or in respect of the Mortgage Assets in the
related Trust Fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Prepayments; Average Life of
Certificates; Yields" and "Yield and Maturity Considerations".
Distributions of Principal of the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a "Certificate Balance" which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive in respect of principal out of the future cash flow on the
Mortgage Assets and other assets included in the related Trust Fund. The
outstanding Certificate Balance of a class of Certificates will be reduced by
distributions of principal made thereon from time to time and, if so provided in
the related Prospectus Supplement, further by any losses incurred in respect of
the related Mortgage Assets allocated thereto from time to time. In turn, the
outstanding Certificate Balance of a class of Certificates may be increased as a
result of any deferred interest on or in respect of the related Mortgage Assets
being allocated thereto from time to time, and will be increased, in the case of
a class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of any
Accrued Certificate Interest in respect thereof (reduced as described above).
Unless otherwise provided in the related Prospectus Supplement, the initial
aggregate Certificate Balance of all classes of a series of Certificates will
not be greater than the aggregate outstanding principal balance of the related
Mortgage Assets as of the applicable Cut-off Date, after application of
scheduled payments due on or before such date, whether or not received. The
initial Certificate Balance of each class of a series of Certificates will be
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specified in the related Prospectus Supplement. As and to the extent described
in the related Prospectus Supplement, distributions of principal with respect to
a series of Certificates will be made on each Distribution Date to the holders
of the class or classes of Certificates of such series entitled thereto until
the Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of Certificates
may be made at a rate that is faster (and, in some cases, substantially faster)
than the rate at which payments or other collections of principal are received
on the Mortgage Assets in the related Trust Fund. Distributions of principal
with respect to one or more classes of Certificates may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates (each such class, a "Controlled Amortization
Class") may be made, subject to available funds, based on a specified principal
payment schedule. Distributions of principal with respect to one or more classes
of Certificates (each such class, a "Companion Class") may be contingent on the
specified principal payment schedule for a Controlled Amortization Class of the
same series and the rate at which payments and other collections of principal on
the Mortgage Assets in the related Trust Fund are received. Unless otherwise
specified in the related Prospectus Supplement, distributions of principal of
any class of Certificates will be made on a pro rata basis among all of the
Certificates of such class.
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations received on or in connection
with the Mortgage Assets in any Trust Fund will be distributed on each
Distribution Date to the holders of the class of Certificates of the related
series entitled thereto in accordance with the provisions described in such
Prospectus Supplement. Alternatively, payments in respect of Equity
Participations received on or in respect of any Mortgage Asset in any Trust Fund
may be retained by the Sponsor or another prior owner of such Mortgage Asset.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may result in reductions in the entitlements to interest and/or Certificate
Balances of one or more such classes of Certificates, or may be effected simply
by a prioritization of payments among such classes of Certificates.
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than any balloon
payments) and interest that were due on or in respect of such Mortgage Loans
during the related Due Period and were delinquent on the related Determination
Date.
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Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts received under any
instrument of Credit Support) respecting which such advances were made (as to
any Mortgage Loan, "Related Proceeds") and such other specific sources as may be
identified in the related Prospectus Supplement, including in the case of a
series that includes one or more classes of Subordinate Certificates,
collections on other Mortgage Loans in the related Trust Fund that would
otherwise be distributable to the holders of one or more classes of such
Subordinate Certificates. No advance will be required to be made by a Master
Servicer, Special Servicer or Trustee if, in the judgment of the Master
Servicer, Special Servicer or Trustee, as the case may be, such advance would
not be recoverable from Related Proceeds or another specifically identified
source (any such advance, a "Nonrecoverable Advance"); and, if previously made
by a Master Servicer, Special Servicer or Trustee, a Nonrecoverable Advance will
be reimbursable thereto from any amounts in the related Certificate Account
prior to any distributions being made to the related series of
Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on any future
Distribution Date to the extent that funds in such Certificate Account on such
Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances may be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to the related series of
Certificateholders or as otherwise provided in the related Pooling Agreement and
described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling Agreement or of a party
to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the holders
of each class of the Offered Certificates of a series, a Master Servicer or
Trustee, as provided in the related Prospectus Supplement, will forward to each
such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that is allocable to Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class of
Offered Certificates that is allocable to (A) Prepayment Premiums and (B)
payments on account of Equity Participations;
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(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are entitled;
(v) the Certificate Balance or Notional Amount, as the case may be, of
each class of Certificates (including any class of Certificates not offered
hereby) at the close of business on such Distribution Date, separately
identifying any reduction in such Certificate Balance or Notional Amount due to
the allocation of any losses in respect of the related Mortgage Assets, any
increase in such Certificate Balance or Notional Amount due to the allocation of
any negative amortization in respect of the related Mortgage Assets and any
increase in the Certificate Balance of a class of Accrual Certificates, if any,
in the event that Accrued Certificate Interest has been added to such balance;
(vi) information regarding the aggregate principal balance of the related
Mortgage Assets on or shortly before such Distribution Date;
(vii) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date; (viii) the amount deposited in or withdrawn
from any reserve fund on such Distribution Date, and the amount remaining on
deposit in such reserve fund as of the close of business on such Distribution
Date;
(ix) if the related Trust Fund includes one or more instruments of Credit
Support, such as a letter of credit, an insurance policy and/or a surety bond,
the amount of coverage under each such instrument as of the close of business on
such Distribution Date; and
(x) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (v) and (vi) above, the amount of Credit
Support being afforded by any classes of Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Certificates or per a specified portion of such
minimum denomination. The Prospectus Supplement for each series of Offered
Certificates will describe any additional information to be included in reports
to the holders of such Certificates. Upon request, a Certificateholder may
receive with respect to the Mortgage Loans, if any, in the related Trust Fund, a
monthly report regarding the delinquencies thereon, indicating the number and
aggregate principal amount of such Mortgage Loans delinquent one month and two
or more months, as well as the book value of any related Mortgaged Property
acquired through foreclosure, deed in lieu of foreclosure or other exercise of
rights respecting the Trustee's interest in such Mortgage Loans.
Within a reasonable period of time after the end of each calendar year,
the related Master Servicer or Trustee, as the case may be, will be required to
furnish to each person who at any time during the calendar year was a holder of
an Offered Certificate a statement containing the information set forth in
subclauses (i)-(iii) above, aggregated for such calendar year or the applicable
portion thereof during which such person was a Certificateholder, together with
such other customary information as the Sponsor or the reporting party
determines to be necessary to enable Certificateholders to prepare their tax
returns for such calendar year. See, however, "Description of the
Certificates--Book-Entry Registration and Definitive Certificates". If the Trust
Fund for a series of Certificates includes MBS, the ability of the related
Master Servicer or Trustee, as the case may be, to include in any Distribution
Date Statement information regarding the mortgage loans underlying such MBS will
depend on the reports received with respect to such MBS. In such cases, the
related Prospectus Supplement will describe the loan-specific information to be
included in the Distribution Date Statements that will be forwarded to the
holders of the Offered Certificates of that series in connection with
distributions made to them.
Voting Rights
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The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling
Agreement and as otherwise specified in the related Prospectus Supplement. See
"Description of the Pooling Agreements--Amendment". The holders of specified
amounts of Certificates of a particular series will have the right to act as a
group to remove the related Trustee and also upon the occurrence of certain
events which if continuing would constitute an Event of Default on the part of
the related Master Servicer, Special Servicer or REMIC Administrator. See
"Description of the Pooling Agreements--Events of Default", "--Rights Upon Event
of Default" and "--Resignation and Removal of the Trustee".
Termination
The obligations created by the Pooling Agreement for each series of
Certificates will terminate following (i) the final payment or other liquidation
of the last Mortgage Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
payment to Certificateholders of that series of all amounts required to be paid
to them pursuant to such Pooling Agreement. Written notice of termination of a
Pooling Agreement will be given to each Certificateholder of the related series,
and the final distribution will be made only upon presentation and surrender of
the Certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, a party specified therein may be authorized or
required to solicit bids for the purchase of all the Mortgage Assets of the
related Trust Fund, or of a sufficient portion of such Mortgage Assets to retire
such class or classes, under the circumstances and in the manner set forth
therein.
Book-Entry Registration and Definitive Certificates
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be offered in book-entry format
through the facilities of The Depository Trust Company ("DTC"), and each such
class will be represented by one or more global Certificates registered in the
name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or
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indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interest in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Sponsor or any Trustee, Master Servicer or Special Servicer),
subject to any statutory or regulatory requirements as may be in effect from
time to time. Under a book-entry system, Certificate Owners may receive payments
after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling Agreement) will
be the nominee of DTC, and the Certificate Owners will not be recognized as
Certificateholders under the Pooling Agreement. Certificate Owners will be
permitted to exercise the rights of Certificateholders under the related Pooling
Agreement only indirectly through the Participants who in turn will exercise
their rights through DTC. The Sponsor is informed that DTC will take action
permitted to be taken by a Certificateholder under a Pooling Agreement only at
the direction of one or more Participants to whose account with DTC interests in
the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in Book-Entry Certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in Book-Entry Certificates, may be limited due to the
lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form (as so issued, "Definitive Certificates") to
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Certificate Owners or their nominees, rather than to DTC or its nominee, only if
(i) the Sponsor advises the Trustee in writing that DTC is no longer willing or
able to properly discharge its responsibilities as depository with respect to
such Certificates and the Sponsor is unable to locate a qualified successor or
(ii) the Sponsor, at its option, elects to terminate the book-entry system
through DTC with respect to such Certificates. Upon the occurrence of either of
the events described in the preceding sentence, DTC will be required to notify
all Participants of the availability through DTC of Definitive Certificates.
Upon surrender by DTC of the certificate or certificates representing a class of
Book-Entry Certificates, together with instructions for registration, the
Trustee or other designated party will be required to issue to the Certificate
Owners identified in such instructions the Definitive Certificates to which they
are entitled, and thereafter the holders of such Definitive Certificates will be
recognized as Certificateholders under the related Pooling Agreement.
DESCRIPTION OF THE POOLING AGREEMENTS
General
The Certificates of each series will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties to a
Pooling Agreement will include the Sponsor, the Trustee, the Master Servicer,
the Special Servicer and, if one or more REMIC elections have been made with
respect to the related Trust Fund, the REMIC Administrator. However, a Pooling
Agreement may also include a Mortgage Asset Seller as a party, and a Pooling
Agreement that relates to a Trust Fund that consists solely of MBS may not
include a Master Servicer, Special Servicer or other servicer as a party. All
parties to each Pooling Agreement under which Certificates of a series are
issued will be identified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Mortgage Asset Seller or an affiliate
thereof or of the Sponsor may perform the duties of Master Servicer, Special
Servicer or REMIC Administrator. If so specified in the related Prospectus
Supplement, the Master Servicer may also perform the duties of Special Servicer,
and the Master Servicer, the Special Servicer or the Trustee may also perform
the duties of REMIC Administrator. Any party to a Pooling Agreement may own
Certificates issued thereunder; however, except with respect to required
consents to certain amendments to a Pooling Agreement, Certificates issued
thereunder that are held by the related Master Servicer or Special Servicer will
not be allocated Voting Rights. See "Risk Factors--Conflicts of Interest
Involving Parties to a Pooling Agreement".
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions that may appear in a Pooling
Agreement under which Certificates that evidence interests in Mortgage Loans
will be issued. The Prospectus Supplement for a series of Certificates will
describe any provision of the related Pooling Agreement that materially differs
from the description thereof contained in this Prospectus and, if the related
Trust Fund includes MBS, will summarize all of the material provisions of the
related Pooling Agreement. The summaries herein 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 Pooling Agreement for each series of Certificates and the
description of such provisions in the related Prospectus Supplement. As used
herein with respect to any series, the term "Certificate" refers to all of the
Certificates of that series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires. The Sponsor will
provide a copy of the Pooling Agreement (without exhibits) that relates to any
series of Certificates without charge upon written request of a holder of a
Certificate of such series addressed to it at its principal executive offices
specified herein under "Mortgage Capital Funding, Inc."
Assignment of Mortgage Loans; Repurchases
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At the time of issuance of any series of Certificates, the Sponsor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Sponsor in exchange for the Mortgage Loans and the other assets
to be included in the Trust Fund for such series. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling
Agreement. Such schedule generally will include detailed information that
pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include: the address of the related Mortgaged
Property and type of such property; the Mortgage Rate and, if applicable, the
applicable index, gross margin, adjustment date and any rate cap information;
the original and remaining term to maturity; the original amortization term; and
the original and outstanding principal balance.
With respect to each Mortgage Loan to be included in a Trust Fund, the
Sponsor will deliver (or cause to be delivered) to the related Trustee (or to a
custodian appointed by the Trustee) certain loan documents which, unless
otherwise specified in the related Prospectus Supplement, will include the
original Mortgage Note endorsed, without recourse, to the order of the Trustee,
the original Mortgage or a certified copy thereof, with evidence of recording or
filing indicated thereon, and an assignment of the Mortgage to the Trustee in
recordable form. In certain cases where documents respecting a Mortgage Loan may
not be available prior to execution of the related Pooling Agreement, the
Sponsor may be permitted to deliver (or cause to be delivered) copies thereof
(if applicable, without evidence of recording or filing thereon) to the related
Trustee (or to a custodian appointed by the Trustee), provided that such
documents or certified copies thereof are delivered (if applicable, with
evidence of recording or filing thereon) promptly upon receipt.
Assignments of Mortgage to a Trustee will be recorded or filed in the
appropriate jurisdictions except in states where, in the written opinion of
local counsel acceptable to the Sponsor, such filing or recording is not
required to protect the Trustee's interests in the related Mortgage Loans
against sale, further assignment, satisfaction or discharge by the related
Mortgage Asset Seller, the related Master Servicer, the related Special
Servicer, any Sub-Servicers or the Sponsor.
The related Trustee (or a custodian appointed by the Trustee) will be
required to review the Mortgage Loan documents delivered to it within a
specified period of days after receipt thereof, and the Trustee (or such
custodian) will hold such documents in trust for the benefit of the
Certificateholders of the related series. Unless otherwise specified in the
related Prospectus Supplement, if any such document is found to be missing or
defective, and such omission or defect, as the case may be, materially and
adversely affects the interests of the related series of Certificateholders, the
Trustee (or such custodian) will be required to notify the Master Servicer, the
Special Servicer and the Sponsor, and one of such persons will be required to
notify the relevant Mortgage Asset Seller. In that case, and if the Mortgage
Asset Seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise specified
below or in the related Prospectus Supplement, the Mortgage Asset Seller will be
obligated to repurchase the related Mortgage Loan from the Trustee at a price
that will be specified in the related Prospectus Supplement. If so provided in
the Prospectus Supplement for a series of Certificates, a Mortgage Asset Seller,
in lieu of repurchasing a Mortgage Loan as to which there is missing or
defective loan documentation, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of Certificates, to replace such Mortgage Loan with one or more other
mortgage loans, in accordance with standards that will be described in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, this repurchase or substitution obligation will constitute the sole
remedy to holders of the Certificates of any series or to the related Trustee on
their behalf for missing or defective loan documentation, and none of the
Sponsor, the Master Servicer or the Special Servicer, in the last two cases
unless it is the Mortgage Asset Seller, will be obligated to purchase or replace
a Mortgage Loan if a Mortgage Asset Seller defaults on its obligation to do so.
Notwithstanding the
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foregoing, if a document has not been delivered to the related Trustee (or to a
custodian appointed by the Trustee) because such document has been submitted for
recording, and neither such document nor a certified copy thereof, in either
case with evidence of recording thereon, can be obtained because of delays on
the part of the applicable recording office, then the Mortgage Asset Seller will
not be required to repurchase or replace the affected Mortgage Loan on the basis
of such missing document so long as it continues in good faith to attempt to
obtain such document or such certified copy.
Representations and Warranties; Repurchases
Unless otherwise provided in the related Prospectus Supplement, the
Sponsor will, with respect to each Mortgage Loan in the related Trust Fund, make
or assign, or cause to be made or assigned, certain representations and
warranties (each person making such representations and warranties, the
"Warranting Party") covering, by way of example: (i) the accuracy of the
information set forth for such Mortgage Loan on the schedule of Mortgage Loans
appearing as an exhibit to the related Pooling Agreement; (ii) the
enforceability of the related Mortgage Note and Mortgage and the existence of
title insurance insuring the lien priority of the related Mortgage; (iii) the
Warranting Party's title to the Mortgage Loan and the authority of the
Warranting Party to sell the Mortgage Loan; and (iv) the payment status of the
Mortgage Loan. It is expected that in most cases the Warranting Party will be
the Mortgage Asset Seller; however, the Warranting Party may also be an
affiliate of the Mortgage Asset Seller, the Sponsor or an affiliate of the
Sponsor, the Master Servicer, the Special Servicer or another person acceptable
to the Sponsor. The Warranting Party, if other than the Mortgage Asset Seller,
will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer, Special Servicer and/or
Trustee will be required to notify promptly any Warranting Party 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 related series of
Certificateholders. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Loan from the Trustee at a price that will
be specified in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a series of Certificates, a Warranting Party, in lieu
of repurchasing a Mortgage Loan as to which a breach has occurred, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, this repurchase or substitution obligation
will constitute the sole remedy available to holders of the Certificates of any
series or to the related Trustee on their behalf for a breach of representation
and warranty by a Warranting Party, and none of the Sponsor, the Master Servicer
or the Special Servicer, in each case unless it is the Warranting Party, will be
obligated to purchase or replace a Mortgage Loan if a Warranting Party defaults
on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Sponsor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Sponsor's attention that would cause it to believe that
the representations and warranties made in respect of such Mortgage Loan will
not be accurate in all material respects as of the date of issuance. The date as
of which the representations and warranties regarding the Mortgage Loans in any
Trust Fund were made, will be specified in the related Prospectus Supplement.
Collection and Other Servicing Procedures
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The Master Servicer and Special Servicer for any Trust Fund, directly or
through Sub-Servicers, will each be required to make reasonable efforts to
collect all scheduled payments under the Mortgage Loans in such Trust Fund
serviced thereby, and will each be required to follow such collection procedures
as it would follow with respect to mortgage loans that are comparable to the
Mortgage Loans in such Trust Fund serviced thereby and held for its own account,
provided such procedures are consistent with (i) the terms of the related
Pooling Agreement and any related instrument of Credit Support included in such
Trust Fund, (ii) applicable law and (iii) the servicing standard specified in
the related Pooling Agreement and Prospectus Supplement (the "Servicing
Standard").
The Master Servicer and Special Servicer for any Trust Fund, either
jointly or separately, directly or through Sub-Servicers, also will be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts for payment of taxes, insurance premiums, ground rents and
similar items, or otherwise monitoring the timely payment of those items;
attempting to collect delinquent payments; supervising foreclosures; conducting
property inspections on a periodic or other basis; managing Mortgaged Properties
acquired on behalf of such Trust Fund through foreclosure, deed-in-lieu of
foreclosure or otherwise (each, an "REO Property"); and maintaining servicing
records relating to such Mortgage Loans. The related Prospectus Supplement will
specify when and the extent to which servicing of a Mortgage Loan is to be
transferred from the Master Servicer to the Special Servicer. In general, and
subject to the discussion in the related Prospectus Supplement, a Special
Servicer will be responsible for the servicing and administration of: (i)
Mortgage Loans that are delinquent in respect of a specified number of scheduled
payments; (ii) Mortgage Loans as to which the related borrower has entered into
or consented to bankruptcy, appointment of a receiver or conservator or similar
insolvency proceeding, or the related borrower has become the subject of a
decree or order for such a proceeding which shall have remained in force
undischarged or unstayed for a specified number of days; and (iii) REO
Properties. If so specified in the related Prospectus Supplement, a Pooling
Agreement also may provide that if a default on a Mortgage Loan has occurred or,
in the judgment of the related Master Servicer, a payment default is imminent,
the related Master Servicer may elect to transfer the servicing thereof, in
whole or in part, to the related Special Servicer. Unless otherwise provided in
the related Prospectus Supplement, when the circumstances no longer warrant a
Special Servicer's continuing to service a particular Mortgage Loan (e.g., the
related borrower is paying in accordance with the forbearance arrangement
entered into between the Special Servicer and such borrower), the Master
Servicer will resume the servicing duties with respect thereto. If and to the
extent provided in the related Pooling Agreement and described in the related
Prospectus Supplement, a Special Servicer may perform certain limited duties in
respect of Mortgage Loans for which the Master Servicer is primarily responsible
(including, if so specified, performing property inspections and evaluating
financial statements); and a Master Servicer may perform certain limited duties
in respect of any Mortgage Loan for which the Special Servicer is primarily
responsible (including, if so specified, continuing to receive payments on such
Mortgage Loan (including amounts collected by the Special Servicer), making
certain calculations with respect to such Mortgage Loan and making remittances
and preparing certain reports to the Trustee and/or Certificateholders with
respect to such Mortgage Loan). Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Mortgage Loans under any applicable
instrument of Credit Support. See "Description of Credit Support".
Sub-Servicers
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling Agreement. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between a Master Servicer or Special Servicer, as the case may be, and
a Sub-Servicer (a "Sub-Servicing Agreement") must provide that, if for any
reason such Master Servicer or Special
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Servicer is no longer acting in such capacity, the Trustee or any successor to
such Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement. The Master Servicer and Special
Servicer for any Trust Fund will each be required to monitor the performance of
Sub-Servicers retained by it, and will each have the right to remove a
Sub-Servicer retained by it at any time it considers such removal to be in the
best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether its compensation pursuant to the
related Pooling Agreement is sufficient to pay such fees. Each Sub-Servicer will
be reimbursed by the Master Servicer or Special Servicer, as the case may be,
that retained it for certain expenditures which it makes, generally to the same
extent such Master Servicer or Special Servicer would be reimbursed under a
Pooling Agreement. See "--Certificate Account" and "--Servicing Compensation and
Payment of Expenses".
Certificate Account
General. The Master Servicer, the Special Servicer and/or the Trustee
will, as to each Trust Fund that includes Mortgage Loans, establish and maintain
or cause to be established and maintained one or more separate accounts for the
collection of payments on or in respect of such Mortgage Loans (collectively,
the "Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Certificates of the related series. A Certificate Account may be maintained as
an interest-bearing or a non-interest-bearing account and the funds held therein
may be invested pending each succeeding Distribution Date in United States
government securities and other obligations (including guaranteed investment
contracts) that are acceptable to each Rating Agency that has rated any one or
more classes of Certificates of the related series ("Permitted Investments").
Unless otherwise provided in the related Prospectus Supplement, any interest or
other income earned on funds in a Certificate Account will be paid to the
related Master Servicer, Special Servicer or Trustee as additional compensation.
A Certificate Account may be maintained with the related Master Servicer,
Special Servicer or Mortgage Asset Seller or with a depository institution that
is an affiliate of any of the foregoing or of the Sponsor, provided that it
complies with applicable Rating Agency standards. If permitted by the applicable
Rating Agency or Agencies and so specified in the related Prospectus Supplement,
a Certificate Account may contain funds relating to more than one series of
mortgage pass-through certificates and may contain other funds representing
payments on mortgage loans owned by the related Master Servicer or Special
Servicer or any related Sub-Servicer or serviced by any of them on behalf of
others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, a Master Servicer, Special
Servicer or Trustee will be required to deposit or cause to be deposited in the
Certificate Account for each Trust Fund that includes Mortgage Loans, within a
certain period following receipt (in the case of collections on or in respect of
the Mortgage Loans) or otherwise as provided in the related Pooling Agreement,
the following payments and collections received or made by the Master Servicer,
the Special Servicer or the Trustee subsequent to the Cut-off Date (other than
payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, including
any default interest collected, in each case net of any portion thereof retained
by the Master Servicer, the Special Servicer or any Sub-Servicer as its
servicing compensation or as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan (other than proceeds applied to the restoration of
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the property or released to the related borrower in accordance with the
customary servicing practices of the Master Servicer (or the Special Servicer,
with respect to Mortgage Loans serviced by it) and/or the terms and conditions
of the related Mortgage) (collectively, "Insurance Proceeds"), all proceeds
received in connection with the condemnation or other governmental taking of all
or any Mortgaged Property (other than proceeds applied to the restoration of the
property or released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or the Special Servicer, with
respect to Mortgage Loans serviced by it) and/or the terms and conditions of the
related Mortgage) (collectively, "Condemnation Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net operating income (less
reasonable reserves for future expenses) derived from the operation of any
Mortgaged Properties acquired by the Trust Fund through foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as described
under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Sponsor, any Mortgage Asset Seller or any
other specified person as described under "--Assignment of Mortgage Loans;
Repurchases" and "--Representations and Warranties; Repurchases", all proceeds
of the purchase of any defaulted Mortgage Loan as described under "--Realization
Upon Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset purchased
as described under "Description of the Certificates--Termination" (all of the
foregoing, also "Liquidation Proceeds");
(viii) any amounts paid by the Master Servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of Mortgage Loans as described
under "--Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or Special Servicer, any payments
on account of modification or assumption fees, late payment charges, Prepayment
Premiums or Equity Participations on the Mortgage Loans;
(x) 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 Policies";
(xi) any amount required to be deposited by the Master Servicer, the
Special Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer, the Special Servicer or the
Trustee, as the case may be, of funds held in the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer, Special
Servicer or Trustee may make withdrawals from the Certificate Account for each
Trust Fund that includes Mortgage Loans for any of the following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
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(ii) to pay the Master Servicer, the Special Servicer or any Sub-Servicer
any servicing fees not previously retained thereby, such payment to be made,
unless otherwise provided in the related Prospectus Supplement, out of payments
on the particular Mortgage Loans as to which such fees were earned;
(iii) to reimburse the Master Servicer, the Special Servicer, the Trustee
or any other specified person for any unreimbursed amounts advanced by it as
described under "Description of the Certificates--Advances in Respect of
Delinquencies", such reimbursement to be made out of amounts received which were
identified and applied by the Master Servicer or Special Servicer, as
applicable, as late collections of interest on and principal of the particular
Mortgage Loans with respect to which the advances were made or out of amounts
drawn under any form of Credit Support with respect to such Mortgage Loans;
(iv) to reimburse the Master Servicer or the Special Servicer for unpaid
servicing fees earned by it and certain unreimbursed servicing expenses incurred
by it with respect to Mortgage Loans in the Trust Fund and properties acquired
in respect thereof, such reimbursement to be made out of amounts that represent
Liquidation Proceeds, Condemnation Proceeds and Insurance Proceeds collected on
the particular Mortgage Loans and properties, and net income collected on the
particular properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of Credit Support
with respect to such Mortgage Loans and properties;
(v) to reimburse the Master Servicer, the Special Servicer or the Trustee
for any advances described in clause (iii) above made by it and/or any servicing
expenses referred to in clause (iv) above incurred by it which, in the good
faith judgment of the Master Servicer, the Special Servicer or the Trustee, as
applicable, will not be recoverable from the amounts described in clauses (iii)
and (iv), respectively, such reimbursement to be made from amounts collected on
other Mortgage Loans in the same Trust Fund or, if and to the extent so provided
by the related Pooling Agreement and described in the related Prospectus
Supplement, only from that portion of amounts collected on such other Mortgage
Loans that is otherwise distributable on one or more classes of Subordinate
Certificates of the related series;
(vi) if and to the extent described in the related Prospectus Supplement,
to pay the Master Servicer, the Special Servicer, the Trustee or any other
specified person interest accrued on the advances described in clause (iii)
above made by it and/or the servicing expenses described in clause (iv) above
incurred by it while such remain outstanding and unreimbursed;
(vii) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged Properties
that constitute security for defaulted Mortgage Loans, and for any containment,
clean-up or remediation of hazardous wastes and materials present on such
Mortgaged Properties, as described under "--Realization Upon Defaulted Mortgage
Loans";
(viii) to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator (if any), the Sponsor, or any of their respective directors,
officers, employees and agents, as the case may be, for certain expenses, costs
and liabilities incurred thereby, as and to the extent described under
"--Certain Matters Regarding the Master Servicer, the Special Servicer, the
REMIC Administrator and the Sponsor";
(ix) if and to the extent described in the related Prospectus Supplement,
to pay the fees of the Trustee and/or the REMIC Administrator (if any);
(x) if and to the extent described in the related Prospectus Supplement,
to pay the fees of any provider of Credit Support;
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(xi) if and to the extent described in the related Prospectus Supplement,
to reimburse prior draws on any form of Credit Support;
(xii) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "--Certain
Matters Regarding the Trustee";
(xiii) to pay the Master Servicer, the Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts held in
the Certificate Account as additional compensation;
(xiv) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any Mortgaged
Property acquired by the Trust Fund by foreclosure or otherwise;
(xv) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Material Federal Income Tax Consequences--REMICS--Prohibited
Transactions Tax and Other Taxes";
(xvi) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Mortgage Loan or a property acquired in respect thereof in connection with the
liquidation of such Mortgage Loan or property;
(xvii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of Certificateholders;
(xviii) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement ; and
(xix) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
Escrow Accounts
A Pooling Agreement may require the Master Servicer or Special Servicer
thereunder to establish and maintain, as and to the extent permitted by the
terms of the related Mortgage Loans, one or more escrow accounts into which
mortgagors deposit amounts sufficient to pay taxes, assessments, hazard
insurance premiums or comparable items. Withdrawals from the escrow accounts
maintained in respect of the Mortgage Loans in any Trust Fund may be made to
effect timely payment of taxes, assessments and hazard insurance premiums or
comparable items, to reimburse the related Master Servicer or Special Servicer
out of related collections for prior advances in respect of taxes, assessments
and hazard insurance premiums or comparable items, to refund to mortgagors
amounts determined to be overages, to remit to mortgagors, if required, interest
earned, if any, on balances in any of the escrow accounts, to repair or
otherwise protect the related Mortgaged Property and to clear and terminate any
of the escrow accounts. The Master Servicer and Special Servicer each will be
solely responsible for administration of the escrow accounts maintained by it.
Modifications, Waivers and Amendments of Mortgage Loans
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer may agree to modify, waive or amend any term of any
Mortgage Loan serviced by it in a manner consistent with the applicable
Servicing Standard; provided that the modification, waiver or amendment (i) will
not affect the amount or timing of any scheduled payments of principal or
interest on the Mortgage Loan, (ii) will not, in the
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judgment of the Master Servicer or Special Servicer, as the case may be,
materially impair the security for the Mortgage Loan or reduce the likelihood of
timely payment of amounts due thereon, (iii) will not adversely affect the
coverage under any applicable instrument of Credit Support or (iv) will not
adversely affect the Trust Fund's status as a REMIC or grantor trust, as the
case may be. Unless otherwise provided in the related Prospectus Supplement, a
Special Servicer also may agree to any other modification, waiver or amendment
that would have the effect described in clauses (i) and (ii) of the proviso to
the preceding sentence if, in its judgment, (i) a material default on the
Mortgage Loan has occurred or a payment default is imminent, (ii) such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than would
liquidation, (iii) such modification, waiver or amendment will not adversely
affect the coverage under any applicable instrument of Credit Support and (iv)
such modification, waiver or amendment would not adversely affect the Trust
Fund's status as a REMIC or grantor trust, as the case may be.
If described in the related Prospectus Supplement, the holders of
interests in a specified class or classes of Subordinate Certificates may have
the ability to direct the Special Servicer's actions in connection with
liquidating or modifying defaulted Mortgage Loans or to replace the Special
Servicer and substitute any such holder or an affiliate thereof as the
successor. See "Risk Factors--Potential Conflicts of Interest." The Prospectus
Supplement will describe, however, whether and to what extent holders of Offered
Certificates may object to the Special Servicer extending the maturity of a
defaulted Mortgage Loan beyond a certain date.
Realization Upon Defaulted Mortgage Loans
A borrower's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and insurance premiums and to otherwise
maintain the related Mortgaged Property. In general, and subject to the
discussion in the related Prospectus Supplement, the related Special Servicer
will be required to monitor any Mortgage Loan that is in default more than a
specified number of scheduled payments, evaluate whether the causes of the
default can be corrected over a reasonable period without significant impairment
of the value of the related Mortgaged Property, initiate corrective action in
cooperation with the borrower if cure is likely, inspect the related Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Special Servicer is
able to assess the success of any such corrective action or the need for
additional initiatives.
The time within which the Special Servicer can make the initial
determination of appropriate action, evaluate the success of corrective action,
develop additional initiatives, institute foreclosure proceedings and actually
foreclose (or accept a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the borrower, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. If a borrower files a bankruptcy
petition, the Special Servicer may not be permitted to accelerate the maturity
of the related Mortgage Loan or to foreclose on the related Mortgaged Property
for a considerable period of time, and such Mortgage Loan may be restructured in
the resulting bankruptcy proceedings. See "Certain Legal Aspects of Mortgage
Loans".
A Pooling Agreement may grant to the Master Servicer, the Special
Servicer, a provider of Credit Support and/or the holder or holders of certain
classes of the related series of Certificates a right of first refusal to
purchase from the Trust Fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of Certificateholders to principal
and interest thereon, will be specified in the related Prospectus Supplement),
any Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with the applicable
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Servicing Standard, that such a sale would produce a greater recovery on a
present value basis than would liquidation of the related Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the related
Pooling Agreement will require that the Special Servicer accept the highest cash
bid received from any person (including itself, the Master Servicer, the Sponsor
or any affiliate of any of them or any Certificateholder) that constitutes a
fair price for such defaulted Mortgage Loan. In the absence of any bid
determined in accordance with the related Pooling Agreement to be fair, the
Special Servicer will generally be required to proceed against the related
Mortgaged Property, subject to the discussion below.
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property, by operation of
law or otherwise, if such action is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, however,
neither the Special Servicer nor the Master Servicer may acquire title to any
Mortgaged Property, have a receiver of rents appointed with respect to any
Mortgaged Property or take any other action with respect to any Mortgage
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws and regulations or, if not, that taking such actions as are necessary to
bring the Mortgaged Property into compliance therewith is reasonably likely to
produce a greater recovery to Certificateholders on a present value basis than
not taking such actions; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action could be
required, taking such actions with respect to the Mortgaged Property is
reasonably likely to produce a greater recovery to Certificateholders on a
present value basis than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Risks".
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee and REMIC Administrator each receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund for more than two years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund (or any designated
portion thereof) to fail to qualify as a REMIC under the Code at any time that
any Certificate is outstanding. Subject to the foregoing, the Special Servicer
will generally be required to solicit bids for any Mortgaged Property so
acquired in such a manner as will be reasonably likely to realize a fair cash
price for such property. If the Trust Fund acquires title to any Mortgaged
Property, the Special Servicer, on behalf of the Trust Fund, may retain an
independent contractor to manage and operate such property. The retention of an
independent contractor, however, will not relieve the Special Servicer of its
obligation to manage such Mortgaged Property in a manner consistent with the
Servicing Standard. Under certain circumstances, the Special Servicer may be
authorized to conduct activities with respect to a Mortgaged Property acquired
by a Trust Fund that cause the Trust Fund to incur a tax, provided that doing so
would, in reasonable discretion of the Special Servicer, maximize net after-tax
proceeds to Certificateholders.
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If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Special Servicer and/or Master Servicer in connection
with such Mortgage Loan, the Trust Fund will realize a loss in the amount of
such difference. The Special Servicer and/or Master Servicer will be entitled to
reimbursement out of the Liquidation Proceeds recovered on any defaulted
Mortgage Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts that represent unpaid servicing compensation in
respect of the Mortgage Loan, unreimbursed servicing expenses incurred with
respect to the Mortgage Loan and any unreimbursed advances of delinquent
payments made with respect to the Mortgage Loan.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to fully restore the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or Master Servicer, as the case may be, for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
Notwithstanding the foregoing discussion, if and to the extent described
in the related Prospectus Supplement, the related Pooling Agreement may provide
that any or all of the rights, duties and obligations of a Special Servicer with
respect to any defaulted Mortgage Loan or REO Property as described under this
section "--Realization Upon Defaulted Mortgage Loans" and elsewhere in this
Prospectus, may be exercised or performed by a Master Servicer with the consent
of, at the direction of or following consultation with the Special Servicer.
Moreover, a single entity may act as both Master Servicer and Special Servicer
for any Trust Fund.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will require the Master Servicer (or the Special Servicer with
respect to Mortgage Loans serviced thereby) to cause each Mortgage Loan borrower
to maintain a hazard insurance policy that provides for such coverage as is
required under the related Mortgage or, if the Mortgage permits the holder
thereof to dictate to the borrower the insurance coverage to be maintained on
the related Mortgaged Property, such coverage as is consistent with the
requirements of the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such Mortgage Loan and the
replacement cost of the related Mortgaged Property. The ability of a Master
Servicer (or Special Servicer) to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information concerning covered
losses is furnished by borrowers. All amounts collected by a Master Servicer (or
Special Servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower in
accordance with the Master Servicer's (or Special Servicer's) normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Certificate Account. The Pooling
Agreement may provide that the Master Servicer (or Special Servicer) may satisfy
its obligation to cause borrowers to maintain such hazard insurance policies by
maintaining a blanket policy insuring against hazard losses on all of the
related Mortgage Loans. If such blanket policy contains a deductible clause, the
Master Servicer (or Special Servicer) will be required, in the event of a
casualty covered by such blanket policy, to deposit or cause to be deposited in
the related Certificate Account all sums that would have been deposited therein
but for such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot,
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strike and civil commotion, subject to the conditions and exclusions specified
in each policy. Although the policies covering the Mortgaged Properties will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin, domestic animals and other kinds of risks not
specified in the preceding sentence. Accordingly, a Mortgaged Property may not
be insured for losses arising from any such cause unless the related Mortgage
specifically requires, or permits the holder thereof to require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (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.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer or the Special Servicer will determine whether to exercise any right
the Trustee may have under any such provision in a manner consistent with the
Servicing Standard. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or Special Servicer, as applicable, will be
entitled to retain as additional servicing compensation any fee collected in
connection with the permitted transfer of a Mortgaged Property. See "Certain
Legal Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Certificates may consist of any or all
of the following components: (i) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it;
(ii) an additional specified portion of the interest payments on each Mortgage
Loan then currently serviced by it; and (iii) subject to any specified
limitations, a fixed percentage of some or all of the collections and proceeds
received with respect to each Mortgage Loan which was at any time serviced by
it, including Mortgage Loans for which servicing was returned to the Master
Servicer. As additional compensation, a Master Servicer or Special Servicer may
be entitled to retain all or a portion of late payment charges, Prepayment
Premiums, modification fees and other fees collected from borrowers and any
interest or other income that may be earned on funds held in the related
Certificate Account. A more detailed description of each Master Servicer's and
Special Servicer's compensation will be provided in the related Prospectus
Supplement. Any Sub-Servicer will receive as its sub-servicing compensation a
portion of the servicing compensation to be paid to the Master Servicer or
Special Servicer that retained such Sub-Servicer.
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In addition to amounts payable to any Sub-Servicer retained by it, a
Master Servicer or Special Servicer may be required, to the extent provided in
the related Prospectus Supplement, to pay from amounts that represent its
servicing compensation certain expenses incurred in connection with the
administration of the related Trust Fund, including, without limitation, payment
of the fees and disbursements of independent accountants and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, a
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to Prepayment Interest
Shortfalls. See "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest".
Evidence as to Compliance
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will require that, on or before a specified date in each year,
the Master Servicer and, if and to the extent appropriate, the Special Servicer
each cause a firm of independent public accountants to furnish to the Trustee a
statement to the effect that (i) such firm has obtained a letter of
representations regarding certain matters relating to the management of the
Master Servicer or the Special Servicer, as the case may be, which includes an
assertion that the Master Servicer or the Special Servicer, as the case may be,
has complied with certain minimum mortgage loan servicing standards (to the
extent applicable to commercial and multifamily mortgage loans), identified in
the Uniform Single Attestation Program for Mortgage Bankers established by the
Mortgage Bankers Association of America, with respect to the servicing of
commercial and multifamily mortgage loans during the most recently completed
calendar year and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that may be
appropriate. In rendering its report, such firm may rely, as to matters relating
to the direct servicing of commercial and multifamily mortgage loans by
sub-servicers, upon comparable reports of firms of independent public
accountants rendered on the basis of examinations conducted in accordance with
the same standards (rendered within one year of such report) with respect to
those sub-servicers. A Prospectus Supplement may provide that additional or
alternative reports of independent certified public accountants relating to the
servicing of mortgage loans may be required to be delivered to the Trustee.
Each Pooling Agreement will also require that, on or before a specified
date in each year, the Master Servicer and Special Servicer each deliver to the
Trustee a statement signed by one or more officers thereof to the effect that
the Master Servicer or the Special Servicer, as the case may be, has fulfilled
its material obligations under the Pooling Agreement throughout the preceding
calendar year or other specified twelve month period.
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Sponsor
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling Agreement may be an affiliate of the Sponsor and
may have other normal business relationships with the Sponsor or the Sponsor's
affiliates. Unless otherwise specified in the Prospectus Supplement for a series
of Certificates, the related Pooling Agreement will permit the Master Servicer,
the Special Servicer and any REMIC Administrator to resign from its obligations
thereunder only upon (a) the appointment of, and the acceptance of such
appointment by, a successor thereto and receipt by the Trustee of written
confirmation from each applicable Rating Agency that such resignation and
appointment will not have an adverse effect on the rating assigned by such
Rating Agency to any class of Certificates of such series or (b) a determination
that such obligations are no
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longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it. No such resignation
will become effective until the Trustee or other successor has assumed the
obligations and duties of the resigning Master Servicer, Special Servicer or
REMIC Administrator, as the case may be, under the Pooling Agreement. The Master
Servicer and Special Servicer for each Trust Fund will be required to maintain a
fidelity bond and errors and omissions policy or their equivalent that provides
coverage against losses that may be sustained as a result of an officer's or
employee's misappropriation of funds or errors and omissions, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions permitted by the related Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Master Servicer, the
Special Servicer, the REMIC Administrator (if any), the Sponsor or any director,
officer, employee or agent of any of them will be under any liability to the
related Trust Fund or Certificateholders for any action taken, or not taken, in
good faith pursuant to the Pooling Agreement or for errors in judgment;
provided, however, that none of the Master Servicer, the Special Servicer, the
REMIC Administrator (if any), the Sponsor or any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of such obligations and
duties. Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that the Master Servicer, the Special
Servicer, the REMIC Administrator (if any), the Sponsor and any director,
officer, employee or agent of any of them will be entitled to indemnification by
the related Trust Fund against any loss, liability or expense incurred in
connection with any legal action that relates to such Pooling Agreement or the
related series of Certificates; provided, however, that such indemnification
will not extend to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties under such Pooling Agreement, or by reason of reckless disregard of such
obligations or duties. In addition, each Pooling Agreement will provide that
none of the Master Servicer, the Special Servicer, the REMIC Administrator (if
any) or the Sponsor will be under any obligation to appear in, prosecute or
defend any legal action that is not incidental to its respective
responsibilities under the Pooling Agreement and that in its opinion may involve
it in any expense or liability. However, each of the Master Servicer, the
Special Servicer, the REMIC Administrator (if any) and the Sponsor will be
permitted, in the exercise of its discretion, to undertake any such action that
it may deem necessary or desirable with respect to the enforcement and/or
protection of the rights and duties of the parties to the Pooling Agreement and
the interests of the related series of 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 related series of
Certificateholders, and the Master Servicer, the Special Servicer, the REMIC
Administrator or the Sponsor, as the case may be, will be entitled to charge the
related Certificate Account therefor.
Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator (if any) or the Sponsor may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer,
the Special Servicer, the REMIC Administrator (if any) or the Sponsor is a
party, or any person succeeding to the business of the Master Servicer, the
Special Servicer, the REMIC Administrator (if any) or the Sponsor, will be the
successor of the Master Servicer, the Special Servicer, the REMIC Administrator
or the Sponsor, as the case may be, under the related Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling Agreement either directly or by or through agents or attorneys, and the
REMIC Administrator will not be responsible for any willful misconduct or gross
negligence on the part of any such agent or attorney appointed by it with due
care.
Events of Default
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Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling Agreement will
include (i) any failure by the Master Servicer to distribute or cause to be
distributed to the Certificateholders of such series, or to remit to the Trustee
for distribution to such Certificateholders, any amount required to be so
distributed or remitted, which failure continues unremedied for five days after
written notice thereof has been given to the Master Servicer by any other party
to the related Pooling Agreement, or to the Master Servicer, with a copy to each
other party to the related Pooling Agreement, by Certificateholders entitled to
not less than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series; (ii) any failure by the
Special Servicer to remit to the Master Servicer or the Trustee any amount
required to be so remitted, which failure continues unremedied for five days
after written notice thereof has been given to the Special Servicer by any other
party to the related Pooling Agreement, or to the Special Servicer, with a copy
to each other party to the related Pooling Agreement, by the Certificateholders
entitled to not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights of such series; (iii) any failure by
the Master Servicer or the Special Servicer duly to observe or perform in any
material respect any of its other covenants or obligations under the related
Pooling Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party to the related Pooling
Agreement, or to the Master Servicer or the Special Servicer, as the case may
be, with a copy to each other party to the related Pooling Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; (iv) any failure by a REMIC Administrator (if any) duly to observe or
perform in any material respect any of its covenants or obligations under the
related Pooling Agreement, which failure continues unremedied for sixty days
after written notice thereof has been given to the REMIC Administrator by any
other party to the related Pooling Agreement, or to the REMIC Administrator,
with a copy to each other party to the related Pooling Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; and (v) certain events of insolvency, readjustment of debt, marshaling
of assets and liabilities, or similar proceedings in respect of or relating to
the Master Servicer, the Special Servicer, or a REMIC Administrator (if any),
and certain actions by or on behalf of the Master Servicer, the Special Servicer
or a REMIC Administrator (if any) indicating its insolvency or inability to pay
its obligations. Material variations to the foregoing Events of Default (other
than to add thereto or shorten cure periods or eliminate notice requirements)
will be specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, when a single entity acts as
Master Servicer, Special Servicer and REMIC Administrator, or in any two of the
foregoing capacities, for any Trust Fund, an Event of Default in one capacity
will constitute an Event of Default in each capacity.
Rights Upon Event of Default
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator (if any) under a Pooling Agreement,
then, in each and every such case, so long as the Event of Default remains
unremedied, the Sponsor or the Trustee will be authorized, and at the direction
of Certificateholders of the related series entitled to not less than 51% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series, the Trustee will be required, to terminate all of
the rights and obligations of the defaulting party as Master Servicer, Special
Servicer or REMIC Administrator, as applicable, under the Pooling Agreement,
whereupon the Trustee will succeed to all of the responsibilities, duties and
liabilities of the defaulting party as Master Servicer, Special Servicer or
REMIC Administrator, as applicable, under the Pooling Agreement (except that if
the defaulting party is required to make advances thereunder regarding
delinquent Mortgage Loans, but the Trustee is prohibited by law from obligating
itself to make such advances, or if the related Prospectus Supplement so
specifies, the Trustee will not be obligated to make such advances) and will be
entitled to similar compensation arrangements. Unless otherwise specified in the
related Prospectus Supplement, if the Trustee is unwilling or unable so to act,
it may (or, at the written request of Certificateholders of the related series
entitled to not less than 51% (or such other percentage
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specified in the related Prospectus Supplement) of the Voting Rights for such
series, it will be required to) appoint, or petition a court of competent
jurisdiction to appoint, a loan servicing institution that (unless otherwise
provided in the related Prospectus Supplement) is acceptable to each applicable
Rating Agency to act as successor to the Master Servicer, Special Servicer or
REMIC Administrator, as the case may be, under the Pooling Agreement. Pending
such appointment, the Trustee will be obligated to act in such capacity.
No Certificateholder will have the right under any Pooling Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless Certificateholders of
the same series entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series shall have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and shall have offered to the
Trustee reasonable indemnity, and the Trustee for sixty days (or such other
period specified in the related Prospectus Supplement) shall have neglected or
refused to institute any such proceeding. The Trustee, however, will be under no
obligation to exercise any of the trusts or powers vested in it by any Pooling
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates of the
related series, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
Each Pooling Agreement may be amended by the respective parties thereto,
without the consent of any of the holders of the related series of Certificates,
(i) to cure any ambiguity, (ii) to correct a defective provision therein or to
correct, modify or supplement any provision therein that may be inconsistent
with any other provision therein, (iii) to add any other provisions with respect
to matters or questions arising under the Pooling Agreement that are not
inconsistent with the provisions thereof, (iv) to comply with any requirements
imposed by the Code, or (v) for any other purpose; provided that such amendment
(other than an amendment for the specific purpose referred to in clause (iv)
above) may not (as evidenced by an opinion of counsel to such effect
satisfactory to the Trustee) adversely affect in any material respect the
interests of any such holder without such holder's consent or adversely affect
the status of the Trust Fund as either a REMIC or grantor trust, as the case may
be, for federal income tax purposes; and provided further that such amendment
(other than an amendment for one of the specific purposes referred to in clauses
(i) through (iv) above) must be acceptable to each applicable Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, each Pooling
Agreement may also be amended by the respective parties thereto, with the
consent of the holders of the related series of Certificates entitled to not
less than 51% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series allocated to the affected
classes, for any purpose; provided that, unless otherwise specified in the
related Prospectus Supplement, no such amendment may (i) reduce in any manner
the amount of, or delay the timing of, payments received or advanced on Mortgage
Loans that are required to be distributed in respect of 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 clause (i), without the consent of the holders
of all Certificates of such class or (iii) modify the amendment provisions of
the Pooling Agreement described in this paragraph without the consent of the
holders of all Certificates of the related series. However, unless otherwise
specified in the related Prospectus Supplement, the Trustee will be prohibited
from consenting to any amendment of a Pooling Agreement pursuant to which a
REMIC election is to be or has been made unless the Trustee shall first have
received an opinion of counsel to the effect that such amendment will not result
in the imposition of a tax on the related Trust Fund or cause the related Trust
Fund (or designated portion thereof) to fail to qualify as a REMIC at any time
that the related Certificates are outstanding.
List of Certificateholders
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Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling Agreement, the Trustee or
other specified person will afford such Certificateholders access during normal
business hours to the most recent list of Certificateholders of that series held
by such person. If such list is of a date more than 90 days prior to the date of
receipt of such Certificateholders' request, then such person, if not the
registrar for such series of Certificates, will be required to request from such
registrar a current list and to afford such requesting Certificateholders access
thereto promptly upon receipt.
The Trustee
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Sponsor and its affiliates and with any Master
Servicer, Special Servicer or REMIC Administrator and its affiliates.
Duties of the Trustee
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan or related document and will not be
accountable for the use or application by or on behalf of any Master Servicer or
Special Servicer of any funds paid to the Master Servicer or Special Servicer in
respect of the Certificates or the underlying Mortgage Loans, or any funds
deposited into or withdrawn from the Certificate Account for such series or any
other account by or on behalf of the Master Servicer or Special Servicer. If no
Event of Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically required
under the related Pooling Agreement. However, upon receipt of any of the various
certificates, reports or other instruments required to be furnished to it
pursuant to the related Pooling Agreement, a Trustee will be required to examine
such documents and to determine whether they conform to the requirements of such
agreement.
Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling Agreement;
provided, however, that such indemnification will not extend to any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of its
duties thereunder either directly or by or through agents or attorneys, and the
Trustee will not be responsible for any willful misconduct or gross negligence
on the part of any such agent or attorney appointed by it with due care.
Resignation and Removal of the Trustee
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A Trustee will be permitted at any time to resign from its obligations and
duties under the related Pooling Agreement by giving written notice thereof to
the Sponsor. Upon receiving such notice of resignation, the Sponsor (or such
other person as may be specified in the related Prospectus Supplement) will be
required to use its best efforts to promptly appoint a successor trustee. If no
successor trustee shall have accepted an appointment within a specified period
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction to appoint a successor trustee.
If at any time a Trustee ceases to be eligible to continue as such under
the related Pooling Agreement, or if at any time the Trustee becomes incapable
of acting, or if certain events of (or proceedings in respect of) bankruptcy or
insolvency occur with respect to the Trustee, the Sponsor will be authorized to
remove the Trustee and appoint a successor trustee. In addition, holders of the
Certificates of any series entitled to at least 33 1/3% (or such other
percentage specified in the related Prospectus Supplement) of the Voting Rights
for such series may at any time (with or without cause) remove the Trustee under
the related Pooling Agreement and appoint a successor trustee, provided that
other holders of Certificates of the same series entitled to a greater
percentage of the Voting Rights for such series do not object.
Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more classes of the
Certificates of any series, or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If so provided in the related Prospectus
Supplement, any form of Credit Support may provide credit enhancement for more
than one series of Certificates to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling Agreement. If
losses or shortfalls occur that exceed the amount covered by the related Credit
Support or that are not covered by such Credit Support, Certificateholders will
bear their allocable share of deficiencies. Moreover, if a form of Credit
Support covers more than one series of Certificates, holders of Certificates of
one series will be subject to the risk that such Credit Support will be
exhausted by the claims of the holders of Certificates of one or more other
series before the former receive their intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor under
any instrument of Credit Support, including (i) a brief description of its
principal business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business and (iv) its total assets,
and its stockholders' equity
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or policyholders' surplus, if applicable, as of a date that will be specified in
the Prospectus Supplement. See "Risk Factors--Credit Support Limitations".
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or may
be limited to) certain types of losses or shortfalls. The related Prospectus
Supplement will set forth information concerning the manner and amount of
subordination provided by a class or classes of Subordinate Certificates in a
series and the circumstances under which such subordination will be available.
Cross-Support Provisions
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. To the extent material, a
copy of each such instrument will accompany the Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Certificates of the
related series.
Letter of Credit
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 one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
Bank"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit will accompany the Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Certificates of the
related series.
Certificate Insurance and Surety Bonds
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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. The related
Prospectus Supplement will describe any limitations on the draws that may be
made under any such instrument. A copy of any such instrument will accompany the
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
Reserve Funds
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 (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of the collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, reserve funds may be established
to provide protection only against certain types of losses and shortfalls.
Following each Distribution Date, amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with Respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any MBS)
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. If the Mortgage Assets in any
Trust Fund that are ultimately secured by
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the properties in a particular state represent a significant concentration (by
balance) of all the Mortgage Assets in such Trust Fund, the Sponsor will include
in the related Prospectus Supplement such additional information regarding the
real estate laws of such state as may be material to an investment decision with
respect to the related series of Offered Certificates. See "Description of the
Trust Funds--Mortgage Loans". For purposes of the following discussion,
"Mortgage Loan" includes a mortgage loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties. The borrower, or grantor, conveys title to the real property to the
grantee, or lender, generally with a power of sale, until such time as the debt
is repaid. In a case where the borrower is a land trust, there would be an
additional party because legal title to the property is held by a land trustee
under a land trust agreement for the benefit of the borrower. At origination of
a mortgage loan involving a land trust, the borrower executes a separate
undertaking to make payments on the mortgage note. The mortgagee's authority
under a mortgage, the trustee's and beneficiary's authority under a deed of
trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940). In addition,
in some deed of trust transactions, the trustee's authority may be governed by
the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements
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in order to perfect its security interest in the room rates and must file
continuation statements, generally every five years, to maintain perfection of
such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse; and,
if such fact is deemed by the Sponsor to be material to the investment decision
with respect to a series of Offered Certificates, it will be set forth in the
related Prospectus Supplement. Even if the lender's security interest in room
rates is perfected under the UCC, it will generally be required to commence a
foreclosure action or otherwise take possession of the property in order to
collect the room rates following a default. In the bankruptcy setting, the
lender will be stayed from enforcing its rights to collect room rates, but those
room rates (in light of certain revisions to the Bankruptcy Code which are
effective for all bankruptcy cases commenced on or after October 22, 1994)
constitute "cash collateral" and therefore cannot be used by the bankruptcy
debtor without a hearing or lender's consent and unless the lender's interest in
the room rates is given adequate protection (e.g., cash payment for otherwise
encumbered funds or a replacement lien on unencumbered property, in either case
equal in value to the amount of room rates that the debtor proposes to use, or
other similar relief). See "--Bankruptcy Laws".
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse; and, if such fact is deemed by the Sponsor to be material to the
investment decision with respect to a series of Offered Certificates, it will be
set forth in the related Prospectus Supplement.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances. A
foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon the borrower and all parties
having a subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct
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a public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provision. United
States courts have traditionally imposed general equitable principles to limit
the remedies available to lenders in foreclosure actions. These principles are
generally designed to relieve borrowers from the effects of mortgage defaults
perceived as harsh or unfair. Relying on such principles, a court may alter the
specific terms of a loan to the extent it considers necessary to prevent or
remedy an injustice, undue oppression or overreaching, or may require the lender
to undertake affirmative actions to determine the cause of the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from a temporary financial disability.
In other cases, courts have limited the right of the lender to foreclose in the
case of a non-monetary default, such as a failure to adequately maintain the
mortgaged property or an impermissible further encumbrance of the mortgaged
property. Finally, some courts have addressed the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to trigger constitutional protections. In addition, some states may
provide statutory protections such as the right of the borrower to cure
outstanding defaults and reinstate a mortgage loan after commencement of
foreclosure proceedings but prior to a foreclosure sale.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power of
sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so permits.
A power of sale under a deed of trust allows a non-judicial public sale to be
conducted generally following a request from the beneficiary/lender to the
trustee to sell the property upon default by the borrower and after notice of
sale is given in accordance with the terms of the mortgage and applicable state
law. In some states, prior to such sale, the trustee under the deed of trust
must record a notice of default and notice of sale and send a copy to the
borrower and to any other party who has recorded a request for a copy of a
notice of default and notice of sale. In addition, in some states the trustee
must provide notice to any other party having an interest of record in the real
property, including junior lienholders. A notice of sale must be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers. The borrower or junior lienholder may then have the
right, during a reinstatement period required in some states, to cure the
default by paying the entire actual amount in arrears (without regard to the
acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior lienholder
is not provided a period to reinstate the loan, but has only the right to pay
off the entire debt to prevent the foreclosure sale. Generally, state law
governs the procedure for public sale, the parties entitled to notice, the
method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) (see "--Foreclosure--Rights of Redemption" below) and because of
the possibility that physical deterioration of the property may have occurred
during the foreclosure proceedings. Potential buyers may also be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of the
United States Court of Appeals for the Fifth Circuit in Durrett v. Washington
National Insurance Company. The court in Durrett held that even a non-collusive,
regularly conducted foreclosure sale was a fraudulent transfer under Section 67d
of the former Bankruptcy Act (Section 548 of the Bankruptcy Code, Bankruptcy
Reform Act of 1978, as amended, 11 U.S.C. Section 101-1330 (the "Bankruptcy
Code")) regardless of the parties' intent and, therefore, could be rescinded in
favor of the bankrupt's estate, if (i) the foreclosure sale was held while the
debtor
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was insolvent, maintained unreasonably small capital or intended to incur debts
beyond its ability to pay and not more than one year prior to the filing of the
bankruptcy petition and (ii) the price paid for the foreclosed property did not
represent "fair consideration" ("reasonably equivalent value" under the
Bankruptcy Code). Although the reasoning and result of Durrett were rejected by
the United States Supreme Court in May 1994, the case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law with provisions
similar to those construed in Durrett. For these reasons, it is common for the
lender to purchase the mortgaged property for an amount equal to the secured
indebtedness and accrued and unpaid interest plus the expenses of foreclosure,
in which event the borrower's debt will be extinguished, or for a lesser amount
in order to preserve its right to seek a deficiency judgment if such is
available under state law. (The Mortgage Loans, however, are generally expected
to be non-recourse. See "Risk Factors--Certain Risks Associated with Mortgage
Loans Secured by Commercial and Multifamily Properties".) Thereafter, subject to
the borrower's right in some states to remain in possession during a redemption
period, the lender will become the owner of the property and have both the
benefits and burdens of ownership, including the obligation to pay debt service
on any senior mortgages, to pay taxes, to obtain casualty insurance and to make
such repairs as are necessary to render the property suitable for sale. The
costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
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Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot 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 former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage 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 those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Risks. Mortgage Loans may be secured by a lien on the borrower's
leasehold interest in a ground lease. Leasehold mortgage loans are subject to
certain risks not associated with mortgage loans secured by a lien on the fee
estate of the borrower. The most significant of these risks is that if the
borrower's leasehold were to be terminated (for example, as a result of a lease
default or the bankruptcy of the ground lessor or the borrower/ground lessee),
the leasehold mortgagee would be left without its security. This risk may be
substantially lessened if the ground lease contains provisions protective of the
leasehold mortgagee, such as a provision that requires the ground lessor to give
the leasehold mortgagee notices of lessee defaults and an opportunity to cure
them, a provision that permits the leasehold estate to be assigned to and by the
leasehold mortgagee or the purchaser at a foreclosure sale, a provision that
gives the leasehold mortgagee the right to enter into a new ground lease with
the ground lessor on the same terms and conditions as the old ground lease or a
provision that prohibits the ground lessee/borrower from treating the ground
lease as terminated in the event of the ground lessor's bankruptcy and rejection
of the ground lease by the trustee for the debtor/ground lessor. Certain
Mortgage Loans, however, may be secured by liens on ground leases that do not
contain these provisions. In addition, the enforceability of certain of these
provisions is not assured.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan),
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and/or by an extension (or shortening) of the term to maturity. Some bankruptcy
courts have approved plans, based on the particular facts of the reorganization
case, that effected the cure of a mortgage loan default by paying arrearages
over a number of years. Also, a bankruptcy court may permit a debtor, through
its rehabilitative plan, to reinstate a loan mortgage payment schedule even if
the lender has obtained a final judgment of foreclosure prior to the filing of
the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of the secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property even where the secured
lender has received an absolute assignment of rents rather than an assignment of
rents as additional security. Under Section 362 of the Bankruptcy Code, the
lender will usually be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. However, the Bankruptcy
Code has recently been amended to provide that a lender's perfected pre-petition
security interest in leases, rents and hotel revenues continues in the
post-petition leases, rents and hotel revenues, unless a bankruptcy court orders
to the contrary "based on the equities of the case". Thus, unless a court orders
otherwise, revenues from a mortgaged property generated after the date the
bankruptcy petition is filed will constitute "cash collateral" under the
Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the mortgaged properties and the cash collateral is "adequately protected" as
such term is defined and interpreted under the Bankruptcy Code.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party even when the lease
prohibits such assignment or (ii) reject the lease. If the lease is assumed, the
trustee or debtor-in-possession (or assignee, if applicable) must cure any
pre-and post-petition defaults under the lease, compensate the lessor for its
losses and provide the lessor with "adequate assurance" of future performance.
Such remedies may be insufficient, and any assurances provided to the lessor
may, after the fact, eventually be inadequate. If the lease is rejected, the
lessor will be treated as an unsecured creditor with respect to its claim for
damages for termination of the lease. The Bankruptcy Code also limits a lessor's
damages for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease. In addition, some courts have limited a
lessor's post-petition pre-rejection priority claim for lease payments to fair
market value or less based on the benefit of the lease to the debtor's
bankruptcy estate.
Environmental Risks
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the risk of the diminution of the
value of a contaminated property or, as discussed below, liability for clean-up
costs or other remedial actions that could exceed the value of the property or
the amount of the lender's loan. In certain circumstances, a lender could
determine to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
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Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
become sufficiently involved in the management of such mortgaged property or the
operations of the borrower. Such liability may exist even if the lender did not
cause or contribute to the contamination and regardless of whether or not the
lender has actually taken possession of a mortgaged property through
foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such liability
is not limited to the original or unamortized principal balance of a loan or to
the value of the property securing a loan. Excluded from CERCLA's definition of
"owner" or "operator", however, is a person "who without participating in the
management of the facility, holds indicia of ownership primarily to protect his
security interest". This is the so called "secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor exemption. The Act offers
substantial protection to lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. In
order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property of the borrower. The Act provides that "merely having
the capacity to influence, or unexercised right to control" operations does not
constitute participation in management. A lender will lose the protection of the
secured creditor exemption 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 mortgaged property. The Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
waste and underground storage tanks pursuant to Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
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.
In a few states, transfer of some types of properties is conditioned upon
clean-up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean-up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such
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cases, unanticipated or uninsurable liabilities of the borrower may jeopardize
the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of a Trust Fund and occasion a loss to Certificateholders of the
related series.
To reduce the likelihood of such a loss, and unless otherwise provided in
the related Prospectus Supplement, the related Pooling Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf of
the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based on a report prepared by a person
who regularly conducts environmental audits, has made the determination that it
is appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related series of Certificates. Environmental site assessments,
however, vary considerably in their content, quality and cost. Even when
adhering to good, commercial and customary professional practices, environmental
consultants will sometimes not detect significant environmental problems because
carrying out an exhaustive environmental assessment would be far too costly and
time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans made after the effective date of the Garn Act are enforceable, within
certain limitations as set forth in the Garn Act and the regulations promulgated
thereunder), a Master Servicer may nevertheless have the right to accelerate the
maturity of a Mortgage Loan that contains a "due-on-sale" provision upon
transfer of an interest in the property, regardless of the Master Servicer's
ability to demonstrate that a sale threatens its legitimate security interest.
Subordinate Financing
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Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Soldiers' and Sailors' Civil Relief Act of 1940
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 was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who
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are members of the Army, Navy, Air Force, Marines, National Guard, Reserves,
Coast Guard and officers of the U.S. Public Health Service assigned to duty with
the military. Because the Relief Act applies to individuals who enter military
service (including reservists who are called to active duty) after origination
of the related mortgage loan, no information can be provided as to the number of
loans with individuals as borrowers that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of a Master Servicer or Special Servicer to collect
full amounts of interest on certain of the Mortgage Loans. Any shortfalls in
interest collections resulting from the application of the Relief Act would
result in a reduction of the amounts distributable to the holders of the related
series of Certificates, and would not be covered by advances or, unless
otherwise specified in the related Prospectus Supplement, any form of Credit
Support provided in connection with such Certificates. In addition, the Relief
Act imposes limitations that would impair the ability of a Master Servicer or
Special Servicer to foreclose on an affected Mortgage Loan during the borrower's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers that are
structural in nature from existing places of public accommodation to the extent
"readily achievable". In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. The requirements of the ADA may also
be imposed on a foreclosing lender who succeeds to the interest of the borrower
as owner or landlord. Since the "readily achievable" standard may vary depending
on the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements of
the ADA may be subject to more stringent requirements than those to which the
borrower is subject.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property", including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds or, illegal drug or
RICO activities.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Offered
Certificates by Certificateholders that will hold the Certificates
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as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986 (the "Code"), and is based on the advice of the special tax counsel
to the Sponsor specified in the related Prospectus Supplement. However, the
following discussion does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors, some
of which (such as banks, insurance companies and foreign investors) may be
subject to special rules. Further, the authorities on which this discussion, and
the opinion referred to below are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers and preparers of tax
returns (including those filed by any REMIC or other issuer) should be aware
that under applicable Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return preparer unless the advice
(i) is given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions, and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their own tax advisors and tax
return preparers regarding the treatment of any item on their tax return, even
where the anticipated tax consequences have been discussed herein. In addition
to the federal income tax consequences described herein, potential investors
should consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Certificates. See "State and Other Tax
Consequences". Certificateholders are advised to consult their own tax advisors
concerning the federal, state, local or other tax consequences to them of the
purchase, ownership and disposition of Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that a REMIC Administrator will elect to have treated as a real
estate mortgage investment conduit ("REMIC") under Sections 860A through 860G
(the "REMIC Provisions") of the Code, and (ii) certificates ("Grantor Trust
Certificates") representing interests in a Trust Fund ("Grantor Trust Fund") as
to which no such election will be made. The Prospectus Supplement for each
series of Certificates will indicate whether a REMIC election (or elections)
will be made for the related Trust Fund and, if such an election is to be made,
will identify all "regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, references to a "Certificateholder" or a
"holder" are to the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements, other than guaranteed
investment contracts, are included in a Trust Fund, the tax consequences
associated with such Cash Flow Agreements also will be disclosed in the related
Prospectus Supplement. See "Description of the Trust Funds--Cash Flow
Agreements".
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the Certificates.
REMICs
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Sponsor will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling
Agreement and certain other documents (and subject to certain assumptions set
forth therein), the related Trust Fund (or each applicable portion thereof) will
qualify as a REMIC and the REMIC Certificates offered with respect thereto will
be considered to evidence ownership of "regular interests" ("REMIC Regular
Certificates")
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or "residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the entity may lose its status as a REMIC for such year and thereafter. In
that event, such entity may be taxable as a corporation and the related REMIC
Certificates may not be accorded the status or given the tax treatment described
below. Although the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of REMIC status, no
such regulations have been issued. Any such relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the Trust Fund's income for the period in which the requirements for such status
are not satisfied. The Pooling Agreement with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C)(v). Moreover, if 95% or more of the assets of the REMIC qualify
for any of the foregoing treatments at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the class of REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. The determination as to the percentage of the REMIC's
assets that constitute assets described in the foregoing sections of the Code
will be made with respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during such calendar
quarter. The REMIC Administrator will report those determinations to
Certificateholders in the manner and at the times required by the applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include amounts
in reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. In
addition, in some instances Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. If so, the related Prospectus Supplement
will describe those Mortgage Loans that may be so treated. The REMIC Regulations
do provide, however, that payments on Mortgage Loans held pending distribution
are considered part of the Mortgage Loans for purposes of Section 856(c)(5)(A)
of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as separate REMICs ("Tiered REMICs") for federal income tax purposes.
Upon the issuance of any such series of REMIC Certificates, counsel to the
Sponsor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling Agreement, each of the
Tiered REMICs will qualify as a REMIC, and the REMIC Certificates issued by each
of the Tiered REMICs will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates, as the case may be, in such REMIC,
within the meaning of the REMIC Provisions.
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Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC 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 REMIC Regular Certificates that otherwise report income
under the cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under the accrual method.
Original Issue Discount. Certain classes of REMIC Regular Certificates may
be issued with "original issue discount" within the meaning of Section 1273(a)
of the Code. Any holders of REMIC Regular Certificates issued with original
issue discount generally will be required to include original issue discount in
income as it accrues, in accordance with the method described below, in advance
of the receipt of the cash attributable to such income. In addition, Section
1272(a)(6) of the Code provides special rules applicable to REMIC Regular
Certificates and certain other debt instruments issued with original issue
discount; regulations, however, have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series will be consistent with this
standard and will be disclosed in the related Prospectus Supplement. However,
neither the Sponsor nor any other person will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate or that such Prepayment Assumption will not be
challenged by the Internal Revenue Service (the "IRS") on audit.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date") the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest".
"Qualified stated interest" includes interest that is unconditionally payable at
least annually at a single fixed rate, at a "qualified floating rate" or at an
"objective rate", at a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or at a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics
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of such REMIC Regular Certificates. If the original issue discount rules apply
to such Certificates, the related Prospectus Supplement will describe the manner
in which such rules will be applied with respect to those Certificates in
preparing information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this "long
first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
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As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (a) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (b) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in the stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount (other than a de minimis amount), that is, in
the case of a REMIC Regular Certificate issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original issue discount, at a
purchase price less than its adjusted issue price, will recognize gain upon
receipt of each distribution representing some or all of the stated redemption
price. In particular, under Section 1276 of the Code such a Certificateholder
generally will be required to allocate the portion of each such distribution
representing stated redemption price 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.
The OID Regulations also 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. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the
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taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would 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
"--Taxation of Owners of REMIC Regular Certificates--Premium" below. Each of the
elections in this and the preceding paragraph to accrue interest, discount and
premium with respect to a Certificate on a constant yield method or as interest
would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". Such treatment would result in discount
being included in income at a slower rate than discount would be required to be
included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder, however, has elected to include market discount in income currently as
it accrues, the interest deferral rule described above would not apply.
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Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. On June 27, 1996, the IRS published in the
Federal Register proposed regulations on the amortization of bond premium. Under
those regulations, if a holder elects to amortize bond premium, bond premium
would be amortized on a constant yield method and would be applied against
qualified stated interest. The proposed regulations generally would be effective
for Certificates acquired on or after the date 60 days after the date final
regulations are published in the Federal Register. If made, such an election
will apply to all debt instruments having amortizable bond premium that the
holder owns or subsequently acquires. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the Certificateholder
as having made the election to amortize premium generally. See "--Taxation of
Owners of REMIC Regular Certificates--Market Discount". The Committee Report
states that the same rules that apply to accrual of market discount (which rules
will require use of a Prepayment Assumption in accruing market discount with
respect to REMIC Regular Certificates without regard to whether such
Certificates have original issue discount) will also apply in amortizing bond
premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Assets until it can be established that any such
reduction ultimately will not be recoverable. As a result, the amount of taxable
income reported in any period by the holder of a REMIC Regular Certificate could
exceed the amount of economic income actually realized by the holder in such
period. Although the holder of a REMIC Regular Certificate eventually will
recognize a loss or reduction in income attributable to previously accrued and
included income that as a result of a realized loss ultimately will not be
realized, the law is unclear with respect to the timing and character of such
loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any Residual Certificateholder by virtue of this paragraph
will be treated as ordinary income
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or loss. The taxable income of the REMIC will be determined under the rules
described below in "--Taxable Income of the REMIC" and will be taxable to the
Residual Certificateholders without regard to the timing or amount of cash
distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the Code on the
deductibility of "passive losses".
A holder of a Residual Certificate that purchased such Certificate from a
prior holder of such Certificate also will be required to report on its federal
income tax return amounts representing its daily share of the taxable income (or
net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of their ownership of
REMIC Residual Certificates or unrelated deductions against which income may be
offset, subject to the rules relating to "excess inclusions", residual interests
without "significant value" and "noneconomic" residual interests discussed
below. The fact that the tax liability associated with the income allocated to
Residual Certificateholders may exceed the cash distributions received by such
Residual Certificateholders for the corresponding period may significantly
adversely affect such Residual Certificateholders' after-tax rate of return.
REMIC Residual Certificates may in some instances have negative "value". See
"Risk Factors--Certain Federal Tax Considerations Regarding REMIC Residual
Certificates".
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
for amortization of any premium on the Mortgage Loans, for bad debt losses with
respect to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
The issue price of a REMIC Certificate received in
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exchange for an interest in the Mortgage Loans or other property will equal the
fair market value of such interests in the Mortgage Loans or other property.
Accordingly, if one or more classes of REMIC Certificates are retained initially
rather than sold, the REMIC Administrator may be required to estimate the fair
market value of such interests in order to determine the basis of the REMIC in
the Mortgage Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount 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 original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Certificates of such class will be reduced by
an amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
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separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such Residual Certificateholder.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent such net loss exceeds such Residual
Certificateholder's adjusted basis in its REMIC Residual Certificate as of the
close of such calendar quarter (determined without regard to such net loss). Any
loss that is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and, subject to the
same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of Residual Certificateholders to deduct net losses may
be subject to additional limitations under the Code, as to which Residual
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the Trust Fund. However, such bases increases may not occur until the
end of the calendar quarter, or perhaps the end of the calendar year, with
respect to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such Residual Certificateholders
on such distributions and will be treated as gain from the sale of their REMIC
Certificates.
The effect of these rules is that a Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates". For a discussion of possible modifications of these rules that
may require adjustments to income of a holder of a REMIC Residual Certificate
other than an original holder in order to reflect any difference between the
cost of such REMIC Residual Certificate to such Residual Certificateholder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original holder. See "--Taxation of Owners of REMIC Residual
Certificates--General".
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Certificateholder. The daily accruals of a
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Residual Certificateholder will be determined by allocating to each day during a
calendar quarter its ratable portion of the product of the "adjusted issue
price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120% of the "long-term Federal rate" in effect on the Closing Date.
For this purpose, the adjusted issue price of a REMIC Residual Certificate as of
the beginning of any calendar quarter will be equal to the issue price of the
REMIC Residual Certificate, increased by the sum of the daily accruals for all
prior quarters and decreased (but not below zero) by any distributions made with
respect to such REMIC Residual Certificate before the beginning of such quarter.
The issue price of a REMIC Residual Certificate is the initial offering price to
the public (excluding bond houses and brokers) at which a substantial amount of
the REMIC Residual Certificates were sold. The "long-term Federal 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. Although it
has not done so, the Treasury has the authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value." Unless otherwise stated in the related Prospectus
Supplement, no REMIC Residual Certificate will have "significant value" for
these purposes.
For Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be permitted to be
offset by the alternative tax net operating loss deduction and (ii) alternative
minimum taxable income may not be less than the taxpayer's excess inclusions.
This last rule has the effect of preventing nonrefundable tax credits from
reducing the taxpayer's income tax to an amount lower than the alternative
minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, 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 REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such
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restrictions will require each party to a transfer to provide an affidavit that
no purpose of such transfer is to impede the assessment or collection of tax,
including certain representations as to the financial condition of the
prospective transferee, as to which the transferor is also required to make a
reasonable investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Sponsor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons (as
defined below in "--Foreign Investors in REMIC Certificates") will be prohibited
under the related Pooling Agreement. If transfers of REMIC Residual Certificates
to investors that are not United States Persons are permitted pursuant to the
related Pooling Agreement, the related Prospectus Supplement will describe
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to such persons.
Mark-to-Market Rules. On December 24, 1996, the IRS released regulations
under Section 475 of the Code (the "Mark-to-Market Regulations") relating to the
requirement that a securities dealer mark-to-market securities held for sale to
customers. This mark-to-market requirement applies to all securities owned by a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Mark-to-Market Regulations provide that a
REMIC residual interest issued after January 4, 1995, is not a "security" for
the purposes of Section 475 of the Code, and thus is not subject to the
mark-to-market rules. Prospective purchasers of a REMIC Residual Certificate
should consult their tax advisors regarding the Mark-to-Market Regulations.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and other
non-interest expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable
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income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should carefully consult with their own tax
advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described under
"--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net Losses
and Distributions". Except as described below, any such gain or loss will be
capital gain or loss, provided such REMIC Certificate is held as a capital asset
(generally, property held for investment) within the meaning of Section 1221 of
the Code. The Code as of the date of this Prospectus, provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate, which rate is
computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount of ordinary
income actually includible in the seller's income prior to such sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120%
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of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gains taxed at ordinary
income rates rather than capital gain rates in order to include such net capital
gain in total net investment income for the taxable year, for purposes of the
rule that limits the deduction of interest on indebtedness incurred to purchase
or carry property held for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires a REMIC Residual Certificate,
or acquires any other residual interest in a REMIC or any similar interest in a
"taxable mortgage pool" (as defined in Section 7701(i) of the Code) 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 Section 1091 of
the Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead will be added
to such REMIC Residual Certificateholder's adjusted basis in the newly-acquired
asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. Unless
otherwise disclosed in the related Prospectus Supplement, it is not anticipated
that any REMIC will engage in any prohibited transactions as to which it would
be subject to a material Prohibited Transaction Tax.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are 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
rents and other qualifying income for a real estate investment trust. Under
certain circumstances, the Special Servicer may be authorized to conduct
activities with respect to a Mortgaged Property acquired by a Trust Fund that
causes the Trust Fund to incur a tax, provided that doing so would, in
reasonable discretion of the Special Servicer, maximize net after-tax proceeds
to Certificateholders.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, 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 the REMIC will be borne by
the related REMIC Administrator, Master Servicer, Special Servicer or Trustee in
any case out of its own funds, provided that such person has sufficient assets
to do so and provided further that such tax arises out of a breach of such
person's obligations under the related Pooling Agreement. Any such tax not borne
by a REMIC
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Administrator, Master Servicer, Special Servicer or Trustee would be charged
against the related Trust Fund resulting in a reduction in amounts payable to
holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in the
Pooling Agreement, and will be discussed more fully in any Prospectus Supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalty of perjury that such social security number is that of the record
holder or (ii) a statement under penalty of perjury that such record holder is
not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual
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Certificate, if the last distribution on such REMIC Residual Certificate is less
than the Residual Certificateholder's adjusted basis in such REMIC Residual
Certificate, such Residual Certificateholder should (but may not) be treated as
realizing a capital loss equal to the amount of such difference.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and Residual Certificateholders will be treated as partners. Unless
otherwise stated in the related Prospectus Supplement, the REMIC Administrator
will file REMIC federal income tax returns on behalf of the REMIC, will be
designated as and will act as the "tax matters person" with respect to the REMIC
in all respects, and will generally hold at least a nominal amount of REMIC
Residual Certificates.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. Residual Certificateholders generally will be required to report
such REMIC items consistently with their treatment on the related REMIC's tax
return and may in some circumstances be bound by a settlement agreement between
the REMIC Administrator, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC's tax return may require a Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a Residual Certificateholder's return. No REMIC will
be registered as a tax shelter pursuant to Section 6111 of the Code because it
is not anticipated that any REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
related REMIC, in a manner to be provided in Treasury regulations, with the name
and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the person designated as REMIC Administrator.
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Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "United States person" (as defined below) and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a REMIC Regular Certificate will
not, unless otherwise disclosed in the related Prospectus Supplement, be subject
to United States federal income or withholding tax in respect of a distribution
on a REMIC Regular Certificate, provided that the holder complies to the extent
necessary with certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of perjury,
certifying that such Certificateholder is not a United States person and
providing the name and address of such Certificateholder). For these purposes,
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate
whose income is subject to United States federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
Residual Certificateholder that owns directly or indirectly a 10% or greater
interest in the REMIC Residual Certificates. If the holder does not qualify for
exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a tax rate of
30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling Agreement.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, counsel to the Sponsor will deliver its opinion to
the effect that, assuming compliance with all provisions of the related Pooling
Agreement, the related Grantor Trust Fund will be classified as a grantor trust
under subpart E, part I of subchapter J of the Code and not as a partnership or
an association taxable as a corporation. Accordingly, each holder of a Grantor
Trust Certificate generally will be treated as the owner of an interest in the
underlying Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a specified rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate".
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A Grantor Trust Certificate representing ownership of all or a portion of the
difference between interest paid on the Mortgage Loans constituting the related
Grantor Trust Fund (net of normal administration fees and any spread) and
interest paid to the holders of Grantor Trust Fractional Interest Certificates
issued with respect to such Grantor Trust Fund will be referred to as a
"Stripped Interest Certificate". A Stripped Interest Certificate may also
evidence a nominal ownership interest in the principal of the Mortgage Loans
constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Sponsor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans ... secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code (but generally only to the
extent that the underlying Mortgage Loans have been made with respect to
property that is used for residential or certain other prescribed purposes);
(ii) "obligations (including any participation or certificate of beneficial
ownership therein) which . . . [are] principally secured by an interest in real
property" within the meaning of Section 860G(a)(3)(A) of the Code; and (iii)
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code. In
addition, counsel to the Sponsor will deliver an opinion that interest on
Grantor Trust Fractional Interest Certificates will to the same extent be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Section 856(c)(3)(B) of the
Code.
Stripped Interest Certificates. It is unclear whether Stripped Interest
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code. Counsel to the Sponsor will not
deliver any opinion on this question. Prospective purchasers to which such
characterization of an investment in Stripped Interest Certificates is material
should consult their tax advisors regarding whether the Stripped Interest
Certificates, and the income therefrom, will be so characterized.
The Stripped Interest Certificates will be "obligations (including any
participation or certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans.
Under Section 67 of the Code, an individual, estate or trust holding a
Grantor Trust Fractional Interest Certificate directly or through certain
pass-through entities will be allowed a deduction for such reasonable servicing
fees and expenses only to the extent that the aggregate of such holder's
miscellaneous itemized deductions exceeds two percent of such holder's adjusted
gross income. In addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for an individual whose adjusted gross
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income exceeds a specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Stripped Interest Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Stripped
Interest Certificates is issued as part of the same series of Certificates or
(ii) the Sponsor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
servicing fees paid with respect to the Mortgage Loans for certain series of
Grantor Trust Fractional Interest Certificates may not constitute reasonable
servicing compensation. The related Prospectus Supplement will include
information regarding servicing fees paid to a Master Servicer, a Special
Servicer, any Sub-Servicer or their respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount". Under the stripped bond rules, the
holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates") and the yield of such Grantor
Trust Fractional Interest Certificate to such holder. Such yield would be
computed at the rate (compounded based on the regular interval between payment
dates) that, if used to discount the holder's share of future payments on the
Mortgage Loans, would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In computing yield
under the stripped bond rules, a Certificateholder's share of future payments on
the Mortgage Loans will not include any payments made in respect of any spread
or any other ownership interest in the
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Mortgage Loans retained by the Sponsor, a Master Servicer, a Special Servicer,
any Sub-Servicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be, but have not been, adopted applying those provisions
to the Grantor Trust Fractional Interest Certificates. It is unclear whether use
of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their own tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the Mortgage Loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount". It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Sponsor nor any other person will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to such Prepayment
Assumption or any other rate or that the Prepayment Assumption will not be
challenged by the IRS on audit. Certificateholders also should bear in mind that
the use of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each series who bought at that price.
Under Treasury Regulation Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the
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bond or coupon (i) there is no original issue discount (or only a de minimis
amount of original issue discount) or (ii) the annual stated rate of interest
payable on the original bond is no more than one percentage point lower than the
gross interest rate payable on the original mortgage loan (before subtracting
any servicing fee or any stripped coupon). If interest payable on a Grantor
Trust Fractional Interest Certificate is more than one percentage point lower
than the gross interest rate payable on the Mortgage Loans, the related
Prospectus Supplement will disclose that fact. If the original issue discount or
market discount on a Grantor Trust Fractional Interest Certificate determined
under the stripped bond rules is less than 0.25% of the stated redemption price
multiplied by the weighted average maturity of the Mortgage Loans, then such
original issue discount or market discount will be considered to be de minimis.
Original issue discount or market discount of only a de minimis amount will be
included in income in the same manner as de minimis original issue and market
discount described in "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Do Not Apply" and "--Market Discount".
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. In that case, the original
issue discount rules will apply to a Grantor Trust Fractional Interest
Certificate only to the extent it evidences an interest in Mortgage Loans issued
with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. Under the OID Regulations the stated redemption price is equal to
the total of all payments to be made on such Mortgage Loan other than "qualified
stated interest". "Qualified stated interest" includes interest that is
unconditionally payable at least annually at a single fixed rate, at a
"qualified floating rate", or at an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such
Mortgage Loan. In general, the issue price of a Mortgage Loan will be the amount
received by the borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption price of a
Mortgage Loan will equal its principal amount, unless the Mortgage Loan provides
for an initial below-market rate of interest or the acceleration or the deferral
of interest payments.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Mortgage Loan, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such payment is
expected to be made, by (ii) a fraction, the numerator of which is the amount of
the payment and the denominator of which is the stated redemption price of the
Mortgage Loan. Under the OID Regulations, original issue discount of only a de
minimis amount (other than de minimis original issue discount attributable to a
so-called "teaser" rate or initial interest holiday) will be included in income
as each payment of stated principal is made, based on the product of the total
amount of such de minimis original issue discount and a fraction, the numerator
of which is the amount of each such payment and the denominator of which is the
outstanding stated principal amount of the Mortgage Loan. The OID Regulations
also permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based
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on a constant yield method. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--Market Discount" below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income in each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issued price of
a Mortgage Loan at the beginning of any accrual period will equal the issue
price of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or Master Servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "--Grantor Trust
Reporting" below.
Market Discount. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield
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method based on the yield of the Certificate to such holder) 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 during or after the first taxable year to which such election
applies. In addition, the OID Regulations would 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. If such an election were made with respect to a Mortgage Loan with
market discount, the Certificateholder would be deemed to have made an election
to include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election and thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this election for
a Certificate acquired at a premium would 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
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium". Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing 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 Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Mortgage Loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to be de minimis if it is less than 0.25% of the stated redemption
price of the Mortgage Loans multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the prepayment assumption used,
if any. The effect of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated as de minimis
under the foregoing rule, it appears that actual discount would be treated in a
manner similar to original issue discount of a de minimis amount. See
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Do Not Apply".
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible
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in income, unless an election has been made to report market discount currently
as it accrues. This rule applies without regard to the origination dates of the
Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Stripped Interest Certificates
General. The "stripped coupon" rules of Section 1286 of the Code will
apply to the Stripped Interest Certificates. Except as described above in
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Apply", no regulations or published rulings under Section
1286 of the Code have been issued and some uncertainty exists as to how such
Section will be applied to securities such as the Stripped Interest
Certificates. Accordingly, holders of Stripped Interest Certificates should
consult their own tax advisors concerning the method to be used in reporting
income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Contingent Payment Rules" below and
assumes that the holder of a Stripped Interest Certificate will not own any
Grantor Trust Fractional Interest Certificates.
It appears that original issue discount will be required to be accrued in
each month on the Stripped Interest Certificates based on a constant yield
method. In effect, each holder of Stripped Interest Certificates would include
as interest income in each month an amount equal to the product of such holder's
adjusted basis in such Stripped Interest Certificate at the beginning of such
month and the yield of such Stripped Interest Certificate to such holder. Such
yield would be calculated based on the price paid for that Stripped Interest
Certificate by its holder and the payments remaining to be made thereon at the
time of the purchase, plus an allocable portion of the servicing fees and
expenses to be paid with respect to the Mortgage Loans. See "--Taxation of
Owners of Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules
Apply" above.
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As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Stripped Interest Certificates. It is unclear whether
those provisions would be applicable to the Stripped Interest Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Stripped Interest Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Stripped Interest Certificate by that holder.
The accrual of income on the Stripped Interest Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Sponsor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate or that the Prepayment
Assumption will not be challenged by the IRS on audit. Certificateholders also
should bear in mind that the use of a representative initial offering price will
mean that such information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Stripped Interest Certificates should consult their own tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Stripped Interest
Certificate. If a Stripped Interest 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
Stripped Interest Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Stripped Interest Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Stripped Interest Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Stripped Interest Certificate that is
allocable to such Mortgage Loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Stripped Interest Certificates would cease if the Mortgage Loans were
prepaid in full, Stripped Interest Certificates could be considered to be debt
instruments providing for contingent payments. Under the OID Regulations, debt
instruments providing for contingent payments are not subject to the same rules
as debt instruments providing for noncontingent payments. Regulations have been
promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Stripped Interest Certificates due to
their similarity to other mortgage-backed securities (such as REMIC regular
interests and debt instruments subject to Section 1272(a)(6) of the Code) that
are expressly excepted from the application of the Contingent Payment
Regulations, may be excepted from such regulations. Like the OID Regulations,
the Contingent Payment Regulations do not specifically address securities, such
as the Stripped Interest Certificates, that are subject to the stripped bond
rules of Section 1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations
were to apply, the holder of a Stripped Interest Certificate would be required
to apply the "noncontingent bond method." Under the "noncontingent bond method",
the issuer of a Stripped Interest Certificate determines a projected payment
schedule on which interest will accrue. Holders of Stripped Interest
Certificates are bound by the issuer's projected
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payment schedule. The projected payment schedule consists of all noncontingent
payments and a projected amount for each contingent payment based on the
projected yield (as described below) of the Stripped Interest Certificate. The
projected amount of each payment is determined so that the projected payment
schedule reflects the projected yield. The projected amount of each payment must
reasonably reflect the relative expected values of the payments to be received
by the holders of a Stripped Interest Certificate. The projected yield referred
to above is a reasonable rate, not less than the "applicable Federal rate" that,
as of the issue date, reflects general market conditions, the credit quality of
the issuer, and the terms and conditions of the Mortgage Loans. The holder of a
Stripped Interest Certificate would be required to include as interest income in
each month the adjusted issue price of the Stripped Interest Certificate at the
beginning of the period multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the Continent Payment
Regulations or their principles were applied to Stripped Interest Certificates,
the amount of income reported with respect thereto would be substantially
similar to that described under "Taxation of Owners of Stripped Interest
Certificates".
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Striped Interest
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by the banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction. Finally, a
taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include such net capital gain in
total net investment income for that taxable year, for purposes of the rule that
limits the deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans
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and to interest thereon at the related Pass-Through Rate. In addition, within a
reasonable time after the end of each calendar year, the Trustee or Master
Servicer, as applicable, will furnish to each Certificateholder during such year
such customary factual information as the Sponsor or the reporting party deems
necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described in "--Taxation of
Owners of REMIC Residual Certificates--Backup Withholding with Respect to REMIC
Certificates" will also apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from United States withholding tax, subject to the
conditions described in such discussion, only to the extent the related Mortgage
Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to U.S. estate taxes in the estate of
non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Material
Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code (all of which are hereinafter referred to as "Plans"), and on persons
who are fiduciaries with respect to Plans, in connection with the investment of
Plan assets. Certain employee benefit plans, such as governmental plans (as
defined in ERISA Section 3(32)), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in Offered Certificates without regard to the ERISA considerations described
below, subject to the provisions of other applicable federal and state law.
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Any such plan which is qualified and exempt from taxation under Sections 401(a)
and 501(a) of the Code, however, is subject to the prohibited transaction rules
set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. The types of transactions between Plans
and Parties in Interest that are prohibited include: (a) sales, exchanges or
leases of property, (b) loans or other extensions of credit and (c) the
furnishing of goods and services. Certain Parties in Interest that participate
in a prohibited transaction may be subject to an excise tax imposed pursuant to
Section 4975 of the Code, unless a statutory or administrative exemption is
available. In addition, the persons involved in the prohibited transaction may
have to rescind the transaction and pay an amount to the Plan for any losses
realized by the Plan or profits realized by such persons, individual retirement
accounts involved in the transaction may be disqualified resulting in adverse
tax consequences to the owner of such account and certain other liabilities
could result that have a significant adverse effect on such person.
Plan Asset Regulations
A Plan's investment in Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity, the Plan's assets include both such equity interest and
an undivided interest in each of the underlying assets of the entity, unless
certain exceptions apply, including that the equity participation in the entity
by "benefit plan investors" (that is, Plans and certain employee benefit plans
not subject to ERISA) is not "significant". For this purpose, in general, equity
participation in a Trust Fund will be "significant" on any date if, immediately
after the most recent acquisition of any Certificate, 25% or more of any class
of Certificates is held by benefit plan investors (determined by not including
the investments of persons with discretionary authority or control over the
assets of such entity, of any person who provides investment advice for a fee
(direct or indirect) with respect to such assets, and of "affiliates" (as
defined in the Plan Asset Regulations) of such persons). Equity participation in
a Trust Fund will be significant on any date if immediately after the most
recent acquisition of any Certificate, 25% or more of any class of Certificates
is held by benefit plan investors (determined by not including the investments
of the Sponsor, the Trustee, the Master Servicer, the Special Servicer, any
other parties with discretionary authority over the assets of a Trust Fund and
their respective affiliates).
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Trust Assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets, such as a Master
Servicer, a Special Servicer, any Sub-Servicer, a Trustee, the obligor under any
credit enhancement mechanism, or certain affiliates thereof, may be deemed to be
a Plan "fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions of ERISA. In addition, if the underlying
assets of a Trust Fund constitute Plan assets, the Sponsor, the REMIC
Administrator, any borrower, as well as each of the parties described in the
preceding sentence, may become Parties in Interest with respect to an investing
Plan (or of a Plan holding an interest in an investing entity). Thus, if the
Trust Assets constitute Plan assets, the operation of the Trust Fund may involve
a prohibited transaction under ERISA and the Code. For example, if a person who
is a Party in Interest with respect to an investing Plan is borrower, the
purchase of Certificates by the Plan could constitute a prohibited loan between
a Plan and a Party in Interest.
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Any Plan fiduciary that proposes to cause such Plan to purchase Offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code, in particular the fiduciary responsibility
and prohibited transaction provisions, to such investment and the availability
of (and scope of relief provided by) any prohibited transaction exemption in
connection therewith. The Prospectus Supplement with respect to a series of
Certificates may contain additional information regarding the application of any
exemption with respect to the Certificates offered thereby. In addition, any
Plan fiduciary that proposes to cause a Plan to purchase Stripped Interest
Certificates should consider the federal income tax consequences of such
investment.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") only
if so specified in the related Prospectus Supplement. Accordingly, investors
whose investment authority is subject to legal restrictions should consult their
own legal advisors to determine whether and to what extent the Offered
Certificates constitute legal investments for them.
Prior to December 31, 1996, only classes of Offered Certificates that (i)
were rated in one of the two highest rating categories by one or more Rating
Agencies and (ii) were part of a series evidencing interests in a Trust Fund
consisting of loans secured by a single parcel of real estate upon which is
located a dwelling or mixed residential and commercial structure, such as
certain Multifamily Loans, and originated by types of Originators specified in
SMMEA, will be "mortgage related securities" for purposes of SMMEA. "Mortgage
related securities" are legal investments to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions,
insurance companies and pension funds created pursuant to or existing under the
laws of the United States or of any state, the authorized investments of which
are subject to state regulation). However, under SMMEA as originally enacted, if
a state enacted legislation prior to October 3, 1991 that specifically limited
the legal investment authority of any such entities with respect to "mortgage
related securities" under such definition, Offered Certificates would constitute
legal investments for entities subject to such legislation only to the extent
provided in such legislation.
Effective December 31, 1996, the definition of "mortgage related
securities" was modified to include among the types of loans to which such
securities may relate, loans secured by "one or more parcels of real estate upon
which is located one or more commercial structures". In addition, the related
legislative history states that this expanded definition includes multifamily
loans secured by more than one parcel of real estate upon which is located more
than one structure. Until September 23, 2001, any state may enact legislation
limiting the extent to which "mortgage related securities" under this expanded
definition would constitute legal investments under that state's laws.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, effective
December 31, 1996, the Office of the Comptroller of the Currency (the "OCC")
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards concerning
"safety and soundness" and retention of credit information in 12 C.F.R. Section
1.5), certain "Type IV securities", defined in 12 C.F.R. Section 1.2(1) to
include certain "commercial mortgage-related securities"
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and "residential mortgage-related securities". As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage related security" within the meaning of SMMEA, provided
that, in the case of a "commercial mortgage-related security," it "represents
ownership of a promissory note or certificate of interest or participation that
is directly secured by a first lien on one or more parcels of real estate upon
which one or more commercial structures are located and that is fully secured by
interests in a pool of loans to numerous obligors." In the absence of any rule
or administrative interpretation by the OCC defining the term "numerous
obligors," no representation is made as to whether any class of Offered
Certificates will qualify as "commercial mortgage-related securities", and thus
as "Type IV securities", for investment by national banks. Federal credit unions
should review 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. The NCUA has
adopted rules, codified as 12 C.F.R. Section 703.5(f)-(k), which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain classes of Offered Certificates), except
under limited circumstances.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS. The Policy Statement
generally indicates that a mortgage derivative product will be deemed to be high
risk if it exhibits greater price volatility than a standard fixed rate
thirty-year mortgage security. According to the Policy Statement, prior to
purchase, a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and
if so that the proposed acquisition would reduce the institution's overall
interest rate risk. Reliance on analysis and documentation obtained from a
securities dealer or other outside party without internal analysis by the
institution would be unacceptable. There can be no assurance as to which classes
of Certificates, including Offered Certificates, will be treated as high-risk
under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Offered Certificates. In addition, the National Credit Union Administration has
issued regulations governing federal credit union investments which prohibit
investment in certain specified types of securities, which may include certain
classes of Offered Certificates. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Offered Certificates or to purchase any class of
Offered Certificates representing more than a specified percentage of the
investor's assets. Except as to the status of certain classes of Offered
Certificates as "mortgage related securities", the Sponsor will make no
representations as to the proper characterization of any class of Offered
Certificates for legal investment or other purposes, or as to the ability of
particular investors to purchase any class of Offered Certificates under
applicable legal investment restrictions. These uncertainties (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions.
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METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by Prospectus Supplements
hereto will be offered in series through one or more of the methods described
below. The Prospectus Supplement prepared for each series will describe the
method of offering being utilized for that series and will state the net
proceeds to the Sponsor from such sale.
The Sponsor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of Certificates may be made through a combination of two or more of these
methods. Such methods are as follows:
(i) By negotiated firm commitment underwriting and public offering by one
or more underwriters specified in the related Prospectus Supplement;
(ii) by placements through one or more placement agents specified in the
related Prospectus Supplement primarily with institutional investors and
dealers; and
(iii) through offerings by the Sponsor.
The Prospectus Supplement for each series of Offered Certificates will, as
to each class of such Certificates, describe the method of offering being used
for that class and either the price at which such class is being offered, the
nature and amount of any underwriting discounts or additional compensation to
underwriters and the proceeds of the offering to the Sponsor, or the method for
determining the price at which such class will be sold to the public. A firm
commitment underwriting and public offering by underwriters may be done through
underwriting syndicates led by one or more managing underwriters or through one
or more underwriters acting alone. The managing underwriter or underwriters with
respect to the offer and sale of a particular series of Offered Certificates
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement. The firms acting as underwriters with respect to the
Offered Certificates of any series may include Citicorp Securities, Inc. and
Citibank, N.A., each of which is an affiliate of the Sponsor. Any of the
above-named firms not named in the related Prospectus Supplement will not be
parties to the Underwriting Agreement in respect of a series of Offered
Certificates, will not be purchasing any such Certificates from the Sponsor and
will have no direct or indirect participation in the underwriting of such
Certificates, although any of such firms may participate in the distribution of
such Certificates under circumstances entitling it to a dealer's commission.
Each Prospectus Supplement for an underwritten offering will also contain
information regarding the nature of the underwriters' obligations, any material
relationships between the Sponsor 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 a firm commitment underwritten offering, the
underwriters will be obligated to purchase all of the Offered Certificates of a
series if any such Certificates are purchased. Offered 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.
In connection with the sale of the Offered Certificates of any series,
underwriters may receive compensation from the Sponsor or from purchasers of
such Certificates in the form of discounts, concessions or commissions. The
related Prospectus Supplement will describe any such compensation paid by the
Sponsor.
In underwritten offerings, the underwriters and their agents may be
entitled, under agreements entered into with the Sponsor, to indemnification
from the Sponsor against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"), or to
contribution with respect to payments
99
<PAGE>
which such underwriters or agents may be required to make in respect thereof.
Such rights to indemnification or contribution may also extend to each person,
if any, who controls any such underwriter within the meaning of the Securities
Act.
If a series or class of Offered Certificates is offered otherwise 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 Sponsor and purchasers of such Certificates. It is
contemplated that Citicorp Securities, Inc. or Citibank, N.A. will act as
placement agent on behalf of the Sponsor in such offerings of a series or class
of Offered Certificates. If Citicorp Securities, Inc. does act as placement
agent in the sale of Offered Certificates, it will receive a selling commission
which will be disclosed in the related Prospectus Supplement. Citicorp
Securities, Inc. or Citibank, N.A. may also purchase Offered Certificates acting
as principal.
It is expected that the Sponsor will from time to time form Mortgage Asset
Pools and cause series of Offered Certificates evidencing an ownership interest
in such Mortgage Asset Pools to be issued to the related Mortgage Asset Sellers.
Thereafter, and pending final sale of such a series of Offered Certificates, the
related Mortgage Asset Seller may enter into repurchase arrangements or secured
lending arrangements with institutions that may include Citicorp Securities,
Inc. or any of its affiliates for purposes of financing the holding of such
series. Prior to any sales of such Certificates to investors, the related
Mortgage Asset Seller will prepare and deliver a Prospectus Supplement
containing updated information regarding the Mortgage Asset Pool as of the first
day of the month in which such sale occurs.
Affiliates of the Sponsor may act as principals or agents in connection
with market-making transactions relating to the Offered Certificates. This
Prospectus and the related Prospectus Supplement may be used by such affiliates
in connection with offers and sales related to market-making transactions in the
Offered Certificates. Such sales will be made at prices related to prevailing
market prices at the time of sale.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of stripped interest certificates in extreme cases
might fail to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
100
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Accrual Certificates ............................................ 5, 33
Accrued Certificate Interest .................................... 33
Act ............................................................. 66
ADA ............................................................. 69
ARM Loans ....................................................... 22
Available Distribution Amount ................................... 32
Book-Entry Certificates ......................................... 7, 32
Cash Flow Agreement ............................................. 4, 24
CERCLA .......................................................... 17, 66
Certificate Account ............................................. 3, 24, 44
Certificate Balance ............................................. 5, 34
Certificate Owner ............................................... 7, 38
Certificateholders .............................................. ii
Certificates .................................................... 1, 40
Closing Date .................................................... 73
Code ............................................................ 8, 70
Commercial Properties ........................................... 2, 20
Commission ...................................................... iii
Committee Report ................................................ 73
Companion Class ................................................. 6, 34
Condemnation Proceeds ........................................... 45
Contingent Payment Regulations .................................. 96
Contributions Tax ............................................... 84
Controlled Amortization Class ................................... 6, 34
Cooperatives .................................................... 20
CPR ............................................................. 27
Credit Support .................................................. 3, 24
Cut-off Date .................................................... 6
Debt Service Coverage Ratio ..................................... 21
Definitive Certificate .......................................... 7
Determination Date .............................................. 25, 33
Direct Participants ............................................. 38
Distribution Date ............................................... 5
Distribution Date Statement ..................................... 36
DOL ............................................................. 99
DTC ............................................................. 7, 32, 38
Due Dates ....................................................... 22
Equity Participation ............................................ 22
ERISA ........................................................... 10, 98
Exchange Act .................................................... iv
FAMC ............................................................ 3
FHLMC ........................................................... 3
FNMA ............................................................ 3
GNMA ............................................................ 3
Garn Act ........................................................ 68
Grantor Trust Certificates ...................................... 8, 70
Grantor Trust Fractional Interest Certificates .................. 9, 88
Grantor Trust Fund .............................................. 70
101
<PAGE>
Indirect Participants ........................................... 38
Insurance Proceeds .............................................. 44
IRS ............................................................. 73
Issue Premium ................................................... 79
L/C Bank ........................................................ 58
Liquidation Proceeds ............................................ 45
Loan-to-Value Ratio ............................................. 21
Lock-out Date ................................................... 22
Lock-out Period ................................................. 22
Master Servicer ................................................. 1
MBS ............................................................. 3, 19
MBS Agreement ................................................... 23
MBS Issuer ...................................................... 23
MBS Servicer .................................................... 23
MBS Trustee ..................................................... 23
Mortgage Asset Pool ............................................. i
Mortgage Asset Seller ........................................... 3, 20
Mortgage Assets ................................................. 19
Mortgage Capital Funding, Inc ................................... 40
Mortgage Loans .................................................. 1, 19
Mortgage Notes .................................................. 20
Mortgage Rate ................................................... 2, 22
Mortgaged Properties ............................................ 20
Mortgages ....................................................... 20
Multifamily Properties .......................................... 2, 20
Net Leases ...................................................... 21
Net Operating Income ............................................ 21
Nonrecoverable Advance .......................................... 35
Notional Amount ................................................. 5, 33
OCC ............................................................. 100
Offered Certificates ............................................ 1
OID Regulations ................................................. 71
Originator ...................................................... 20
OTS ............................................................. 101
PAC ............................................................. 28
Participants .................................................... 19, 32, 38
Pass-Through Rate ............................................... 5
Permitted Investments ........................................... 44
Plans ........................................................... 98
Policy Statement ................................................ 101
Pooling Agreement ............................................... 4, 40
Prepayment Assumption ........................................... 73, 91
Prepayment Interest Shortfall ................................... 25
Prepayment Premium .............................................. 22
Prohibited Transactions Tax ..................................... 84
Prospectus Supplement ........................................... i
Rating Agency ................................................... 10
Record Date ..................................................... 33
Related Proceeds ................................................ 35
Relief Act ...................................................... 69
102
<PAGE>
REMIC............................................................ 8, 70
REMIC Administrator.............................................. 1
REMIC Certificates............................................... 70
REMIC Provisions................................................. 70
REMIC Regular Certificates....................................... 8, 71
REMIC Regulations................................................ 71
REMIC Residual Certificates...................................... 8, 71
REO Property..................................................... 43
RICO............................................................. 70
Securities Act................................................... 102
Senior Certificates.............................................. 4, 32
Servicing Standard............................................... 43
SMMEA............................................................ 99
SPA.............................................................. 27
Special Servicer................................................. 1
Sponsor.......................................................... 20
Stripped Interest Certificates................................... 4
Stripped Principal Certificates.................................. 4
Subordinate Certificates......................................... 4
Sub-Servicer..................................................... 43
Sub-Servicing Agreement.......................................... 43
TAC.............................................................. 28
Tiered REMICs.................................................... 72
Title V.......................................................... 69
Trust Assets..................................................... iii
Trust Fund....................................................... i
Trustee.......................................................... 1
UCC.............................................................. 61
Value............................................................ 21
Voting Rights.................................................... 37
Warranting Party................................................. 42
103
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
Filing Fee for Registration Statement............. $1,212,121.21
Legal Fees and Expenses........................... 1,500,000.00*
Accounting Fees and Expenses...................... 1,200,000.00*
Blue Sky Fees and Expenses........................ 100,000.00*
Printing and Engraving Fees....................... 800,000.00*
Rating Agency Fees................................ 2,000,000.00*
Miscellaneous..................................... 500,000.00*
--------------
Total................................ $7,312,121.21
- ----------
* Based on eight separate offerings of Certificates.
Item 15. Indemnification of Directors and Officers.
Under Section 7(b) of the proposed form of underwriting agreement, the
underwriter is obligated under certain circumstances to indemnify each director
of the Registrant, each officer of the Registrant that signed this Registration
Statement or any amendment hereof, and certain controlling persons of the
Registrant, against certain liabilities, including liabilities under the
Securities Act of 1933.
Subsection (a) of Section 145 of the General Corporation Law of the
State of Delaware empowers a corporation to indemnify any person who was or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification may be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
II-1
<PAGE>
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith; that expenses incurred
by a director or officer in defending any action, suit or proceeding may be paid
by the corporation in advance of the final disposition thereof upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that such director or officer is not entitled to
indemnification under Section 145; and that indemnification and advancement of
expenses provided for by Section 145 shall not be deemed exclusive of any other
rights to which the person seeking indemnification or advancement of expenses
may be entitled; and empowers the corporation to purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Certificate of Incorporation of the Registrant provides, in
effect, that, to the extent and under the circumstances permitted by subsections
(a) and (b) of Section 145 of the General Corporation Loan of Delaware, the
Registrant (i) shall indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer of the
Registrant against expenses, judgments, fines and amounts paid in settlement,
and (ii) may indemnify any person who was or is a party or is threatened to be
made a party to any such action, suit or proceeding if such person is or was an
employee or agent of the Registrant, or was serving at the request of the
Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
Pursuant to Section 145 of the General Corporation Law of Delaware,
liability insurance is maintained covering directors and principal officers of
the Registrant.
Each Pooling Agreement (as defined in the prospectus included in this
Registration Statement) pursuant to which the Certificates being registered will
be issued, will provide that no director, officer, employee or agent of the
Registrant is liable to the Trust Fund or the Certificateholders, except for
such person's own willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. Each Pooling Agreement will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against all liability in connection
with any legal action that relates to such Pooling Agreement or the Certificates
issued thereunder.
Any purchase agreement pursuant to which the Registrant acquires
Mortgage Assets (as defined in the prospectus included in the Registration
Statement) for inclusion in a Trust Fund may provide under certain circumstances
that each director of the Registrant, each officer of the Registrant that signed
this Registration Statement or any amendment hereof, and certain controlling
persons of the Registrant, are entitled to be indemnified by the Seller of such
Mortgage Assets or an affiliate against certain liabilities, including
liabilities under the Securities Act of 1933, relating to such Mortgage Assets.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.*
4.1 Form of Pooling and Servicing Agreement.*
5.1 Opinion and consent of Stephen E. Dietz, Associate General Counsel
of Citibank, N.A.
8.1 Opinion of Sidley & Austin with respect to certain tax matters.
II-2
<PAGE>
8.2 Opinion of Weil, Gotshal & Manges LLP with respect tax matters.
23.1 Consent of Sidley & Austin (included as part of Exhibit 8.1).
23.2 Consent of Weil, Gotshal & Manges LLP (included as part of Exhibit
8.2).
24.1 Power of Attorney
--------
* Incorporated by reference from the Registration Statement in Form
S-3 (File No. 33-63924).
Item 17. Undertakings.
A. Undertakings Relating to Rule 415 Offering.
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:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) 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 end 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 a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement); and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that (1)(a) and (1)(b) do not apply if the information
required to be included in a post-effective amendment by those items is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference to this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE>
B. Undertaking in connection with incorporation by reference of certain filings
under the Securities Exchange Act of 1934.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the 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 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.
D. Undertaking in respect of delivery of certificates
The Registrant hereby undertakes to provides to the respective
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and in such names as required by each such
underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement B.5. of Form S-3 will be
met by the time of the sale of the Securities registered hereunder and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of New York, State of New
York, on April 3, 1997.
MORTGAGE CAPITAL FUNDING, INC.
By /s/ Robert E. Woods, Jr.
---------------------------
Robert E. Woods, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 3, 1997, by the following
persons in the capacities indicated below.
Signature Capacity
--------- --------
* Chief Executive Officer
----------------------- and Director (Principal
Robert E. Woods, Jr. Executive Officer)
* President and Director
-----------------------
Richard L. Jarocki, Jr.
* Vice President and Director
-----------------------
Carol Ann Arvan
* Vice President and Director
-----------------------
J. Theodore Borter
* Chief Financial Officer
----------------------- and Treasurer
Terri DeGuisto (Principal Accounting Officer)
* Director
-----------------------
Frank Forelle
II-5
<PAGE>
* Richard L. Jarocki, Jr., by signing his name hereto, does sign this document
on behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
/s/Richard L. Jarocki, Jr.
--------------------------
Richard L. Jarocki, Jr.
Attorney-in-Fact
II-6
April 3, 1997
Mortgage Capital Funding, Inc.
399 Park Avenue
New York, New York 10043
Gentlemen:
This opinion is being provided to you by the undersigned, as an Associate
General Counsel of Citibank, N.A. I have acted as counsel to Mortgage Capital
Funding, Inc. in connection with the Registration Statement on Form S-3 (the
"Registration Statement") being filed today with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The
Registration Statement covers a total of $4,000,000,000 aggregate amount of
Mortgage Pass-Through Certificates (the "Certificates") of one or more series to
be issued by Mortgage Capital Funding, Inc. ("MCF") evidencing fractional
undivided ownership interests in one or more pools to be created by MCF of
assets consisting primarily of multifamily or commercial mortgage loans or
participations therein and/or mortgage-backed securities that evidence interests
in or are secured by pledges of multifamily or commercial mortgage loans or
participations therein. Each series of Certificates will be issued pursuant to a
separate Pooling and Servicing Agreement (the "Pooling Agreement" for such
series) generally among MCF, as Sponsor, the master servicer and, if any, the
special servicer of the underlying mortgage loans, and a trustee (the "Trustee"
for such series).
I (or attorneys under my supervision) have examined originals or copies,
certified or otherwise identified to my satisfaction, of such certificates of
public officials, corporate documents and records and other certificates,
opinions and instruments and have made such other investigations as I have
deemed necessary in connection with the opinions hereinafter set forth.
Based on the foregoing, I am of the opinion that:
1. MCF is a corporation duly incorporated and validly existing under the laws
of the State of Delaware;
2. When the issuance of any particular series of Certificates has been duly
authorized by MCF, and when the Certificates of such series have been duly
executed and authenticated in accordance with the provisions of the
Pooling and Servicing Agreement, and issued and sold as contemplated by
the Registration Statement and the prospectus delivered pursuant to
Section 5 of the Act in connection therewith, such Certificates will be
legally and validly issued, fully paid and nonassessable and entitled to
the benefits provided by the applicable Pooling Agreement; and
3. When a Pooling Agreement has been duly and validly authorized, executed
and delivered by MCF and each of the other parties thereto, such Pooling
Agreement will constitute a valid and binding obligation of MCF, subject,
as to enforcement, to applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting the rights of creditors generally and
to general principles of equity.
The opinions expressed herein are limited to the laws of the State of New York,
the General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
<PAGE>
Mortgage Capital Funding, Inc.
April 3, 1997
Page 2
I hereby consent to the use and filing of this opinion as an exhibit to the
Registration Statement and to the reference to this opinion under the heading
"Legal Matters" in any prospectus or prospectus supplement filed in connection
with the Registration Statement. In giving such consent, I do not thereby admit
that I come within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Stephen E. Dietz
2
April 3, 1997
Mortgage Capital Funding, Inc.
399 Park Avenue
New York, New York 10043
Re: Mortgage Capital Funding, Inc.
Mortgage Pass-Through Certificates
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for Mortgage Capital Funding, Inc., a Delaware
corporation (the "Registrant"), in connection with the registration statement on
Form S-3 (the "Registration Statement") being filed by the Registrant on the
date hereof with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933 (the "Act") with respect to the Registrant's Mortgage
Pass-Through Certificates (the "Certificates") to be issued from time to time.
The Registration Statement relates to the registration under the Act of
Certificates that will evidence interests in trust funds as described in the
Registration Statement. The Certificates are issuable in one or more series
(each a "Series") under separate pooling and servicing agreements among the
Registrant, the Master Servicer named therein, the Special Servicer (if any)
named therein, the REMIC Administrator (if any) named therein and the Trustee
named therein. The Certificates of each Series are to be sold as described in
the Registration Statement, in any amendment thereto and in the prospectus and
prospectus supplement relating to such Series (the "Prospectus" and "Prospectus
Supplement", respectively).
In this connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we deemed necessary for the purposes of this opinion.
In our examination, we have assumed the following: (a) the genuineness of all
signatures; (b) the legal capacity of natural persons; (c) the authenticity of
all documents submitted to us as originals; (d) the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such documents; and
<PAGE>
Mortgage Capital Funding, Inc.
April 3, 1997
Page 2
(e) the truth, accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and certificates
that we have reviewed. As to any facts material to the opinions expressed herein
which were not known to us, we have relied upon certificates, statements and
representations of officers and other representatives of the Registrant and
others.
Based upon the foregoing, we are of the opinion that the description set
forth under the captions "Material Federal Income Tax Consequences" in the
Prospectus and "Certain Federal Income Tax Consequences" in the Prospectus
Supplement included as a part of the Registration Statement correctly describes
the material aspects of the federal income tax treatment of an investment in the
Certificates to investors that are United States Persons (as defined in the
Prospectus), as of the date hereof, and, where expressly indicated therein, to
investors that are not United States Persons.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and to the use of our name under the heading "Certain
Federal Income Tax Consequences" and, as special tax counsel to the Registrant,
under the heading "Legal Matters" in the Prospectus Supplement relating to each
Series of Certificates with respect to which we act as counsel to the
Registrant. In giving such consent, we do not consider that we are "experts",
within the meaning of the term as used in the Act or the rules and regulations
of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this opinion as an exhibit or otherwise.
We express no opinion as to any laws other than the federal laws of the
United States of America, nor do we express any opinion, either implicitly or
otherwise, on any issue not expressly addressed above.
Very truly yours,
/s/ Sidley & Austin
April 3, 1997
Mortgage Capital Funding, Inc.
399 Park Avenue
New York, New York 10043
Ladies and Gentlemen:
We have acted as counsel to Mortgage Capital Funding, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of the registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), for the registration under the Act of the aggregate principal amount of
Mortgage Pass-Through Certificates (the "Certificates") specified therein, to be
issued by separate trusts in one or more series (each, a "Series"), pursuant to
the terms of a pooling and servicing agreement with respect to each such Series
(each, a "Pooling and Servicing Agreement") to be entered into among the Company
(the "Depositor"), the entity named as master servicer therein (the "Master
Servicer"), the entity named as special servicer therein (the "Special
Servicer"), the entity named as REMIC administrator therein (the "REMIC
Administrator"), and the entity named as the trustee therein (the "Trustee"),
substantially in the form of Exhibit 4.1 to the Registration Statement.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement and the prospectus
and the form of prospectus supplement (together, the "Prospectus") that are part
of the Registration Statement, the form of the Pooling and Servicing Agreement
(including the forms of Certificates annexed thereto), filed as Exhibit 4.1
thereto, and such corporate records, agreements, documents and other
instruments, and have made such inquiries of such officers and representatives
of the Company, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
<PAGE>
Mortgage Capital Funding, Inc.
April 3, 1997
Page 2
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. We have
further assumed (i) that the Pooling and Servicing Agreement and the
Certificates as executed and delivered by the requisite signatories thereto with
respect to any Series will conform in substance and form in all material
respects to the respective forms thereof examined by us, (ii) timely compliance
by all parties to the agreements contemplated in the Prospectus with the terms
thereof (without waiver or amendment of any of the terms thereof) and (iii) that
the agreements referred to in the Prospectus constitute all the agreements,
arrangements and understandings between the parties thereto with respect to the
transactions contemplated therein and that each of the representations and
warranties contained therein is true.
Based on the foregoing, it is our opinion that the statements contained in
the Prospectus under the captions "Material Federal Income Tax Consequences" and
"Certain Federal Income Tax Consequences", insofar as such statements constitute
matters of law or legal conclusions and except to the extent qualified therein,
are correct in all material respects.
The foregoing opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder (including proposed Treasury Regulations), published pronouncements
of the Internal Revenue Service, and case law, any of which may be changed at
any time with retroactive effect. We express no opinion as to the effect on the
matters covered by this opinion of the laws of any other jurisdiction.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to our firm under the captions "Material Federal
Income Tax Consequences", "Certain Federal Income Tax Consequences" and "Legal
Matters" in the Prospectus. This opinion may not be used for any other purpose
and may not otherwise be relied upon by, or disclosed to, any other person,
quoted or referred to.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
EXHIBIT 24.1
MORTGAGE CAPITAL FUNDING, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Jarocki, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as director and/or officer of Mortgage Capital Funding, Inc.), to
sign any or all amendments (including post-effective amendments) to the
Registration Statement on Form S-3, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent 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 and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Signature Title Date
/s/ Robert E. Woods, Jr. Chief Executive Officer April 3, 1997
-------------------------------- and Director
Robert E. Woods, Jr.
/s/ Terri DeGuisto Chief Financial Officer April 3, 1997
-------------------------------- and Treasurer (Principal
Terri DeGuisto Accounting Officer)
/s/ Carol Ann Arvan Vice President and Director April 3, 1997
--------------------------------
Carol Ann Arvan
/s/ J. Theodore Borter Vice President and Director April 3, 1997
--------------------------------
J. Theodore Borter
/s/ Frank Forelle Director April 3, 1997
--------------------------------
Frank Forelle
