As filed with the Securities and Exchange Commission on January 21, 1997
Registration Statement No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------------------------
First Alliance Mortgage Company
(Exact name of Registrant as specified in its charter)
--------------------------------------------
California 95-2944875
---------- ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
17305 Von Karman Avenue
Irvine, California 92614-6203
(714) 224-8500
(Address and telephone number of principal executive offices)
----------------------
Joseph V. Gatti, Esq.
Arter & Hadden LLP
1801 K Street, N.W., Suite 400K
Washington, DC 20006
(202) 775-4442
Fax: (202) 857-0172
(Name, address and telephone number of agent for service)
----------------------
Please send copies of communications to:
Mark K. Mason
Executive Vice President and Chief Financial Officer
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
(714) 224-8403
Fax: (714) 224-6696
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC. From time to
time after the effective date of this Registration Statement as determined by
market conditions and pursuant to Rule 415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus filed
as part of this Registration Statement may be used in connection with the
securities covered by Registration Statement No. 33-99604.
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Offering Amount of
Being Registered Registered Per Unit* Price Registration Fee**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loan Asset Backed $1,000,000.00 100% $1,000,000.00 $295.00
Certificates and Notes
====================================================================================================================================
</TABLE>
* Estimated solely for purposes of calculating the registration fee.
** Registration Fee was wired on January 15, 1998.
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
INTRODUCTORY NOTE
This registration statement registers up to $1,000,000 of mortgage loan
asset backed certificates and notes collateralized by various types of mortgage
collateral described herein. The registration statement contains a form of
prospectus covering, one-to-four ("single") family residential first and junior
lien, fixed and adjustable rate mortgage loans or interests therein represented
by agency or private label pass-through securities and notes ("Securities"). The
prospectus is accompanied by two forms of prospectus supplements describing each
of the structures that are expected to be employed by the Registrant for the
issuance of certificates and notes. As described in the Prospectus, each
transaction may have classes of Securities with various characteristics,
mortgage assets with various characteristics, various forms and terms of credit
enhancement, one or more subservicers, various underwriting and servicing
standards with respect to mortgage assets, various tax consequences and various
other characteristics, each of which will be fully described in the actual form
of prospectus supplement filed pursuant to Rule 424(b)(2), (3) or (5).
2
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Items and Caption in Form S-3 Location in Prospectus
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus.............................................. Forepart of Registration Statement
and Outside Front Cover Page **
2. Inside Front and Outside Back Cover Pages
of Prospectus................................................... Inside Front Cover Page and
Outside Back Cover Page of
Prospectus **
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................................... Summary of Prospectus **; Risk
Factors**
4. Use of Proceeds.................................................... Use of Proceeds**
5. Determination of Offering Price.................................... *
6. Dilution........................................................... *
7. Selling Security Holders........................................... *
8. Plan of Distribution............................................... Plan of Distribution **
9. Description of Securities to be Registered......................... Outside Front Cover**; Summary
of Prospectus**; Description of the
Securities**; Certain Federal
Income Tax Consequences**;
Administration of Agreement and
Servicing of Mortgage Loans **
10. Interests of Named Experts and Counsel............................. *
11. Material Changes................................................... *
12. Incorporation of Certain Information by Reference.................. Inside Front Cover Page**;
Incorporation of Certain
Documents by Reference**
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities...................................... See Page II-2
</TABLE>
- --------------------------
* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
3
<PAGE>
PROSPECTUS SUPPLEMENT CERTIFICATES
(To Prospectus Dated January , 1998)
- --------------------------------------------------------------------------------
$_____________
First Alliance Mortgage Loan Trust 199_-_
$__________ _____% Class A-1 Fixed Rate Group Certificates
$__________ _____% Class A-2 Fixed Rate Group Certificates
$__________ Class A-3 Variable Rate Group Certificates
Mortgage Loan Asset Backed Certificates
Series 199_-_
[GRAPHIC OMITTED]
Company and Servicer
- --------------------------------------------------------------------------------
The Mortgage Loan Asset Backed Certificates, Series 199_-_ (the
"Certificates") will consist of the Class A-1 Fixed Rate Group Certificates (the
"Class A-1 Certificates"), the Class A-2 Fixed Rate Group Certificates (the
"Class A-2 Certificates" and collectively with the Class A-1 Certificates, the
"Fixed Rate Certificates"), the Class A-3 Variable Rate Group Certificates (the
"Class A-3 Certificates" or the "Variable Rate Certificates," and collectively
with the Fixed Rate Certificates, the "Offered Certificates" or the "Class A
Certificates") and the Class R Certificates (the "Subordinate Certificates").
Only the Offered Certificates are offered hereby.
As more fully described herein, interest distributions on the Offered
Certificates will be based on the Certificate Principal Balance thereof and the
then applicable Pass-Through Rate thereof. The Pass-Through Rate for the Class
A-1 Certificates will be fixed at _____% per annum and the Pass-Through Rate for
the Class A-2 Certificates will be fixed at _____% per annum*. The Pass-Through
Rate for the Class A-3 Certificates adjusts monthly as described herein.
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-__ herein and beginning on
page __ in the Prospectus.
The Certificates will represent undivided ownership interests in a pool
of closed-end mortgage loans (the "Mortgage Loans") held by First Alliance
Mortgage Loan Trust 1997-4 (the "Trust"). The Trust will be created pursuant to
a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") among
First Alliance Mortgage Company (the "Company") and in its capacity as servicer
of the Mortgage Loans (the "Servicer") and [__________________], in its capacity
as trustee (the "Trustee").
(Cover continued on next page)
- --------------------------------------------------------------------------------
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF FIRST ALLIANCE MORTGAGE COMPANY,
THE TRUSTEE, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
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 will be purchased by the Underwriters from the
Company and will be offered by the Underwriters from time to time in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. Proceeds to the Company, including accrued interest, are expected to be
approximately ______% of the aggregate principal balance of the Offered
Certificates before deducting expenses payable by the Company estimated to be
$_______. See "Underwriting" herein.
The Offered Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriters and subject to the approval of certain legal
matters. It is expected that delivery of the Offered Certificates in book-entry
form will be made on or about _________ __, 199_ only through the facilities of
The Depository Trust Company, [Cedel Bank S.A. and Euroclear].
- ----------------------
*Subject to adjustment after the Clean-Up Call Date as provided herein.
[Underwriters]
_________ _, 199_
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there by any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(Cover continued from previous page)
The obligations of the Company, the Trustee and the Servicer with
respect to the Certificates will be limited to their respective contractual
obligations under the Pooling and Servicing Agreement. The assets of the Trust
initially will include two pools (each, a "Mortgage Loan Group" or "Group") of
closed-end mortgage loans (the "Initial Mortgage Loans") secured by mortgages or
deeds of trust (the "Mortgages") on one-to-four family residential properties
(the "Mortgaged Properties") to be conveyed by the Company to the Trust on the
Closing Date. The Fixed Rate Certificates will represent undivided ownership
interests in a pool of fixed-rate Mortgage Loans (the "Fixed Rate Group")
secured by Mortgages which may be either in a first or junior lien position. The
Variable Rate Certificates will represent undivided ownership interests in a
pool of variable-rate Mortgage Loans (the "Variable Rate Group") secured by
Mortgages which are in a first lien position.
The Pooling and Servicing Agreement provides that additional fixed-rate
and adjustable-rate Mortgage Loans (the "Subsequent Mortgage Loans") may be
purchased by the Trust from the Company from time to time on or before ________
__, 199_ from funds on deposit in the Pre-Funding Account. All Subsequent
Mortgage Loans so acquired by the Trust will be assigned to one (and only one)
of either the Fixed Rate Group or the Variable Rate Group. On the Closing Date
an aggregate cash amount of $_____________ will be deposited with the Trustee in
the Pre-Funding Account to be used to acquire fixed-rate Subsequent Mortgage
Loans for the Fixed Rate Group and an aggregate cash amount of $_____________
will be deposited with the Trustee in the Pre-Funding Account to be used to
acquire variable-rate Subsequent Mortgage Loans for the Variable Rate Group.
Distributions on the Subordinate Certificates are subordinate to
distributions on the Offered Certificates to the extent described herein. The
Pooling and Servicing Agreement will designate each Mortgage Loan Group as a
sub-trust to be held by the Trustee. Distributions of principal and interest
payable to each Class of the Offered Certificates will be made on the 20th day
of each month or if the 20th day is not a business day, the first business day
thereafter (each, a "Payment Date"), beginning in _______ 199_.
[LOGO]
On or before the issuance of the Certificates, the Company will obtain
from [____________________________] (the "Certificate Insurer") two certificate
guaranty insurance policies, one relating to the Fixed Rate Certificates and the
other relating to the Variable Rate Certificates (the "Certificate Insurance
Policies") in favor of the Trustee. Each Certificate Insurance Policy will
provide for 100% coverage of the principal amount of, and scheduled interest due
on, the related Class of Class A Certificates.
The Last Scheduled Payment Date for the Class A-1 Certificates is _____
__, 202_; the Last Scheduled Payment Date for the Class A-2 Certificates is
_____ __, 202_; and the Last Scheduled Payment Date for the Class A-3
Certificates is ________ __, 202_. It is expected that the actual last Payment
Date for each Class of Certificates will occur significantly earlier than such
Last Scheduled Payment Dates. The yield to maturity on the Offered Certificates
will depend on, among other things, the rate and timing of principal payments
(including prepayments, which rate may vary significantly over time,
repurchases, defaults and liquidations) on the Mortgage Loans. See "Prepayment
and Yield Considerations" in this Prospectus Supplement.
An election will be made to treat certain assets of the Trust as a real
estate mortgage investment conduit (a "REMIC") for federal income tax purposes.
As described more fully herein, each Class of Offered Certificates will
constitute "regular interests" in the REMIC. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal Income Tax Consequences -- Sales of
REMIC Securities" in the Prospectus.
Prior to their issuance there has been no market for the Offered
Certificates nor can there be any assurance that one will develop, or if it does
develop, that it will provide the Owners of the Offered Certificates with
liquidity or will continue for the life of the Offered Certificates.
__________________________________ and ________________________________. (each
an "Underwriter" and together, the "Underwriters") intend, but are not
obligated, to make a market in the Offered Certificates.
-----------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE OFFERED CERTIFICATES, INCLUDING PURCHASES OF THE OFFERED CERTIFICATES TO
STABILIZE THEIR MARKET PRICE AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------------------
To the extent statements contained herein do not relate to historical
or current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Offered
Certificates, which risks and uncertainties are discussed under "Risk Factors"
and "Prepayment and Yield Considerations" herein. As a consequence, no assurance
can be given as to the actual distributions on, or the yield of, the Offered
Certificates.
The Certificates offered by this Prospectus Supplement will be part of
a separate series of Certificates being offered by the Company pursuant to its
Prospectus dated _________ __, 199_ of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus Supplement and the
related Prospectus, which form a part of the Registration Statement, omit
certain information contained in such Registration Statement pursuant to the
Rules and Regulations of the Commission. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. and the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York, 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and electronically through the Commissioner's Electronic Data Gathering,
Analysis and Retrieval System at the Commission's web site (http:\\www.sec.gov).
REPORTS TO OWNERS
The Trustee will mail monthly reports concerning the Offered
Certificates to all registered Owners pursuant to the Pooling and Servicing
Agreement.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY.................................................................S-1
RISK FACTORS...........................................................S-15
THE PORTFOLIO OF MORTGAGE LOANS........................................S-17
General .........................................................S-17
Acquisitions......................................................S-17
Delinquencies.....................................................S-18
USE OF PROCEEDS........................................................S-19
THE MORTGAGE LOAN POOL.................................................S-19
General .........................................................S-19
Fixed Rate Group - Initial Mortgage Loans.........................S-20
Conveyance of Subsequent Mortgage Loans - Fixed Rate Group........S-25
Variable Rate Group - Initial Mortgage Loans......................S-25
Conveyance of Subsequent Mortgage Loans - Variable Rate Group.....S-30
Interest Payments on the Mortgage Loans...........................S-31
PREPAYMENT AND YIELD CONSIDERATIONS....................................S-31
Mandatory Prepayment..............................................S-31
Projected Prepayments and Yields for Offered Certificates.........S-31
Payment Delay Feature of Fixed Rate Certificates..................S-34
ADDITIONAL INFORMATION.................................................S-35
DESCRIPTION OF THE OFFERED CERTIFICATES................................S-35
General .........................................................S-35
Payment Dates.....................................................S-35
Distributions.....................................................S-36
Overcollateralization Provisions..................................S-36
Crosscollateralization Provisions.................................S-38
Credit Enhancement Does Not Apply to Prepayment Risk..............S-39
Class A Distributions and Insured Payments to the Owners of
the Offered Certificates.................................S-39
Page
----
Pre-Funding Account...............................................S-39
Capitalized Interest Account......................................S-40
Calculation of LIBOR..............................................S-40
Book Entry Registration of the Offered Certificates...............S-40
Certain Activities................................................S-43
THE COMPANY............................................................S-43
THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE
INSURER................................................................S-44
THE POOLING AND SERVICING AGREEMENT....................................S-45
Formation of the Trust............................................S-45
Sale of Mortgage Loans............................................S-45
Removal and Resignation of the Servicer...........................S-46
The Trustee.......................................................S-47
Governing Law.....................................................S-47
Termination of the Trust..........................................S-47
Optional Termination..............................................S-47
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................S-48
REMIC Elections...................................................S-48
ERISA CONSIDERATIONS...................................................S-49
RATINGS................................................................S-51
LEGAL INVESTMENT CONSIDERATIONS........................................S-52
UNDERWRITING...........................................................S-52
REPORT OF EXPERTS......................................................S-53
CERTAIN LEGAL MATTERS..................................................S-53
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES............................................................. I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS........................... A-1
Prospectus
Page
----
Available Information....................................................2
Reports to Owners........................................................3
Incorporation of Certain Documents by Reference..........................3
Prospectus Supplement....................................................3
Summary of Prospectus....................................................4
Risk Factors............................................................13
The Trusts..............................................................18
The Mortgage Pools......................................................21
General............................................................21
The Mortgage Pools.................................................22
Mortgage Loan Program...................................................23
Underwriting Guidelines............................................24
Qualifications of Originators......................................26
Sub-Servicers......................................................28
Representations by Originators.....................................28
Sub-Servicing by Originators.......................................29
Description of the Securities...........................................31
General............................................................31
General Payment Terms of Securities................................32
Form of Securities.................................................33
Assignment of Mortgage Loans.......................................34
Forward Commitments; Pre-Funding...................................35
Payments on Mortgage Loans; Deposits to Distribution Account.......36
Withdrawals from the Principal and Interest Account................38
Distributions......................................................39
Principal and Interest on the Securities...........................39
Advances...........................................................40
Reports to Securityholders.........................................41
Collection and Other Servicing Procedures..........................42
Realization upon Defaulted Mortgage Loans..........................43
Subordination...........................................................44
Description of Credit Enhancement.......................................45
Hazard Insurance; Claims Thereunder.....................................50
Hazard Insurance Policies..........................................50
The Company.............................................................50
The Servicer............................................................51
The Master Servicer.....................................................51
The Pooling and Servicing Agreement.....................................51
Servicing and Other Compensation and Payment
of Expenses; Originator's Retained Yield.........................51
Evidence as to Compliance..........................................52
Page
----
Removal and Resignation of the Servicer............................52
Resignation of the Master Servicer.................................53
Rights Upon Event of Default.......................................53
Amendment..........................................................53
Termination; Retirement of Securities..............................54
The Trustee........................................................54
Yield Considerations....................................................55
Maturity and Prepayment Considerations..................................57
Certain Legal Aspects of Mortgage Loans and Related Matters.............58
General............................................................58
Foreclosure........................................................58
Rights of Redemption...............................................59
Anti-Deficiency Legislation and Other Limitations on Lenders.......59
Environmental Legislation..........................................60
Enforceability of Certain Provisions...............................61
Certain Provisions of California Deeds of Trust....................61
Applicability of Usury Laws........................................62
Alternative Mortgage Instruments...................................62
Soldiers' and Sailors' Civil Relief Act of 1940....................62
Certain Federal Income Tax Consequences.................................63
General............................................................63
Grantor Trust Estates..............................................63
REMICS.............................................................64
Sales of REMIC Securities..........................................68
Debt Securities....................................................70
Discount and Premium...............................................70
Backup Withholding.................................................73
Foreign Investors..................................................73
ERISA Considerations....................................................73
Plan Asset Regulations.............................................74
Prohibited Transaction Class Exemption.............................74
Tax Exempt Investors...............................................76
Consultation with Counsel..........................................76
Legal Investment Matters................................................76
Use of Proceeds.........................................................77
Methods of Distribution.................................................77
Legal Matters...........................................................78
Financial Information...................................................78
Rating..................................................................78
Index of Principal Definitions..........................................79
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the "Index to Location of
Principal Defined Terms" herein and "Index of Principal Definitions" in the
Prospectus for the definitions of certain capitalized terms.
Trust: First Alliance Mortgage Loan Trust
199_-_ (the "Trust").
Certificates Offered: Class A-1 Fixed Rate Group
Certificates (the "Class A-1
Certificates"), the Class A-2 Fixed
Rate Group Certificates (the "Class
A-2 Certificates and collectively with
the Class A-1 Certificates, the "Fixed
Rate Certificates") and Class A-3
Variable Rate Group Certificates (the
"Class A-3 Certificates" or the
"Variable Rate Certificates" and
together with the Fixed Rate
Certificates, the "Class A
Certificates" or the "Offered
Certificates"). The "Certificate
Principal Balance" of any Class of
Class A Certificates is the Original
Certificate Principal Balance of such
Class as reduced by all amounts
actually distributed as principal to
the Owners of such Class of Class A
Certificates on all prior Payment
Dates.
Company and Servicer: First Alliance Mortgage Company, a
California corporation (the "Company"
and in its separate capacity as
servicer, the "Servicer"). The
Company's principal executive offices
are located at 17305 Von Karman
Avenue, Irvine, California 92614-6203,
and its phone number is (714)
224-8500.
Trustee: [___________________] (the "Trustee").
Originators: The Company and any entity from which
the Company, on or prior to the
Closing Date with respect to the
Initial Mortgage Loans and on or prior
to any Subsequent Transfer Date with
respect to the Subsequent Mortgage
Loans, acquires Mortgage Loans is an
"Originator" of the related Mortgage
Loans for purposes of this Prospectus
Supplement.
Cut-Off Date: ________ _, 199_.
Closing Date: On or about ________ __, 199_.
The Certificates: The Mortgage Loan Asset Backed
Certificates (the "Certificates") will
consist of the Class A Certificates
and the Class R Certificates (the
"Subordinate Certificates"). The
Certificates will be issued pursuant
to a pooling and servicing agreement
(the "Pooling and Servicing
Agreement") to be dated ________ _,
199_, among the Servicer, the Company
and the Trustee. Only the Offered
Certificates are offered hereby.
The assets of the Trust initially will
include two pools (each, a "Mortgage
Loan Group" or "Group") of closed-end
mortgage loans (the "Initial Mortgage
Loans") secured by mortgages or deeds
of trust (the "Mortgages") on
one-to-four family residential
properties (the "Mortgaged
Properties") to be conveyed to the
Trust on the Closing Date. The Fixed
Rate Certificates will represent
undivided ownership interests in a
pool of fixed-rate Mortgage Loans (the
"Fixed Rate Group") secured by
Mortgages which may be either in a
first or junior lien position. The
Variable Rate Certificates will
represent undivided ownership
interests in a pool of variable-rate
Mortgage Loans (the "Variable Rate
Group") secured by Mortgages which are
in a first lien position.
The Pooling and Servicing Agreement
will designate each Mortgage Loan
Group as a sub-trust to be held by the
Trustee. Each Class of Class A
Certificates represents the right to
receive payments from funds available
to be distributed with respect to the
related Mortgage Loan Group, as
hereinafter described.
S-1
<PAGE>
On the Closing Date, an aggregate cash
amount of $_____________ (the
"Original Pre-Funded Amount") will be
deposited in a trust account in the
name of the Trustee (the "Pre-Funding
Account"). It is intended that
additional Mortgage Loans satisfying
the criteria specified in the Pooling
and Servicing Agreement (the
"Subsequent Mortgage Loans") will be
purchased by the Trust from the
Company from time to time on or before
___________ __, 199_ from funds on
deposit in the Pre-Funding Account.
Each Subsequent Mortgage Loan so
acquired by the Trust will be assigned
to one (and only one) of either the
Fixed Rate Group or the Variable Rate
Group. As a result, the aggregate
principal balance of the Mortgage
Loans in the Fixed Rate Group and the
Variable Rate Group will increase by
an amount equal to the aggregate
principal balance of the Subsequent
Mortgage Loans so purchased and the
amount in the Pre-Funding Account will
decrease proportionately.
As described below, on the Closing
Date, cash will be deposited in the
name of the Trustee in the Capitalized
Interest Account (as defined herein).
Funds in the Capitalized Interest
Account will be applied by the Trustee
to cover shortfalls in interest during
the Funding Period (as described under
"Pre-Funding Account") on the Class A
Certificates attributable to the
provisions allowing for purchase of
Subsequent Mortgage Loans.
The Last Scheduled Payment Date for
the Class A-1 Certificates is _____
__, 202_, the Last Scheduled Payment
Date for the Class A-2 Certificates is
_____ __, 202_, and the Last Scheduled
Payment Date for the Class A-3
Certificates is ________ __, 202_. It
is expected that the actual last
Payment Date for each Class of
Certificates will occur significantly
earlier than such scheduled Payment
Dates. To the extent that the
certificate principal balance of the
Class A-3 Certificates has not been
reduced to zero on the Last Scheduled
Payment Date therefor, the Certificate
Insurer will include as an Insured
Payment to the Owners of such
Certificates on such Payment Date an
amount which shall be sufficient to
reduce such certificate principal
balance to zero. See "Prepayment and
Yield Considerations", "Description of
the Offered Certificates-Final
Payments" and "The Certificate
Insurance Policies and the Certificate
Insurer" herein.
The Certificate Insurer does not
directly or indirectly guarantee any
specified rate of prepayments. See
"Risk Factors" herein and in the
Prospectus.
Denominations: The Offered Certificates are issuable
in book entry form in minimum
denominations of original principal
amounts of $1,000 and integral
multiples thereof.
The Mortgage Loans: Unless otherwise noted, all
statistical percentages in this
Prospectus Supplement are approximate
and are measured by the aggregate
principal balance of the Initial
Mortgage Loans (the "Original
Aggregate Loan Balance") or of the
Initial Mortgage Loans in the
applicable Mortgage Loan Group, in
each case as of the Cut-Off Date. See
"Additional Information" herein. The
statistical characteristics of the
Mortgage Loans as a whole will vary
upon the transfer into either the
Fixed Rate Group or the Variable Rate
Group of Subsequent Mortgage Loans.
The Initial Mortgage Loans to be
conveyed by the Company to the Trust
on the Closing Date consist of _____
fixed-rate and variable-rate Mortgage
Loans on single-family homes,
including investment properties (which
may be condominiums, one-to-four
family residences or homes in planned
unit developments), which are located
in __ states and the District of
Columbia. The Initial Mortgage Loans
are secured by Mortgages of which
_____% by aggregate principal balance
are first mortgages or deeds of trust,
____% by aggregate principal balance
are secured by second mortgages or
deeds of trust and_____% by aggregate
principal balance are secured by third
mortgages or deeds of trust. The
Initial Mortgage Loans in the Trust
are all closed-end mortgage loans in
that the mortgagee is not required to
make future advances thereunder. All
of the
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Initial Mortgage Loans are actuarial
loans, as discussed herein under "The
Mortgage Loan Pool -- Interest
Payments on the Mortgage Loans."
As of the Cut-Off Date, the Initial
Mortgage Loans had an Original
Aggregate Loan Balance of
$_____________, the Initial Mortgage
Loans in the Fixed Rate Group had an
aggregate principal balance of
$_____________ and the Initial
Mortgage Loans in the Variable Rate
Group had an aggregate principal
balance of $_____________. The Fixed
Rate Certificates will be issued in
respect of the Fixed Rate Group, and
the Variable Rate Certificates will be
issued in respect of the Variable Rate
Group.
All of the Initial Mortgage Loans were
originated or acquired by the Company
in accordance with the Company's
mortgage loan program as described in
the Prospectus. As a general matter,
the Company's mortgage loan program
consists of the origination and
packaging of Mortgage Loans relating
to non-conforming credits. A
non-conforming credit means a mortgage
loan which is ineligible for purchase
by the Fannie Mae ("Fannie Mae") due
to credit characteristics that do not
meet Fannie Mae guidelines. Mortgage
Loans originated under the Company's
mortgage loan program are likely to
experience rates of delinquency,
bankruptcy and loss that are higher
than mortgage loans originated under
Fannie Mae guidelines. ____% of the
Initial Mortgage Loans by aggregate
principal balance were 30 days or more
delinquent in their monthly payments
as of the Cut-Off Date. However,
investors in the Class A Certificates
should be aware that approximately
_____% and _____% (by aggregate
principal balance as of the Cut-Off
Date) of the Initial Mortgage Loans in
the Fixed Rate Group and Variable Rate
Group, respectively, had a first
monthly payment due on or before
_______ _, ____. Therefore, it was not
possible for any Mortgage Loan other
than such Mortgage Loans to have had a
monthly payment that was delinquent 30
days or more. See "Risk Factors --
Risk of Higher Delinquencies
Associated with Underwriting
Standards" herein.
The Combined Loan-to-Value Ratio
("CLTV") of a Mortgage Loan is equal
to the ratio (expressed as a
percentage) of (x) the sum of the (i)
original principal balance of the
Mortgage Loan and (ii) the outstanding
principal balances of any senior
mortgage loans (computed at the date
of origination of the Mortgage Loan)
and (y) the appraised value of the
Mortgaged Property at the time of
origination. The Loan-to-Value Ratio
("LTV") of a Mortgage Loan is equal to
the ratio (expressed as a percentage)
of the original principal balance of
the Mortgage Loan and the appraised
value of the Mortgaged Property at the
time of origination.
Fixed Rate Group. The weighted average
CLTV of the Initial Mortgage Loans in
the Fixed Rate Group as of the Cut-Off
Date was _____% and the weighted
average LTV was _____%. The weighted
average remaining term to stated
maturity was ___ months, with a range
from __ months to 360 months. The
average principal balance of the
Initial Mortgage Loans in the Fixed
Rate Group was $_________, with a
range from $________ to $__________;
the Mortgage Rates of the Initial
Mortgage Loans in the Fixed Rate Group
ranged from _____% to ______% per
annum, with a weighted average
Mortgage Rate of _____% per annum.
____% of the Initial Mortgage Loans in
the Fixed Rate Group are Balloon
Loans.
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The "Junior Lien Ratio" of a Mortgage
Loan is equal to the ratio (expressed
as a percentage) of the original
principal balance of such Mortgage
Loan to the sum of (i) the original
principal balance of such Mortgage
Loan and (ii) the outstanding
principal balances of any senior
mortgage loans (computed at the date
of origination of the Mortgage Loan).
As of the Cut-Off Date, the weighted
average Junior Lien Ratio of the
Initial Mortgage Loans in the Fixed
Rate Group was _____%. As a percentage
of the aggregate principal balance of
the Initial Mortgage Loans in the
Fixed Rate Group, _____% were secured
by first mortgages, ____% by second
mortgages and ____% by third
mortgages, respectively. As a
percentage of the aggregate principal
balance of the Initial Mortgage Loans
in the Fixed Rate Group as of the
Cut-Off Date, _____% were secured by
mortgages on one-family detached
dwellings, _____% by mortgages on
two-to-four family dwellings, ____% by
mortgages on condominiums and ____% by
Mortgages on planned unit
developments. See "The Mortgage Loan
Pool -- Fixed Rate Group" herein.
Variable Rate Group. The weighted
average LTV of the Initial Mortgage
Loans in the Variable Rate Group as of
the Cut-Off Date was _____%, and the
weighted average remaining term to
stated maturity was ___ months, with a
range from ___ months to 360 months.
The average principal balance of the
Initial Mortgage Loans in the Variable
Rate Group was $_________, with a
range from $_________ to $__________.
All of the Initial Mortgage Loans in
the Variable Rate Group have initial
and maximum Mortgage Rates. The
initial Mortgage Rates are the minimum
Mortgage Rates for the Initial
Mortgage Loans in the Variable Rate
Group. The weighted average current
Mortgage Rate of Initial Mortgage
Loans in the Variable Rate Group was
_____% per annum, with current
Mortgage Rates that ranged from _____%
to ______% per annum. The weighted
average maximum Mortgage Rate of the
Initial Mortgage Loans in the Variable
Rate Group was ______% per annum, with
maximum Mortgage Rates that ranged
from ______% to ______% per annum. The
gross margin range for the Initial
Mortgage Loans in the Variable Rate
Group was _____% to _____%. The
weighted average gross margin for the
Initial Mortgage Loans in the Variable
Rate Group was _____%. As of the
Cut-Off Date, substantially all of the
Initial Mortgage Loans in the Variable
Rate Group had interest rates which
were not fully indexed (i.e., the
entire gross margin had not yet been
added to the rate given by the index).
None of the Initial Mortgage Loans in
the Variable Rate Group are Balloon
Loans.
All of the Initial Mortgage Loans in
the Variable Rate Group were secured
by first mortgages. As a percentage of
the aggregate principal balance of the
Initial Mortgage Loans in the Variable
Rate Group as of the Cut-Off Date,
_____% were secured by mortgages on
one-family detached dwellings, _____%
by mortgages on two-to-four family
dwellings, ____% by mortgages on
condominiums and ____% by mortgages on
planned unit developments. See "The
Mortgage Loan Pool -- Variable Rate
Group" herein.
Approximately $_____________or _____%
of the Initial Mortgage Loans in the
Variable Rate Group by aggregate
principal balance as of the Cut-Off
Date bear interest at rates that
adjust, along with the related monthly
payments, semiannually based on the
London interbank offered rate for
six-month United States Dollar
deposits in the London Market based on
quotations of major banks published in
The Wall Street Journal (the
"Six-Month LIBOR Loans").
Approximately $_____________ or _____%
of the Initial Mortgage Loans in the
Variable Rate Group by aggregate
principal balance as of the Cut-Off
Date bear interest at a fixed rate for
two years after origination and
thereafter have periodic adjustments
at frequencies in the same manner as
the Six-Month LIBOR Loans (as
described above) (the "2/28 Loans").
Approximately $__________ or ____% of
the Initial Mortgage Loans in the
Variable Rate Group by aggregate
principal balance as of the Cut-Off
Date bear interest at a fixed rate for
three years after origination and
thereafter have
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<PAGE>
periodic adjustments at frequencies in
the same manner as the Six-Month LIBOR
Loans (as described above) (the "3/27
Loans").
Approximately $__________ or ____% of
the Initial Mortgage Loans in the
Variable Rate Group by aggregate
principal balance as of the Cut-Off
Date bear interest at a fixed rate for
five years after origination and
thereafter have periodic adjustments
at frequencies in the same manner as
the Six-Month LIBOR Loans (as
described above) (the "5/25 Loans").
General. The Mortgage Loans are not
insured by either primary or pool
mortgage insurance policies; however,
certain distributions due to the
Owners of the Offered Certificates are
insured by two Certificate Insurance
Policies, one relating to the Fixed
Rate Certificates and the other
relating to the Variable Rate
Certificates. Each Certificate
Insurance Policy will provide for 100%
coverage of the principal amount of,
and scheduled interest due on, the
related Class A Certificates. See
"Credit Enhancement" in this Summary
and "The Certificate Insurance
Policies and the Certificate Insurer"
in this Prospectus Supplement. The
Mortgage Loans are not guaranteed by
the Company, any Originator or any of
their respective affiliates. The
Mortgage Loans are required to be
serviced by the Servicer in accordance
with the terms of the Pooling and
Servicing Agreement and with
reasonable care, using that degree of
skill and attention that the Servicer
exercises with respect to comparable
mortgage loans that it services for
itself and others. See "The Pooling
and Servicing Agreement" herein.
Class A-1 Original Certificate
Principal Balance: $__________.
Class A-2 Original Certificate
Principal Balance: $__________.
Class A-3 Original Certificate
Principal Balance: $__________.
Class A-1 Pass-Through Rate: _____% per annum.
Class A-2 Pass-Through Rate: _____% per annum.
Class A-3 Pass-Through Rate: On each Payment Date, the Class A-3
Pass-Through Rate will be equal to the
lesser of (i) with respect to any
Payment Date which occurs on or prior
to the Clean-Up Call Date, the London
interbank offered rate for one-month
United States dollar deposits
("LIBOR") (calculated as described
under "Description of the Offered
Certificates-- Calculation of LIBOR"
herein) as of the second to last
business day prior to the immediately
preceding Payment Date (or in the case
of the first Payment Date) plus ____%
per annum and with respect to any
Payment Date thereafter, LIBOR plus
____% per annum and (ii) the
"Available Funds Cap", which the
Pooling and Servicing Agreement
defines to be the weighted average of
the Mortgage Rates on Mortgage Loans
in the Variable Rate Group, less the
sum of (a) the Variable Rate Group
Servicing Fee (as defined herein), (b)
beginning on the third Payment Date
following the Closing Date, the
premiums due to the Certificate
Insurer with respect to the
Certificate Insurance Policy relating
to the Class A-3 Certificates, (c) the
fees due to the Trustee relating to
the Class A-3 Certificates, and (d)
beginning on the seventh Payment Date
following the Closing Date, ____%,
expressed as a percentage of the
Mortgage Loans in the Variable Rate
Group, calculated as of the first day
of the related Remittance Period.
Distributions, Generally: Distributions on the Certificates will
be made on the twentieth day of each
calendar month, or if such day is not
a business day, the next succeeding
business day (each, a "Payment Date")
commencing in _______ 199_, to the
Owners of record (see "Description of
the Offered Certificates -- General"
herein). The Owners of record shall be
such Owners as of the last day of the
calendar month immediately preceding
the calendar month in which such
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<PAGE>
Payment Date occurs, whether or not
such day is a business day (each a
"Record Date") in an amount equal to
the product of such Owner's Percentage
Interest and the amount distributed in
respect of such Owner's Class of such
Certificates on such Payment Date.
The "Percentage Interest" represented
by any Certificate will be equal to
the percentage obtained by dividing
the Original Certificate Principal
Balance of such Certificate by the
Original Certificate Principal Balance
of all Certificates of the same Class.
The Class A Distribution Amount
relating to each Mortgage Loan Group
for each Payment Date (to the extent
funds are available therefor) shall be
allocated among the Class A
Certificates in the following amounts
and in the following order of
priority:
(i) First, to the Owners of the
Class A Certificates of the
related Mortgage Loan Group,
the related Class A Current
Interest on a pro rata basis
without any priority among
such Class A Certificates; and
(ii) Second, to the Owners of the
related Class of Class A
Certificates (A) the Class A
Principal Distribution Amount
(as defined below under the
heading "Distributions of
Principal") applicable to the
Fixed Rate Group shall be
distributed sequentially as
follows: (I) first, to the
Owners of the Class A-1
Certificates until the Class
A-1 Certificate Principal
Balance is reduced to zero;
and (II) second, to the Owners
of the Class A-2 Certificates
until the Class A-2
Certificate Principal Balance
is reduced to zero; and (B)
the Class A Principal
Distribution Amount applicable
to the Variable Rate Group
shall be distributed to the
Owners of the Class A-3
Certificates until the Class
A-3 Certificate Principal
Balance is reduced to zero.
In the event there is a Subordination
Deficit during the continuance of a
Certificate Insurer Default (as
defined in the Pooling and Servicing
Agreement) the payments of the Class A
Principal Distribution Amount
applicable to the Fixed Rate Group to
Owners of the Class A-1 Certificates
and Class A-2 Certificates will be
distributed on a pro rata basis
instead of sequentially.
Distributions of Interest: For each Payment Date, the interest
due with respect to the Fixed Rate
Certificates will be the interest
which has accrued thereon at the
related Pass-Through Rate during the
calendar month immediately preceding
the calendar month in which such
Payment Date occurs; the interest due
with respect to the Variable Rate
Certificates will be the interest
which has accrued thereon at the then
applicable Class A-3 Pass-Through Rate
from the preceding Payment Date (or
from the Closing Date in the case of
the first Payment Date) to and
including the day prior to the current
Payment Date. Each period referred to
in the prior sentence relating to the
accrual of interest is the "Accrual
Period" for the related Class of Class
A Certificates and the amount of
interest due on a Class of Class A
Certificates on a Payment Date is the
"Class A Current Interest" for each
Class of Class A Certificates on such
Payment Date.
All calculations of interest on the
Fixed Rate Certificates will be made
on the basis of a 360-day year assumed
to consist of twelve 30-day months.
Calculations of interest on the
Variable Rate Certificates will be
made on the basis of the actual number
of days elapsed in the related Accrual
Period and a year of 360 days.
Distributions of Principal: The Owners of each Class of Class A
Certificates are entitled to receive
certain monthly distributions of
principal on each Payment Date which
generally reflect collections of
principal during the prior calendar
month. The Certificate Insurance
Policies only guarantee the amount by
which the sum of the related Class A
Current Interest and the related
Subordination Deficit, if any, exceeds
Total Available Funds for the related
Mortgage Loan Group (after taking into
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<PAGE>
account the portion of the related
Class A Principal Distribution Amount
to be actually distributed on such
Payment Date without regard to any
related Insured Payment to be made
with respect to such Payment Date) as
more fully described herein under "The
Certificate Insurance Policies and the
Certificate Insurer."
The credit enhancement provisions of
the Trust result in a limited
acceleration of the principal payments
to the Owners of each Class of Class A
Certificates; such credit enhancement
provisions are more fully described
under "Description of the Offered
Certificates -- Overcollateralization
Provisions" and
"--Crosscollateralization Provisions"
herein. Such credit enhancement
provisions also have the effect of
accelerating and shortening the
weighted average lives of the Class A
Certificates by increasing the rate at
which principal is distributed to the
Owners. See "Prepayment and Yield
Considerations" herein. In addition,
the following discussion makes use of
a number of technical defined terms
which are defined under "Description
of the Offered Certificates --
Overcollateralization Provisions" and
"-- Crosscollateralization Provisions"
herein.
The Fixed Rate Certificates are
divided into two "sequential pay"
classes such that the Owners of the
Class A-2 Certificates will receive no
payments of principal until the Class
A-1 Certificate Principal Balance has
been reduced to zero.
On each Payment Date, distributions in
reduction of the Certificate Principal
Balance of the Offered Certificates
will be made in the amounts described
herein. The "Class A Principal
Distribution Amount" for each Mortgage
Loan Group with respect to each
Payment Date shall be the lesser of:
(a) the related Total Available
Funds for the related Mortgage
Loan Group plus any related
Insured Payment minus the
related Class A Current
Interest; and
(b)(i) the sum, without any
duplication of:
(a) the Carry-Forward Amount
with respect to the
related Mortgage Loan
Group;
(b) the principal portion of
all scheduled monthly
payments on the Mortgage
Loans in the related
Mortgage Loan Group due
during the related Due
Period, to the extent
actually received by the
Trustee on or prior to
the related Remittance
Date or to the extent
actually advanced by the
Servicer on or prior to
the related Remittance
Date and the principal
portion of all full and
partial principal
prepayments made by the
respective Mortgagors
during the related
Remittance Period;
(c) the scheduled principal
balance of each Mortgage
Loan in the related
Mortgage Loan Group that
either was repurchased by
the Company or an
Originator or purchased
by the Servicer on the
related Remittance Date,
to the extent such
scheduled principal
balance is actually
received by the Trustee
on or prior to the
related Remittance Date;
(d) any Substitution Amounts
delivered by the Company
or an Originator on the
related Remittance Date
in connection with a
substitution of a
Mortgage Loan in the
related Mortgage Loan
Group (to the extent such
Substitution Amounts
relate to principal), to
the extent such
Substitution Amounts are
actually received by the
Trustee on or prior to
the related Remittance
Date;
(e) all Net Liquidation
Proceeds actually
collected by the Servicer
with respect to the
Mortgage Loans in the
related Mortgage Loan
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<PAGE>
Group during the related
Remittance Period (to the
extent such Net
Liquidation Proceeds
relate to principal) to
the extent actually
received by the Trustee
on or prior to the
related Remittance Date;
(f) the amount of any
Subordination Deficit
with respect to such
Mortgage Loan Group for
such Payment Date;
(g) the proceeds received by
the Trustee of any
termination of the
related Mortgage Loan
Group (to the extent such
proceeds relate to
principal); and
(h) any moneys released from
the Pre-Funding Account
as a prepayment of the
Fixed Rate Certificates
(with respect to the
Fixed Rate Group) or the
Variable Rate
Certificates (with
respect to the Variable
Rate Group) on the
Payment Date which
immediately follows the
end of the Funding
Period; and
(i) the amount of any
Subordination Increase
Amount with respect to
such Mortgage Loan Group
for such Payment Date
consisting of the amount
of any Net Monthly Excess
Cash Flow to be actually
applied for the
accelerated payment of
principal on the related
Class A Certificates;
minus
(ii) the amount of any
Subordination Reduction
Amount with respect to
such Mortgage Loan Group
for such Payment Date
consisting of the amount
of any Net Monthly Excess
Cash Flow to be actually
paid to the Owners of the
Subordinate Certificates.
In no event will the Class A Principal
Distribution Amount for any Mortgage
Loan Group and Payment Date (x) be
less than zero or (y) be greater than
the then-outstanding Certificate
Principal Balance of the related Class
of Class A Certificates.
The sum of the Class A Current
Interest and the Class A Principal
Distribution Amount with respect to
any Class of Class A Certificates and
Payment Date is the "Class A
Distribution Amount" for such Class of
Class A Certificates and Payment Date.
The "Carry-Forward Amount" with
respect to a Class of Class A
Certificates for any Payment Date is
the sum of (x) the amount, if any, by
which (i) the Class A Distribution
Amount for such Class as of the
immediately preceding Payment Date
exceeded (ii) the amount of the actual
distribution made to the Owners of the
related Class of Class A Certificates
on such immediately preceding Payment
Date plus (y) 30 days' interest on the
interest portion of such amount,
calculated at the related Pass-Through
Rate. See "Description of the Offered
Certificates -- Distributions" herein.
A "Liquidated Mortgage Loan" is, in
general, a defaulted Mortgage Loan as
to which the Servicer has determined
that all amounts that it expects to
recover on such Mortgage Loan have
been recovered (exclusive of any
possibility of a deficiency judgment).
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<PAGE>
Any loss on a Liquidated Mortgage Loan
(i.e., a Realized Loss) may or may not
be allocated to the Owners of the
related Class of Class A Certificates
on the Payment Date which immediately
follows the event of loss. However,
the Owners of the Class A Certificates
are entitled to receive ultimate
recovery of any Realized Losses which
occur in the related Mortgage Loan
Group, which receipt will be no later
than the Payment Date occurring after
such Realized Loss creates a
Subordination Deficit and will be in
the form of an Insured Payment if not
covered through Net Monthly Excess
Cashflow in the related Group or the
other Group.
Insured Payments do not include
Realized Losses until such time as the
aggregate cumulative Realized Losses
have created a Subordination Deficit
nor do Insured Payments cover the
Servicer's failure to make Delinquency
Advances until such time as the
aggregate cumulative amount of such
unpaid Delinquency Advances, when
added to Realized Losses have created
a Subordination Deficit.
A "Subordination Deficit" with respect
to a Mortgage Loan Group and Payment
Date is the amount, if any, by which
(x) the Certificate Principal Balance
of the related Class of Class A
Certificates, after taking into
account all distributions to be made
on such Payment Date, exceeds (y) the
sum of (i) the aggregate
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<PAGE>
principal balances of the Mortgage
Loans in the related Mortgage Loan
Group as of the close of business on
the Due Date in the calendar month in
which such Payment Date occurs and
(ii) the amount, if any, on deposit in
the Pre-Funding Account as of the
close of business on the Due Date in
the calendar month in which such
Payment Date occurs.
Credit Enhancement: The Credit Enhancement provided for
the benefit of the Owners of the
Offered Certificates consists of (x)
the overcollateralization and
crosscollateralization mechanics which
utilize the internal cash flows of the
Trust and (y) the Certificate
Insurance Policies.
Overcollateralization. The credit
enhancement provisions of the Trust
result in a limited acceleration of
each Class of Offered Certificates
relative to the amortization of the
related Mortgage Loans in the early
months of the transaction. The
accelerated amortization is achieved
by the application of certain excess
interest to the payment of principal
on the related Class of Class A
Certificates. This acceleration
feature creates, with respect to each
Mortgage Loan Group,
overcollateralization which results
from the excess of the aggregate
scheduled principal balances of the
Mortgage Loans in the related Mortgage
Loan Group plus the amount, if any, on
deposit in the Pre-Funding Account
over the aggregate related Class A
Certificate Principal Balance. Once
the required level of
overcollateralization is reached, and
subject to the provisions described in
the next paragraph, the acceleration
feature will cease, unless necessary
to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement
provides that, subject to certain
floors, caps and triggers, the
required level of
overcollateralization with respect to
a Mortgage Loan Group may increase or
decrease over time. An increase would
result in a temporary period of
accelerated amortization of the
related Class A Certificates to
increase the actual level of
overcollateralization to its required
level; a decrease would result in a
temporary period of decelerated
amortization to reduce the actual
level of overcollateralization to its
required level.
As a result of the "sequential pay"
feature of the Fixed Rate
Certificates, any such accelerated
principal will be paid to that Class
of Fixed Rate Certificates then
entitled to receive distributions of
principal.
Crosscollateralization. In addition to
the foregoing, the Pooling and
Servicing Agreement provides that
excess interest, together with certain
other excess amounts, generated by one
Mortgage Loan Group may be used to
fund shortfalls in Available Funds in
the other Mortgage Loan Group or
accelerate the amortization of the
Class of Class A Certificates related
to the other Mortgage Loan Group,
subject to certain prior requirements
of such Mortgage Loan Group.
See "Description of the Offered
Certificates--Overcollateralization
Provisions" and
"--Crosscollateralization Provisions"
herein.
The Certificate Insurance Policies.
The Company will obtain the
Certificate Insurance Policies, which
are noncancelable, in favor of the
Trustee on behalf of the Owners of
each Class of the Offered
Certificates. On each Payment Date,
the Certificate Insurer will be
required to make available to the
Trustee the amount by which the
related Class A Current Interest and
any Subordination Deficit for the
related Mortgage Loan Group exceeds
the Total Available Funds (after
deducting the amount necessary to pay
the related premium amount to the
Certificate Insurer) for such Mortgage
Loan Group as of such Payment Date.
The Certificate Insurance Policies do
not guarantee to Owners of the related
Class A Certificates any specified
rate of Prepayments. See "Credit
Enhancement" in this Summary and "The
Certificate Insurance Policies and the
Certificate Insurer" herein and
"Description of Credit Enhancement" in
the Prospectus.
Pre-Funding Account: On the Closing Date, the Original
Pre-Funded Amount will be deposited in
the Pre-Funding Account which account
will be in the name of, and maintained
by,
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<PAGE>
the Trustee on behalf of the Trust; an
amount of $_____________ of such
aggregate amount will be funded from
the sale of the Fixed Rate
Certificates and an amount of
$_____________ of such aggregate
amount will be funded from the sale of
the Variable Rate Certificates and may
be used to acquire Subsequent Mortgage
Loans for addition to the Fixed Rate
Group and the Variable Rate Group,
respectively. With respect to either
the Fixed Rate Group or the Variable
Rate Group, during the period (the
"Funding Period") from and including
the Closing Date until the earliest of
(i) the date on which the amount on
deposit in the Pre-Funding Account is
less than $100,000 and (ii) ________
__, 199_, the Pre-Funded Amount will
be maintained in the Pre-Funding
Account. The Original Pre-Funded
Amount will be reduced during the
Funding Period by the amount thereof
used to purchase Subsequent Mortgage
Loans in accordance with the Pooling
and Servicing Agreement. The amount on
deposit in the Pre-Funding Account at
any time is the "Pre-Funded Amount".
Subsequent Mortgage Loans purchased by
and added to the Fixed Rate Group or
the Variable Rate Group on any date
(each, a "Subsequent Transfer Date")
must satisfy the criteria for such
Group set forth in the Pooling and
Servicing Agreement. Any Pre-Funded
Amount, less any interest and other
investment earnings on amounts on
deposit in the Pre-Funding Account
(the "Pre-Funding Account Earnings"),
remaining at the end of the Funding
Period with respect to the Fixed Rate
Group will be distributed to the
Owners of the Fixed Rate Certificates
then entitled to receive payments of
principal and any Pre-Funded Amount,
less any Pre-Funding Account
Earnings, remaining at the end of the
Funding Period with respect to the
Variable Rate Group will be
distributed to the Owners of the
Variable Rate Certificates, in each
case on the Payment Date that
immediately follows the end of the
Funding Period in reduction of the
Certificate Principal Balance of such
Owners' Certificates, thus resulting
in a partial principal prepayment of
such Class of Class A Certificates as
specified herein under "Description of
the Offered Certificates --
Distributions." All earnings in the
Pre-Funding Account will be deposited
in the Capitalized Interest Account.
The Pre-Funding Account will be an
asset of the Trust but will not be an
asset of the REMIC (as defined
herein).
Although no assurance can be given, it
is intended that the principal amount
of Subsequent Mortgage Loans sold to
the Trust and added to the Fixed Rate
Group or the Variable Rate Group will
require application of substantially
all of the Original Pre-Funded Amount
and it is not intended that there will
be any material amount of principal
prepaid to the Owners of the Fixed
Rate or Variable Rate Certificates
from the Pre-Funding Account. In the
event that the Company is unable to
sell Subsequent Mortgage Loans to the
Trust in an amount equal to the
Original Pre-Funded Amount, a
principal prepayment to Owners of the
Fixed Rate Certificates and/or
Variable Rate Certificates will occur
on the Payment Date in _______ 199_ in
an amount equal to the Pre-Funded
Amount, less any Pre-Funding Account
Earnings with respect to the related
Group, remaining at the end of the
Funding Period.
Capitalized Interest Account: On the Closing Date, cash will be
deposited in a trust account (the
"Capitalized Interest Account") in the
name of, and maintained by, the
Trustee on behalf of the Trust. The
amount on deposit in the Capitalized
Interest Account, including
reinvestment income thereon, will be
used by the Trustee to fund the
excess, if any, of (i) the sum of (a)
the aggregate amount of interest
accruing during the related Accrual
Period at the weighted average
Pass-Through Rate on the Class A
Certificates on the amount by which
the aggregate Certificate Principal
Balance of the Class A Certificates
exceeds the aggregate principal
balance of the Initial Mortgage Loans
plus (b) the Trustee fees over (ii)
the amount of any Pre-Funding Account
Earnings; such amounts on deposit will
be so applied by the Trustee on each
Payment Date in the Funding Period to
fund such excess, if
S-11
<PAGE>
any. Any amounts remaining in the
Capitalized Interest Account not
needed for such purpose will be paid
to the Company at the end of the
Funding Period. The Capitalized
Interest Account will be an asset of
the Trust but will not be an asset of
the REMIC (as defined herein).
Mandatory Prepayment of
Certificates: In the event that at the end of the
Funding Period, not all of the
$_____________ and $_______________
funded from the sale of the Fixed Rate
Certificates and Variable Rate
Certificates, respectively, has been
used to acquire Subsequent Mortgage
Loans with respect to the related
Group, then the Class A Certificates
related to such Group then entitled to
payments of principal will receive a
prepayment on the Payment Date in
_______ 199_. The Pooling and
Servicing Agreement does not permit
funds in the Pre-Funding Account
relating to the sale of one Group of
Class A Certificates to be used to
acquire Subsequent Mortgage Loans
relating to the other Group of Class A
Certificates.
Certificate Insurer: [________________________]
("Certificate Insurer").
Delinquency Advances
and Compensating Interest: The Servicer will be obligated to make
advances ("Delinquency Advances") with
respect to delinquent payments of
interest (at the related Mortgage Rate
less the Servicing Fee, as defined
below) and scheduled principal due on
each Mortgage Loan to the extent that
such Delinquency Advances, in good
faith and in the Servicer's reasonable
judgment, are reasonably recoverable
from the related Mortgage Loan.
Delinquency Advances are recoverable
from (i) future collections on the
Mortgage Loan which gave rise to the
Delinquency Advance, (ii) Liquidation
Proceeds for such Mortgage Loan and
(iii) from certain excess moneys which
would otherwise be paid to the Owners
of the Subordinate Certificates.
In addition, the Servicer will also be
required to deposit in the Principal
and Interest Account with respect to
any full Prepayment received on a
Mortgage Loan during the related
Remittance Period out of its own funds
without any right of reimbursement
therefor, an amount equal to the
difference between (x) 30 days'
interest at such Mortgage Loan's
Mortgage Rate (less the Servicing Fee)
on the principal balance of such
Mortgage Loan as of the first day of
the related Remittance Period and (y)
to the extent not previously advanced,
the interest (less the Servicing Fee)
paid by the Mortgagor with respect to
such Mortgage Loan during such
Remittance Period (any such amount
paid by the Servicer, "Compensating
Interest"). The Servicer will not be
required to pay Compensating Interest
with respect to any Remittance Period
in an amount in excess of the
aggregate Servicing Fee received by
the Servicer for such Remittance
Period or to cover shortfalls in
collections of interest due to
curtailments.
Any failure by the Servicer to remit
to the Trustee a Delinquency Advance
or Compensating Interest to the extent
required under the Pooling and
Servicing Agreement will constitute an
event of default under the Pooling and
Servicing Agreement, in which case,
upon the removal of the Servicer, the
Trustee or the successor Servicer will
be obligated to make such advances in
accordance with the terms of the
Pooling and Servicing Agreement. See
"Description of the Securities --
Advances" in the Prospectus.
Book-Entry Registration of the
Offered Certificates: The Offered Certificates will
initially be issued in book-entry
form. Persons acquiring beneficial
ownership interests in such Offered
Certificates ("Beneficial Owners") may
elect to hold their interests through
The Depository Trust Company ("DTC"),
in the United States, [or Cedel Bank,
S.A. ("Cedel") or the Euroclear System
("Euroclear"), in Europe]. Transfers
within DTC [, Cedel or Euroclear, as
the case may be,] will be in
accordance with the usual rules and
S-12
<PAGE>
operating procedures of the relevant
system. So long as the Offered
Certificates are Book-Entry
Certificates (as defined herein), such
Certificates will be evidenced by one
or more Certificates registered in the
name of Cede & Co. ("Cede"), as the
nominee of DTC or one of the European
Depositaries (as defined below).
[Cross-market transfers between
persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or
indirectly through Cedel or Euroclear,
on the other, will be effected in DTC
through Citibank N.A. ("Citibank") or
The Chase Manhattan Bank ("Chase," and
together with Citibank, the "European
Depositaries"), the relevant
depositaries of Cedel and Euroclear,
respectively, and each a participating
member of DTC.] The Offered
Certificates will initially be
registered in the name of Cede. The
interests of the Owners of such
Certificates will be represented by
book-entries on the records of DTC and
participating members thereof. No
Beneficial Owner will be entitled to
receive a definitive certificate
representing such person's interest,
except in the event that Definitive
Certificates (as defined herein) are
issued under the limited circumstances
described herein. All references in
this Prospectus Supplement to any
Offered Certificates reflect the
rights of Beneficial Owners only as
such rights may be exercised through
DTC and its participating
organizations for so long as such
Offered Certificates are held by DTC.
See "Description of the Offered
Certificates--Book-Entry Registration
of the Offered Certificates" herein
and Annex I hereto.
Monthly Servicing Fee: The Servicer will retain a fee equal
to ____% per annum (the "Fixed Rate
Group Servicing Fee"), payable monthly
at one-twelfth the annual rate, of the
then-outstanding principal amount of
each Mortgage Loan in the Fixed Rate
Group as of the first day of each
calendar month and a fee equal to
____% per annum, (the "Variable Rate
Group Servicing Fee"), payable monthly
at one-twelfth the annual rate, of the
then-outstanding principal amount of
each Mortgage Loan in the Variable
Rate Group. The Fixed Rate Group
Servicing Fee and the Variable Rate
Group Servicing Fee are collectively
referred to as the "Servicing Fee."
Optional Termination: The Servicer, acting directly or
through a permitted designee, will
have the right to purchase from the
Trust all the Mortgage Loans then held
by the Trust, at a price at least
equal to par plus accrued interest on
any Remittance Date on or after the
Clean-Up Call Date. Under certain
circumstances the Certificate Insurer
may also exercise such purchase rights
if the Servicer does not do so. See
"The Pooling and Servicing Agreement--
Optional Termination" herein.
Ratings: It is a condition of the original
issuance of the Offered Certificates
that the Offered Certificates receive
ratings of AAA by Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard
& Poor's") and Aaa by Moody's
Investors Service, Inc. ("Moody's"). A
security rating is not a
recommendation to buy, sell or hold
securities, and may be subject to
revision or withdrawal at any time by
the assigning entity. See "Prepayment
and Yield Considerations" and
"Ratings" herein and "Prepayment and
Yield Considerations" in the
Prospectus.
Risk Factors: Credit Considerations. For information
with regard to the Mortgage Loans and
their related risks, see "The Mortgage
Loan Pool" herein.
Prepayment Considerations. For
information regarding the consequences
of prepayments of the Mortgage Loans
and of the failure of the Company to
purchase Subsequent Mortgage Loans
during the Funding Period in an amount
equal to the Original Pre-Funded
Amount, see "Prepayment and Yield
Considerations" and "Risk Factors --
The Subsequent Mortgage Loans and the
Pre-Funding Account" herein.
S-13
<PAGE>
Other Considerations. For a discussion
of other risk factors that should be
considered by prospective investors in
the Offered Certificates, see "Risk
Factors" herein and in the Prospectus.
Federal Income Tax Aspects: For Federal income tax purposes an
election will be made to treat the
Trust (exclusive of the Pre-Funding
Account and the Capitalized Interest
Account; collectively, the "Non-REMIC
Accounts") as a "real estate mortgage
investment conduit" (the "REMIC").
Each Class of Offered Certificates
(except as described herein for the
Class A-3 Certificates) will be
designated as "regular interests" in
the REMIC and will be treated as debt
instruments of the Trust for federal
income tax purposes. The REMIC will
issue the Class R Certificates, which
will be designated as the sole class
of "residual interests" in the REMIC.
See "Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA
Considerations: Subject to the limitations described
under "ERISA Considerations" herein,
the Offered Certificates may be
purchased by employee benefit plans
that are subject to the Employee
Retirement Income Security Act of
1974, as amended. See "ERISA
Considerations" herein and in the
Prospectus.
Legal Investment
Considerations: The Class A Certificates will not
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Accordingly,
many institutions with legal authority
to invest in comparably rated
securities based on first mortgage
loans may not be legally authorized to
invest in the Class A Certificates.
S-14
<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider the
following factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of the Class A Certificates.
Risk of Mortgage Loan Yield Reducing Class A-3 Pass-Through Rate.
Subject to the Available Funds Cap, the Class A-3 Pass-Through Rate is based
upon the value of an index (LIBOR) which is different from the value of the
indices applicable to the Mortgage Loans in the Variable Rate Group, as
described under "The Mortgage Pool -- Variable Rate Group" herein (either as a
result of the use of a different index rate determination date, rate adjustment
date or rate cap or floor). _____% of the Initial Mortgage Loans in the Variable
Rate Group are Six-Month LIBOR Loans which adjust semi-annually based upon a
six-month LIBOR index, whereas the Pass-Through Rate on the Class A-3
Certificates adjusts monthly based upon a one-month LIBOR index and is limited
by the Available Funds Cap. Consequently, the Class A-3 Pass-Through Rate for
any Payment Date may not equal the interest which becomes due on the Initial
Mortgage Loans in the Variable Rate Group (net of Servicing Fee and certain
other required reductions) during the related Remittance Period. In addition,
_____% of the Initial Mortgage Loans in the Variable Rate Group by aggregate
principal balance as of the Cut-Off Date are 2/28 Loans that provide for a fixed
interest rate for a period of approximately two years following origination,
____% of the Initial Mortgage Loans in the Variable Rate Group by aggregate
principal balance as of the Cut-Off Date are 3/27 Loans that provide for a fixed
interest rate for a period of approximately three years following origination
and ____% of the Initial Mortgage Loans in the Variable Rate Group by aggregate
principal balance as of the Cut-Off Date are 5/25 Loans that provide for a fixed
interest rate for a period of approximately five years following origination.
Thereafter, such Mortgage Loans provide for interest rate and payment
adjustments in a manner similar to the Six-Month LIBOR Loans. In particular, the
Class A-3 Pass-Through Rate adjusts monthly, while the interest rates of the
Mortgage Loans in the Variable Rate Group adjust less frequently, with the
result that the Available Funds Cap may be lower than the otherwise applicable
Class A-3 Pass-Through Rate for extended periods in a rising interest rate
environment. Moreover, one-month LIBOR and the index applicable to such Mortgage
Loans may respond to different economic and market factors, and there is not
necessarily any correlation between them. Thus, it is possible, for example,
that one-month LIBOR may rise during periods in which the Mortgage Loan's index
is stable or is falling or that, even if both one-month LIBOR and such index
rise during the same period, one-month LIBOR may rise much more rapidly than
such index. See "Class A-3 Pass-Through Rate" in the Summary herein.
The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible Mortgage Loans available during the Funding Period
is less than 100% of the Original Pre-Funded Amount, the Company will have
insufficient Mortgage Loans to sell to the Trust for addition to the Fixed Rate
Group and the Variable Rate Group on the Subsequent Transfer Dates, thereby
resulting in a prepayment of principal to Owners of the Fixed Rate Certificates
and/or the Variable Rate Certificates as described herein. See "Social, Economic
and Other Factors" below. In addition, any conveyance of Subsequent Mortgage
Loans is subject to the following conditions, among others: (i) each such
Subsequent Mortgage Loan must satisfy the representations and warranties
specified in the agreement pursuant to which such Subsequent Mortgage Loans are
transferred to the Trust (each a "Subsequent Transfer Agreement") and in the
Pooling and Servicing Agreement; (ii) the Subsequent Mortgage Loans must be
selected by the Company in a manner that it believes is not adverse to the
interest of the Owners of the Certificates or the Certificate Insurer; (iii)
certain opinions of counsel with respect to the validity of the conveyance of
such Subsequent Mortgage Loans must be delivered by the Company; and (iv) as of
each cut-off date (each, a "Subsequent Cut-Off Date") applicable thereto, the
Mortgage Loans, including the Subsequent Mortgage Loans to be conveyed by the
Company as of such Subsequent Cut-Off Date, must satisfy the criteria set forth
in the Pooling and Servicing Agreement, as described herein under "The Mortgage
Loan Pool--Conveyance of Subsequent Mortgage Loans--Fixed Rate Group" and
"--Conveyance of Subsequent Mortgage Loans--Variable Rate Group."
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
for inclusion in the Fixed Rate Group or the Variable Rate Group by the end of
the Funding Period, the Owners of the Fixed Rate Certificates and/or the
Variable Rate Certificates then entitled to payments of principal will receive a
prepayment of principal in an amount equal to the Pre-Funded Amount, less any
Pre-Funding Account Earnings, remaining in the Pre-Funding Account on the first
Payment Date following the end of the Funding Period (in no event later than the
_______ 199_ Payment Date). Although no assurances can be given, the Company
intends that the principal amount of Subsequent Mortgage Loans sold to the Trust
will require the application of substantially all amounts on deposit in the
Pre-Funding Account and that there will be no material principal prepayment to
the Owners of the Fixed Rate Certificates or the Variable Rate Certificates from
the Pre-Funded Amount.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may be of a different credit quality. Therefore, following the transfer of
Subsequent Mortgage Loans to the Fixed Rate Group or the Variable Rate Group,
the aggregate characteristics of the
S-15
<PAGE>
Mortgage Loans then held in such Group may vary from those of the Initial
Mortgage Loans in such Group. See "The Mortgage Loan Pool--Conveyance of
Subsequent Mortgage Loans--Fixed Rate Group" and "--Conveyance of Subsequent
Mortgage Loans--Variable Rate Group."
Social, Economic and Other Factors. The ability of the Trust to invest
in Subsequent Mortgage Loans is largely dependent upon the ability of the
Company to originate or purchase additional mortgage loans. The ability of the
Company to originate or purchase additional loans may be affected by a variety
of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. However, the Company is unable to determine and has no
basis to predict whether or to what extent economic or social factors will
affect its origination ability and the availability of Subsequent Mortgage
Loans.
Risk of Higher Delinquencies Associated with Underwriting Standards.
All of the Mortgage Loans were originated or acquired by the Company in
accordance with the Company's mortgage loan program described in the Prospectus.
See "Mortgage Loan Program -- Underwriting Guidelines" in the Prospectus. As a
general matter, the Company's mortgage loan program consists of the origination
and packaging of mortgage loans relating to non-conforming credits. A
non-conforming credit means a mortgage loan which is ineligible for purchase by
Fannie Mae due to credit characteristics that do not meet Fannie Mae guidelines.
Mortgage Loans originated under the Company's mortgage loan program may
experience rates of delinquency, foreclosure and bankruptcy that are higher than
mortgage loans originated under Fannie Mae guidelines. ____% of the Initial
Mortgage Loans were 30 days or more delinquent in their monthly payments as of
the Cut-Off Date. However, investors in the Class A Certificates should be aware
that approximately _____% and _____% (by aggregate principal balance as of the
Cut-Off Date) of the Initial Mortgage Loans in the Fixed Rate Group and Variable
Rate Group, respectively, had a first monthly payment due on or before _______
_, 199_. Therefore, it was not possible for any Mortgage Loan other than such
Mortgage Loans to have had a monthly payment that was delinquent 30 days or
more.
Risk of Higher Default Rates Associated with California Real Property.
Since _____% of the Mortgaged Properties relating to the Initial Mortgage Loans
are located in California, an overall decline in the California residential real
estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans, causing the principal balances of the related
Mortgage Loans to equal or exceed the value of such Mortgaged Properties.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mudflows). See
"Hazard Insurance; Claims Thereunder" in the Prospectus. Accordingly, should
such event cause losses in respect of the Mortgage Loans, if the protection
afforded by the overcollateralization and crosscollateralization of the
Certificates is insufficient and upon the occurrence of a Subordination Deficit
the Certificate Insurer is unable to meet its obligations under the related
Certificate Insurance Policy, then the Owners of the Offered Certificates could
experience a loss on their investment.
Risk of Higher Loss Rates Associated with Junior Liens. Since ____% of
the aggregate principal balance of the Initial Mortgage Loans in the Fixed Rate
Group as of the Cut-Off Date are secured by junior deeds of trust or mortgages
which are subordinate to the rights of the beneficiaries under the related
senior mortgages, a decline in real property values could extinguish the
interest of the beneficiary of a junior deed of trust on the Mortgaged Property
before having any effect on the interest of the beneficiary of a senior mortgage
thereon. To the extent that such losses result in a shortfall of available funds
from payments relating to the Mortgage Loans and in the event that the
Certificate Insurer is unable to meet its obligation upon the occurrence of a
Subordination Deficit, then the owners of the Offered Certificates will bear all
risk of loss resulting from default by Mortgagors and will have to look
primarily to the value of the Mortgaged Property for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans. See "Mortgage
Loan Program -- Underwriting Guidelines" herein and "Risk Factors -- Risks of
the Mortgage Loans" in the Prospectus.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments.
____% of the aggregate Loan Balance of the Initial Mortgage Loans in the Fixed
Rate Group as of the Cut-Off Date are "balloon loans" that provide for the
payment of the unamortized Loan Balance of such Mortgage Loan in a single
payment at maturity ("Balloon Loans"). The Balloon Loans provide for equal
monthly payments, consisting of principal and interest, generally based on a
30-year amortization schedule, and a single payment of the remaining balance of
the Balloon Loan generally up to 15 years after origination. Amortization of a
Balloon Loan based on a scheduled period that is longer than the term of the
loan results in a remaining principal balance at maturity that is substantially
larger than the regular scheduled payments. The Company does not have any
information regarding the default history or prepayment history of payments on
Balloon Loans. Because borrowers of Balloon Loans are required to make
substantial single payments upon maturity, it is possible that the default risk
associated with the Balloon Loans is greater than that associated with
fully-amortizing Mortgage Loans.
S-16
<PAGE>
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the Company. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The Company will be required to
repurchase any Mortgage Loans which, at the time of origination, did not comply
with applicable federal and state laws and regulations. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Trust to collect all or part of the principal of or interest on
the Mortgage Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the Company to damages and administrative
enforcement. See "Certain Legal Aspects of Mortgage Loans and Related Matters"
in the Prospectus.
_____% of the Initial Mortgage Loans will be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act"),
which incorporates the Home Ownership and Equity Protection Act of 1994. The
Riegle Act adds certain additional provisions to Regulation Z, which is the
implementing regulation of the Truth-In-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money home equity loans with high interest rates or high upfront
fees and charges. In general, home equity loans within the purview of the Riegle
Act have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. The provisions of the Riegle Act
apply on a mandatory basis to all home equity loans originated on or after
October 1, 1995. These provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the home equity loan. The Company will represent and warrant in the Pooling and
Servicing Agreement that each Mortgage Loan was originated in compliance with
all applicable laws including the Truth-in-Lending Act, as amended.
Risk of Seller Insolvency. The Company believes that the transfer of
the Mortgage Loans to the Trust constitutes a sale by the Company to the Trust
and, accordingly, that such Mortgage Loans will not be part of the assets of the
Company in the event of the insolvency of the Company and will not be available
to the creditors of the Company. However, in the event of an insolvency of the
Company, it is possible that a bankruptcy trustee or a creditor of the Company
may argue that the transaction between the Company and the Trust was a pledge of
such Mortgage Loans in connection with a borrowing by the Company rather than a
true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Certificates.
On the Closing Date, the Trustee, the Company, the Underwriters, the
Rating Agencies and the Certificate Insurer will have received an opinion of
Arter & Hadden LLP, counsel to the Company, with respect to the true sale of the
Mortgage Loans from the Company to the Trust, in form and substance satisfactory
to the Certificate Insurer and the Rating Agencies.
THE PORTFOLIO OF MORTGAGE LOANS
General
The Mortgage Loan Pool includes newly-originated fixed and variable
rate loans which were originated directly by the Company or one or more
unrelated third party Originators.
Substantially all of the Initial Mortgage Loans in the Variable Rate
Group adjust based on the London interbank offered rate for six-month United
States Dollar deposits in the London Market based on quotations of major banks
published in The Wall Street Journal. See "Mortgage Loan Program -- Underwriting
Guidelines" in the Prospectus.
Acquisitions
Fixed Rate Group. All of the Mortgage Loans in the Fixed Rate Group
were originated by the Company pursuant to the Company's Guidelines or acquired
by the Company from an Originator based on Approved Guidelines or Bulk
Guidelines as described in the Prospectus. See "Mortgage Loan Program" in the
Prospectus. Initial Mortgage Loans representing an aggregate principal balance
of $_____________ or _____% of the Fixed Rate Group by aggregate principal
balance were acquired from an Originator other than the Company. The Company
reviewed 100% of the acquisitions included in the Trust.
Variable Rate Group. All of the Mortgage Loans in the Variable Rate
Group were originated by the Company and were underwritten pursuant to the
Company's Guidelines or acquired by the Company from an Originator based
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<PAGE>
on Approved Guidelines or Bulk Guidelines as described in the Prospectus. See
"Mortgage Loan Program" in the Prospectus. Initial Mortgage Loans representing
an aggregate principal balance of $_____________ or approximately _____% of the
Variable Rate Group by aggregate principal balance were acquired from an
Originator other than the Company. All of the 2/28 Loans, 3/27 Loans and 5/25
Loans were acquired by the Company from the Originators. The Company reviewed
100% of the acquisitions included in the Trust.
Delinquencies
The following tables set forth information relating to the delinquency,
foreclosure and loan loss experience of the Servicer for its servicing portfolio
of fixed and variable rate mortgage loans as of and for the period ended
September 30, 1997 and for each of the three prior calendar years. The Servicer
is not an approved seller/servicer by Fannie Mae or the Federal Home Loan
Mortgage Corporation.
Delinquency and Foreclosure Experience of the
Servicer's Servicing Portfolio
<TABLE>
<CAPTION>
As of September 30, As of December 31,
----------------------- -----------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total Servicing Portfolio.................. $745,173 $641,191 $613,791 $555,685
Delinquent Loans(1)
30-59 days........................ 8,429 9,359 8,339 6,084
60-89 days........................ 5,644 6,704 6,538 4,471
90 days or more................... $17,625 19,081 21,002 13,589
------- ------- ------- -------
Total.................... $31,698 $ 35,144 $ 35,879 $ 24,144
======= ======== ======== ========
Total Delinquency Percentage 4.3% 5.5% 5.8% 4.3%
REO Properties(2).......................... $2,652 $3,951 $7,854 $3,386
</TABLE>
- ---------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due and includes all loans in foreclosure.
(2) Includes REO Properties owned by the Company as well as REO Properties
owned by REMIC Trusts and serviced by the Company; however, excludes
private investor REO Properties not serviced by the Company.
S-18
<PAGE>
Loan Loss Experience of the
Servicer's Servicing Portfolio
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Average Servicing Portfolio Balance
Outstanding(1)............................... $683,861 $615,393 $583,943 $470,628
Net Losses(2).................................... $1,531 $2,160 $169 $44
As a percentage of Average Portfolio 0.30% 0.35% 0.03% 0.01%
Balance(3)...................................
</TABLE>
- --------------------------
(1) For 1997, 1996 and 1995 periods, the average servicing portfolio balance
equals the quarterly average of the servicing portfolio computed as the
average of the balance at the beginning and end of each quarter. For 1994,
the average servicing portfolio balance equals the average of the balance
at the beginning and end of each period.
(2) "Net Losses" means actual net losses realized with respect to the
disposition of the REO properties.
(3) For the nine months ended September 30, 1997, "As a percentage of Average
Portfolio Balance" was annualized by multiplying "Net Losses" by 1.33
before calculating the percentage of "Average Portfolio Balance."
USE OF PROCEEDS
The Company will sell the Mortgage Loans to the Trust concurrently with
the delivery of the Certificates. Net proceeds from the sale of the Class A
Certificates will be applied by the Trust to the purchase of the Initial
Mortgage Loans from the Company. Such net proceeds less the Pre-Funded Amount
and the amount deposited in the Capitalized Interest Account will (together with
the Subordinate Certificates retained by the Company or its affiliates)
represent the purchase price to be paid by the Trust to the Company for the
Initial Mortgage Loans.
THE MORTGAGE LOAN POOL
General
Unless otherwise noted, all references to statistical percentages in
this Prospectus Supplement appearing "as of the Cut-Off Date," together with all
dollar amount references herein to aggregate principal balances appearing "as of
the Cut-Off Date" have been calculated using the aggregate scheduled principal
balances of the Initial Mortgage Loans as of the close of business on the
Cut-Off Date. Subsequent Mortgage Loans are intended to be purchased by the
Trust for inclusion in the Fixed Rate Group and the Variable Rate Group from the
Company from time to time on or before ________ __, 199_ from funds on deposit
in the Pre-Funding Account. The Initial Mortgage Loans and the Subsequent
Mortgage Loans are referred to herein collectively as the "Mortgage Loans." The
Subsequent Mortgage Loans, if available, will be sold by the Company to the
Trust.
This subsection describes generally certain characteristics of the
Initial Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of Initial Mortgage Loans refer in each case to the approximate
percentage of the aggregate principal balance of the Initial Mortgage Loans as
of the Cut-Off Date, based on the outstanding principal balances of the Initial
Mortgage Loans in the Fixed Rate Group or the Initial Mortgage Loans in the
Variable Rate Group, in each case as of the Cut-Off Date, and giving effect to
all payments due on or prior to the Cut-Off Date. The Mortgage Loan Pool will
initially consist of ____ loans evidenced by promissory notes (the "Notes")
secured by deeds of trust, security deeds or mortgages on the Mortgaged
Properties, which are located in __ states and the District of Columbia. The
Mortgaged Properties securing the Mortgage Loans consist of single-family
residences (which may be detached, part of a two-to-four family dwelling, a
condominium unit or a unit in a planned unit development). The Mortgaged
Properties may be owner-occupied (which includes second and vacation homes) or
non-owner occupied investment properties. The Initial Mortgage Loans consist of
_____% of loans secured by first lien mortgages on the related Mortgage
Properties, ____% of loans secured by second liens on the related Mortgaged
Properties and ____% of loans secured by third liens on the related Mortgaged
Properties.
S-19
<PAGE>
The Initial Mortgage Loans were required to satisfy the following
criteria as of the Cut-Off Date: had remaining terms to stated maturity of no
greater than 360 months; had a Mortgage Rate as of the Cut-Off Date of at least
____% with respect to the Fixed Rate Group and at least ____% with respect to
the Variable Rate Group; and had a CLTV not in excess of _____% with respect to
the Fixed Rate Group and had a LTV not in excess of _____% with respect to the
Variable Rate Group.
Each Mortgage Loan in the Trust will be assigned to one of the two
Mortgage Loan Groups comprised of Mortgage Loans which bear fixed interest rates
only, in the case of the Fixed Rate Group, and Mortgage Loans which bear
adjustable interest rates only, in the case of the Variable Rate Group. Each of
the Mortgage Loans contained in the Fixed Rate Group will be secured by a
Mortgage having either a first or junior lien position with respect to the
related Property. Each of the Mortgage Loans contained in the Variable Rate
Group will be secured by Mortgages which are in a first lien position. _____% of
the Initial Mortgage Loans were originated less than six months prior to the
Cut-Off Date. The Fixed Rate Certificates represent undivided ownership
interests in all Mortgage Loans contained in the Fixed Rate Group, and the
Variable Rate Certificates represent undivided ownership interests in all
Mortgage Loans contained in the Variable Rate Group.
Fixed Rate Group - Initial Mortgage Loans
All of the Initial Mortgage Loans in the Fixed Rate Group are Actuarial
Loans. _____% of the Initial Mortgage Loans in the Fixed Rate Group as of the
Cut-Off Date require monthly payments of principal that will fully amortize the
Initial Mortgage Loans by their respective stated maturity dates and ____% of
the Initial Mortgage Loans in the Fixed Rate Group as of the Cut-Off Date are
Balloon Loans. No Initial Mortgage Loan in the Fixed Rate Group had a stated
maturity date later than __________ 1, 202_. As of the Cut-Off Date, the
aggregate principal balance of all Initial Mortgage Loans in the Fixed Rate
Group was _____% of the aggregate principal balance of such Initial Mortgage
Loans at the times of their origination.
The Initial Mortgage Loans in the Fixed Rate Group had the following
aggregate characteristics as of the Cut-Off Date:
Aggregate Number of Initial Mortgage Loans....................
Principal Balance
Aggregate............................................
Average..............................................
Range................................................
Mortgage Rates
Weighted Average.....................................
Range................................................
Original Term to Stated Maturity
Weighted Average ....................................
Range................................................
Remaining Term to Stated Maturity
Weighted Average ....................................
Range................................................
CLTV
Weighted Average.....................................
Range................................................
LTV
Weighted Average.....................................
Range................................................
Weighted Average Junior Lien Ratio............................
Percentage of First Mortgages.................................
Percentage of Second Mortgages................................
Percentage of Third Mortgages.................................
Some of the aggregate percentages in the following tables may not total
100% due to rounding.
S-20
<PAGE>
DISTRIBUTION OF CLTV'S
Fixed Rate Group
<TABLE>
<CAPTION>
% of Aggregate
Number of Initial Aggregate Unpaid Unpaid
Range of CLTV's Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.01 - 10.00%.............................
10.01 - 15.00..............................
15.01 - 20.00..............................
20.01 - 25.00..............................
25.01 - 30.00..............................
30.01 - 35.00..............................
35.01 - 40.00..............................
40.01 - 45.00..............................
45.01 - 50.00..............................
50.01 - 55.00..............................
55.01 - 60.00..............................
60.01 - 65.00..............................
65.01 - 70.00..............................
70.01 - 75.00..............................
75.01 - 80.00..............................
Total...................................
</TABLE>
DISTRIBUTION OF LTV'S
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Range of LTV's Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.01 - 10.00%..................................
10.01 - 15.00...................................
15.01 - 20.00...................................
20.01 - 25.00...................................
25.01 - 30.00...................................
30.01 - 35.00...................................
35.01 - 40.00...................................
40.01 - 45.00...................................
45.01 - 50.00...................................
50.01 - 55.00...................................
55.01 - 60.00...................................
60.01 - 65.00...................................
65.01 - 70.00...................................
70.01 - 75.00...................................
75.01 - 80.00...................................
Total........................................
</TABLE>
The CLTV's and LTV's shown above were calculated based upon the
appraised values of the Mortgaged Properties at the time of origination (the
"Appraised Values"). No assurance can be given that such Appraised Values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Initial Mortgage Loans. If property values decline
such that the outstanding balances of the Mortgage Loans, together with the
outstanding balances of any senior Mortgage Loans, become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those heretofore experienced by the
Servicer, as set forth above under "The Portfolio of Mortgage Loans," and by the
mortgage lending industry in general.
S-21
<PAGE>
DISTRIBUTION OF JUNIOR LIEN RATIOS
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Junior Lien Ratios Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
10.01 - 20.00%.................................
20.01 - 30.00..................................
30.01 - 40.00..................................
40.01 - 50.00..................................
50.01 - 60.00..................................
60.01 - 70.00..................................
70.01 - 80.00..................................
90.01 - 100.00..................................
Total.........................................
</TABLE>
DISTRIBUTION OF MORTGAGE RATES
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
7.51 - 8.00%............................
8.01 - 8.50.............................
8.51 - 9.00.............................
9.01 - 9.50.............................
9.51 - 10.00.............................
10.01 - 10.50.............................
10.51 - 11.00.............................
11.01 - 11.50.............................
11.51 - 12.00.............................
12.01 - 12.50.............................
12.51 - 13.00.............................
13.01 - 13.50.............................
13.51 - 14.00.............................
14.01 - 14.50.............................
14.51 - 15.00.............................
15.01 - 15.50.............................
15.51 - 16.00.............................
Total....................................
</TABLE>
S-22
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona.........................................
California......................................
Colorado........................................
District of Columbia............................
Florida.........................................
Georgia.........................................
Illinois........................................
Maryland........................................
Massachusetts...................................
Michigan........................................
New Jersey......................................
New York........................................
Ohio............................................
Oregon..........................................
Pennsylvania....................................
Utah............................................
Virginia........................................
Washington......................................
Total......................................
</TABLE>
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Range of Months Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1 - 12..............................
25 - 36...............................
37 - 48...............................
49 - 60...............................
73 - 84...............................
97 - 108................................
109 - 120.................................
121 - 132.................................
157 - 168.................................
169 - 180.................................
229 - 240.................................
313 - 324.................................
337 - 348.................................
349 - 360.................................
Total....................................
</TABLE>
S-23
<PAGE>
DISTRIBUTION OF PRINCIPAL BALANCES
Fixed Rate Group
<TABLE>
<CAPTION>
Number of
Initial Aggregate % of Aggregate
Range of Mortgage Unpaid Unpaid
Principal Balances Loans Principal Balance Principal Balance
- ------------------ ----- ----------------- -----------------
<S> <C> <C> <C>
$ 5,000.01 - 10,000.00 . . . . . . . . . . . . . . . . .
10,000.01 - 15,000.00 . . . . . . . . . . . . . . . . .
15,000.01 - 20,000.00 . . . . . . . . . . . . . . . . .
20,000.01 - 25,000.00 . . . . . . . . . . . . . . . . .
25,000.01 - 30,000.00 . . . . . . . . . . . . . . . . .
30,000.01 - 35,000.00 . . . . . . . . . . . . . . . . .
35,000.01 - 40,000.00 . . . . . . . . . . . . . . . . .
40,000.01 - 45,000.00 . . . . . . . . . . . . . . . . .
45,000.01 - 50,000.00 . . . . . . . . . . . . . . . . .
50,000.01 - 55,000.00 . . . . . . . . . . . . . . . . .
55,000.01 - 60,000.00 . . . . . . . . . . . . . . . . .
60,000.01 - 65,000.00 . . . . . . . . . . . . . . . . .
65,000.01 - 70,000.00 . . . . . . . . . . . . . . . . .
70,000.01 - 75,000.00 . . . . . . . . . . . . . . . . .
75,000.01 - 80,000.00 . . . . . . . . . . . . . . . . .
80,000.01 - 85,000.00 . . . . . . . . . . . . . . . . .
85,000.01 - 90,000.00 . . . . . . . . . . . . . . . . .
90,000.01 - 95,000.00 . . . . . . . . . . . . . . . . .
95,000.01 - 100,000.00 . . . . . . . . . . . . . . . . .
100,000.01 - 125,000.00 . . . . . . . . . . . . . . . . .
125,000.01 - 150,000.00 . . . . . . . . . . . . . . . . .
150,000.01 - 200,000.00 . . . . . . . . . . . . . . . . .
200,000.01 - 250,000.00 . . . . . . . . . . . . . . . . .
250,000.01 - 300,000.00 . . . . . . . . . . . . . . . . .
300,000.01 - 350,000.00 . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
DISTRIBUTION OF PROPERTY TYPES
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family............................................
Two-to-Four Family.......................................
Condominium..............................................
Planned Unit Development.................................
Total...............................................
</TABLE>
S-24
<PAGE>
DISTRIBUTION OF OCCUPANCY STATUS
Fixed Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Occupancy Status Mortgage Loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied........................................
Investor Property ....................................
Second Home...........................................
Total............................................
</TABLE>
Conveyance of Subsequent Mortgage Loans - Fixed Rate Group
The Pooling and Servicing Agreement permits the Trust to acquire
$_____________ in aggregate principal balance of Subsequent Mortgage Loans for
addition to the Fixed Rate Group. Accordingly, the statistical characteristics
of the Mortgage Loan Pool and the Fixed Rate Group will vary as of any
Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage Loans.
Pursuant to the Pooling and Servicing Agreement, however, the Company has
covenanted to deliver Subsequent Mortgage Loans for inclusion in the Fixed Rate
Group that will not materially change the statistical characteristics of the
Mortgage Loan Pool and the Fixed Rate Group.
The obligation of the Trust to purchase Subsequent Mortgage Loans for
addition to the Fixed Rate Group on a Subsequent Transfer Date is subject to the
requirements as defined in the Pooling and Servicing Agreement by the
Certificate Insurer.
Variable Rate Group - Initial Mortgage Loans
All of the Initial Mortgage Loans in the Variable Rate Group are
Actuarial Loans and are secured by first mortgages. All of the Initial Mortgage
Loans in the Variable Rate Group require monthly payments of principal that will
fully amortize such Initial Mortgage Loans by their respective stated maturity
dates. No Initial Mortgage Loan in the Variable Rate Group had a stated maturity
date later than ________ 1, 202_. As of the Cut-Off Date, the aggregate
principal balance of the Initial Mortgage Loans in the Variable Rate Group was
_____% of the aggregate principal balance of such Initial Mortgage Loans at the
times of their origination. As of the Cut-Off Date, substantially all of the
Initial Mortgage Loans in the Variable Rate Group had interest rates which were
not fully indexed (i.e., the entire gross margin has not yet been added to the
rate given by the index).
The Initial Mortgage Loans in the Variable Rate Group had the following
aggregate characteristics as of the Cut-Off Date:
S-25
<PAGE>
Aggregate Number of Initial Mortgage Loans............................
Principal Balance
Aggregate....................................................
Average......................................................
Range........................................................
Current Mortgage Rate
Weighted Average.............................................
Range........................................................
Original Term to Stated Maturity
Weighted Average.............................................
Range........................................................
Remaining Term to Stated Maturity
Weighted Average.............................................
Range........................................................
LTV
Weighted Average ............................................
Range........................................................
Gross Margin
Weighted Average ............................................
Range........................................................
Semi-Annual Rate Adjustment Cap Range.................................
Maximum Mortgage Rate
Weighted Average ............................................
Range........................................................
Minimum Mortgage Rate
Weighted Average ............................................
Range .......................................................
DISTRIBUTION OF LTV's
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Range of LTV's Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.01 - 10.00%.........................................
10.01 - 15.00..........................................
15.01 - 20.00..........................................
20.01 - 25.00..........................................
25.01 - 30.00..........................................
30.01 - 35.00..........................................
35.01 - 40.00..........................................
40.01 - 45.00..........................................
45.01 - 50.00..........................................
50.01 - 55.00..........................................
55.01 - 60.00..........................................
60.01 - 65.00..........................................
65.01 - 70.00..........................................
70.01 - 75.00..........................................
75.01 - 80.00..........................................
80.01 - 85.00..........................................
Total.............................................
</TABLE>
S-26
<PAGE>
The LTV's shown above were calculated based upon the Appraised Values
of the Mortgaged Properties. No assurance can be given that Appraised Values of
the Mortgaged Properties have remained or will remain at their levels on the
dates of origination of the related Initial Mortgage Loans. If property values
decline such that the outstanding balances of the Initial Mortgage Loans become
equal to or greater than the value of the Mortgaged Properties, the actual rates
of delinquencies, foreclosures and losses could be higher than those heretofore
experienced by the Servicer, as set forth above under "The Portfolio of Mortgage
Loans," and by the mortgage lending industry in general.
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Months Mortgage Loans Principal Balance Principal Balance
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
109 - 120.................................................
169 - 180.................................................
229 - 240.................................................
349 - 360.................................................
Total..................................................
</TABLE>
S-27
<PAGE>
DISTRIBUTION OF PRINCIPAL BALANCES
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Principal Balances Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 15,000.01 - 20,000.00 . . . . . . . . . . . . . . . . .
20,000.01 - 25,000.00 . . . . . . . . . . . . . . . . .
25,000.01 - 30,000.00 . . . . . . . . . . . . . . . . .
30,000.01 - 35,000.00 . . . . . . . . . . . . . . . . .
35,000.01 - 40,000.00 . . . . . . . . . . . . . . . . .
40,000.01 - 45,000.00 . . . . . . . . . . . . . . . . .
45,000.01 - 50,000.00 . . . . . . . . . . . . . . . . .
50,000.01 - 55,000.00 . . . . . . . . . . . . . . . . .
55,000.01 - 60,000.00 . . . . . . . . . . . . . . . . .
60,000.01 - 65,000.00 . . . . . . . . . . . . . . . . .
65,000.01 - 70,000.00 . . . . . . . . . . . . . . . . .
70,000.01 - 75,000.00 . . . . . . . . . . . . . . . . .
75,000.01 - 80,000.00 . . . . . . . . . . . . . . . . .
80,000.01 - 85,000.00 . . . . . . . . . . . . . . . . .
85,000.01 - 90,000.00 . . . . . . . . . . . . . . . . .
90,000.01 - 95,000.00 . . . . . . . . . . . . . . . . .
95,000.01 - 100,000.00 . . . . . . . . . . . . . . . . .
100,000.01 - 125,000.00 . . . . . . . . . . . . . . . . .
125,000.01 - 150,000.00 . . . . . . . . . . . . . . . . .
150,000.01 - 200,000.00 . . . . . . . . . . . . . . . . .
200,000.01 - 250,000.00 . . . . . . . . . . . . . . . . .
250,000.01 - 300,000.00 . . . . . . . . . . . . . . . . .
300,000.01 - 350,000.00 . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
DISTRIBUTION OF PROPERTY TYPES
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family............................................
Two-to-Four Family.......................................
Condominium..............................................
Planned Unit Development.................................
Total..........................................
</TABLE>
DISTRIBUTION OF OCCUPANCY STATUS
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Occupancy Status Mortgage Loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Investor Property........................................
Owner Occupied...........................................
Total...............................................
</TABLE>
S-28
<PAGE>
DISTRIBUTION OF CURRENT MORTGAGE RATES
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Current Number of Initial Unpaid Unpaid
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6.51 - 7.00%.......................................
7.01 - 7.50........................................
7.51 - 8.00........................................
8.01 - 8.50........................................
8.51 - 9.00........................................
9.01 - 9.50........................................
9.51 - 10.00........................................
10.01 - 10.50........................................
10.51 - 11.00........................................
11.01 - 11.50........................................
11.51 - 12.00........................................
12.01 - 12.50........................................
12.51 - 13.00........................................
13.51 - 14.00........................................
14.01 - 14.50........................................
Total................................................
</TABLE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
Variable Rate Group
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Maximum Number of Initial Unpaid Unpaid
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
13.51 - 14.00%......................................
14.01 - 14.50.......................................
14.51 - 15.00.......................................
15.01 - 15.50.......................................
15.51 - 16.00.......................................
16.01 - 16.50.......................................
16.51 - 17.00.......................................
17.01 - 17.50.......................................
17.51 - 18.00.......................................
18.01 - 18.50.......................................
18.51 - 19.00.......................................
19.51 - 20.00.......................................
20.01 - 20.50.......................................
Total.............................................
</TABLE>
S-29
<PAGE>
DISTRIBUTION OF MARGINS
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Margins Mortgage Loans Principal Balance Principal Balance
------- -------------- ----------------- -----------------
<S> <C> <C> <C>
3.01 - 4.00%...................................
4.01 - 5.00....................................
5.01 - 6.00....................................
6.01 - 7.00....................................
7.01 - 8.00....................................
8.01 - 9.00....................................
9.01 - 10.00....................................
Total.......................................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
Variable Rate Group
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona..............................................
California...........................................
Colorado.............................................
District of Columbia.................................
Florida..............................................
Georgia..............................................
Idaho................................................
Illinois.............................................
Maryland.............................................
Massachusetts........................................
Michigan.............................................
Minnesota............................................
New Jersey...........................................
New York.............................................
Ohio.................................................
Oregon...............................................
Pennsylvania.........................................
Utah.................................................
Virginia.............................................
Washington...........................................
Total..........................................
</TABLE>
Conveyance of Subsequent Mortgage Loans - Variable Rate Group
The Pooling and Servicing Agreement permits the Trust to acquire
$_____________ in aggregate principal balance of Subsequent Mortgage Loans for
addition to the Variable Rate Group. Accordingly, the statistical
characteristics of the Mortgage Loan Pool and the Variable Rate Group will vary
as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage
Loans. Pursuant to the Pooling and Servicing Agreement, however, the Company has
covenanted to deliver Subsequent Mortgage Loans for inclusion in the Variable
Rate Group that will not materially change the statistical characteristics of
the Mortgage Loan Pool and the Variable Rate Group.
S-30
<PAGE>
The obligation of the Trust to purchase Subsequent Mortgage Loans for
addition to the Variable Rate Group on a Subsequent Transfer Date is subject to
the requirements as defined in the Pooling and Servicing Agreement by the
Certificate Insurer.
Interest Payments on the Mortgage Loans
Each Mortgage Loan provides for monthly payments by the obligor on the
related Note (the "Mortgagor") according to the actuarial method ("Actuarial
Loans"). Actuarial loans provide that interest is charged to the Mortgagors
thereunder, and payments are due from such Mortgagors, as of a scheduled day of
each month which is fixed at the time of origination. Scheduled monthly payments
made by the Mortgagors on the actuarial loans either earlier or later than the
scheduled due dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effects on the yield on the
Fixed Rate Certificates resulting from the timing of the settlement date and
those considerations discussed below under "Payment Delay Feature of Fixed Rate
Certificates"), the yield to maturity on an Offered Certificate will be directly
related to the rate of payment of principal of the Mortgage Loans in the related
Mortgage Loan Group, including for this purpose voluntary payment in full of
Mortgage Loans in the related Mortgage Loan Group prior to stated maturity (a
"Prepayment"), liquidations due to defaults, casualties and condemnations, and
repurchases of Mortgage Loans in the related Mortgage Loan Group by the Company
or by the Certificate Insurer. The actual rate of principal prepayments on pools
of mortgage loans is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of mortgage loans at any time because of specific factors relating to the
mortgage loans in the particular pool, including, among other things, the age of
the mortgage loans, the geographic locations of the properties securing the
loans, the extent of the mortgagors' equity in such properties, and changes in
the mortgagors' housing needs, job transfers and unemployment.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Class A Certificates will not be offset by a subsequent like reduction
(or increase) in the rate of principal prepayments. Investors must make their
own decisions as to the appropriate prepayment assumptions to be used in
deciding whether to purchase any of the Class A Certificates. The Company does
not make any representations or warranties as to the rate of prepayment or the
factors to be considered in connection with such determination.
Mandatory Prepayment
In the event that at the end of the Funding Period, not all of the
Original Pre-Funded Amount has been used to acquire Subsequent Mortgage Loans
for inclusion in the Fixed Rate Group or the Variable Rate Group, then the
Owners of the Fixed Rate Certificates and/or Variable Rate Certificates then
entitled to payments of principal will receive a partial prepayment on the
Payment Date in _______ 199_.
Although no assurances can be given, the Company expects that the
principal amount of Subsequent Mortgage Loans sold to the Trust for inclusion in
the Fixed Rate Group and the Variable Rate Group will require the application of
substantially all the amount on deposit in the Pre-Funding Account and that
there should be no material principal prepaid to the Owners of the Fixed Rate
Certificates or Variable Rate Certificates.
Projected Prepayments and Yields for Offered Certificates
If purchased at other than par, the yield to maturity on an Offered
Certificate will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in a Mortgage Loan Group is slower than the rate
anticipated by an investor who purchases an Offered Certificate of the related
Class at a discount, the actual yield to such investor will be lower than such
investor's anticipated yield. If the actual rate of payments on the Mortgage
Loans in a Mortgage Loan Group is faster than the rate anticipated by an
investor who purchases an Offered Certificate of the related Class at a premium,
the actual yield to such investor will be lower than such investor's anticipated
yield.
S-31
<PAGE>
All of the Mortgage Loans in the Fixed Rate Group are fixed rate
Mortgage Loans. The rate of prepayments with respect to conventional fixed rate
mortgage loans has fluctuated significantly in recent years. In general, if
prevailing interest rates fall significantly below the interest rates on fixed
rate mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rates
on such mortgage loans. However, the monthly payment on a home equity or home
improvement loan is often smaller than the monthly payment on a purchase money
first mortgage loan. Because of the smaller loan balance on a refinancing, a
decrease in the interest rate payable results in a smaller reduction in the
amount of the Mortgagor's monthly payment. Conversely, if prevailing interest
rates rise appreciably above the interest rates on fixed rate mortgage loans,
such mortgage loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below the interest rates on such mortgage loans.
All of the Mortgage Loans in the Variable Rate Group are adjustable
rate mortgage loans. As is the case with conventional fixed rate mortgage loans,
adjustable rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable rate mortgage loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their adjustable rate
mortgage loans to a lower fixed interest rate. However, no assurance can be
given as to the level of prepayments that the Mortgage Loans will experience.
The Company does not believe that data compiled by Fannie Mae or FHLMC is
representative of the types of borrowers included in the Company's lending
program and cannot assure that such prepayment experience is relevant to the
Mortgage Loans contained in the Variable Rate Group.
As described under "Mortgage Loan Program" in the Prospectus, in
addition to direct origination, the Company also purchases pools of Mortgage
Loans from Originators. The Company has a policy of soliciting certain of the
Mortgagors from time to time with respect to such purchased Mortgage Loans for
refinancing. If any such Mortgage Loans are refinanced as a result, the
prepayment level of the related Mortgage Loan Group may be increased over the
level which such Mortgage Loan Group would experience in the absence of such
solicitations.
The prepayment behavior of the 2/28 Loans, 3/27 Loans and 5/25 Loans
may differ from that of the other Mortgage Loans in the Variable Rate Group. As
a 2/28 Loan, 3/27 Loan or 5/25 Loan approaches its initial adjustment date, the
borrower may become more likely to refinance such loan to avoid an increase in
the coupon rate, even if fixed rate loans are only available at rates that are
slightly lower or higher than the coupon rate before adjustment. The existence
of the applicable periodic rate cap, lifetime cap and lifetime floor also may
affect the likelihood of prepayments resulting from refinancings. In addition,
the delinquency and loss experience on the Mortgage Loans in the Variable Rate
Group may differ from that on the Mortgage Loans in the Fixed Rate Group because
the amount of the monthly payments on the Mortgage Loans in the Variable Rate
Group are subject to adjustment on each adjustment date.
The "Last Scheduled Payment Date" for each Class of the Fixed Rate
Certificates is as follows: Class A-1 Certificates, _____ __, 202_ and Class A-2
Certificates,______ __, 202_. The Last Scheduled Payment Date for the Class A-1
Certificates was calculated using the Modeling Assumptions and further assuming
that no prepayments are received on the Mortgage Loans and that no Net Monthly
Excess Spread will be used to make accelerated payments of principal (i.e.,
Subordinated Increase Amounts) to Owners of the Class A-1 Certificates. The Last
Scheduled Payment Date for the Class A-2 Certificates is the Payment Date in the
month following the calendar month of maturity of the latest possible maturing
Initial Mortgage Loan in the Fixed Rate Mortgage Loan Group, plus 13 months. The
Last Scheduled Payment Date for the Class A-3 Certificates is ________ __, 202_
notwithstanding that certain Mortgage Loans in the Variable Rate Group have
scheduled payment dates that occur after such Last Scheduled Payment Date. The
weighted average life of each Class of Class A Certificates is likely to be
shorter, and the actual final Payment Date with respect to each Class of Class A
Certificates could occur significantly earlier than the Last Scheduled Payment
Date because (i) Prepayments are likely to occur which shall be applied to the
payment of the Class A Principal Balances, (ii) Net Monthly Excess Spread to the
extent available will be applied as an accelerated payment of principal on the
Class A Certificates up to the Specified Subordinated Amount for each Class and
(iii) the Servicer or, in limited circumstances, the Certificate Insurer, may
cause a termination of the Trust when the aggregate outstanding principal
balance of the Mortgage Loans in the Trust has declined to 10% or less of the
Maximum Collateral Amount.
<PAGE>
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement with
respect to the Fixed Rate Group is the Home Equity Prepayment ("HEP")
assumption. HEP assumes that a pool of loans prepays in the first month of the
life of such loan at a constant prepayment rate that corresponds in CPR (as
defined below) to one-tenth the given HEP percentage and increases by an
additional one-tenth each month thereafter until the tenth month, where it
remains at a CPR equal to the given HEP percentage. The model used in this
Prospectus Supplement with respect to the Variable Rate Group is the Constant
Prepayment Rate ("CPR") assumption. The CPR represents an assumed constant rate
of prepayment each month, expressed as an annual rate, relative to the then
outstanding principal balance on a pool of new mortgage loans for the
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<PAGE>
life of such Mortgage Loans. Neither model purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans. The
Company believes that no existing statistics of which it is aware provide a
reliable basis for Owners of Class A Certificates to predict the amount or the
timing of receipt of prepayments on the Mortgage Loans.
The tables entitled "Weighted Average Lives" have been prepared on the
basis of the following assumptions (collectively, the "Modeling Assumptions"):
(i) the Mortgage Loans of the related Mortgage Loan Groups prepay at the
indicated HEP or CPR; (ii) distributions on the Offered Certificates are
received, in cash, on the 20th day of each month, commencing in _______ 199_;
(iii) no defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Mortgagors of principal and interest on the
Mortgage Loans occur; (iv) scheduled payments are assumed to be received on the
first day of each month commencing in _______ 199_ (or as set forth in the
following table) and prepayments represent payment in full of individual
Mortgage Loans and are assumed to be received on the last day of each month,
commencing in ________ 199_ (or as set forth in the following table) and include
30 days' interest thereon; (v) the level of Six-Month LIBOR remains constant at
______% (vi) the Class A-3 Pass-Through Rate remains constant at _____% per
annum; (vii) the Offered Certificates are purchased on ________ __, 199_; (viii)
the Mortgage Rate for each Mortgage Loan in the Variable Rate Group is adjusted
on its next Mortgage Rate change date (and on subsequent Mortgage Rate change
dates, if necessary) to equal the sum of (a) the assumed level of the Six- Month
LIBOR index and (b) the respective gross margin (such sum being subject to the
respective periodic adjustment, as applicable); and (ix) each Mortgage Loan
Group consists of Mortgage Loans having the following characteristics:
FIXED RATE GROUP
Initial and Subsequent Mortgage Loans
<TABLE>
<CAPTION>
Remaining
Mortgage Term to
Principal Mortgage Rate Net of Stated Maturity Seasoning
Balance Rate Servicing Fee (in months) (in months)
------- ---- ------------- ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
VARIABLE RATE GROUP
Initial and Subsequent Mortgage Loans
<TABLE>
<CAPTION>
Number of
Remaining Months to
Current Term to Next
Current Mortgage Stated Mortgage Periodic
Principal Mortgage Rate Net of Maturity Seasoning Gross Rate Change Adjustment
Balance Rate Servicing Fee (in months) (in months) Margin (in months) Cap
------- ---- ------------- ----------- ----------- ------ ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
of such Certificate will be repaid to the investor. The weighted average life of
the Class A Certificates will be influenced by the rate at which principal
payments on the Mortgage Loans in the related Mortgage Loan Group are paid,
which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes prepayments, liquidations due to default
or early termination of the Trust). The weighted average lives of the Class A
Certificates also will be influenced by the overcollateralization of the Class A
Certificates because collections otherwise payable to the Subordinate
Certificates are applied as principal prepayments to the Class A Certificates
until the outstanding aggregate principal balance of the Class A Certificates is
less than the aggregate outstanding principal balance of the Mortgage Loans in
each Mortgage Loan Group by the Specified Subordinated
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<PAGE>
Amount for such Group. These prepayments have the effect of accelerating the
amortization of the Class A Certificates, thereby shortening their respective
weighted average lives.
Based on the foregoing Modeling Assumptions, the tables below indicate
the weighted average life of each Class of the Offered Certificates, assuming
that the Mortgage Loans in the related Mortgage Loan Group prepay according to
the indicated percentages of the related Prepayment Assumption:
PREPAYMENT ASSUMPTIONS
<TABLE>
<CAPTION>
Assumption I Assumption II Assumption III Assumption IV Assumption V
------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Fixed Rate Group (HEP):
Variable Rate Group (CPR):
</TABLE>
WEIGHTED AVERAGE LIVES
Class A-1
Weighted
Prepayment Average Life Earliest Retirement
Assumption (years)(1) Date(1)
- ---------- ---------- -------
I . . . . . . . . . . . . . . . . . . . . . . .
II . . . . . . . . . . . . . . . . . . . . . . .
III . . . . . . . . . . . . . . . . . . . . . . .
IV . . . . . . . . . . . . . . . . . . . . . . .
V . . . . . . . . . . . . . . . . . . . . . . .
Class A-2
Weighted
Prepayment Average Life Earliest Retirement
Assumption (years)(1) Date(1)
- ---------- ---------- -------
I . . . . . . . . . . . . . . . . . . . . . . .
II . . . . . . . . . . . . . . . . . . . . . . .
III . . . . . . . . . . . . . . . . . . . . . . .
IV . . . . . . . . . . . . . . . . . . . . . . .
V . . . . . . . . . . . . . . . . . . . . . . .
Class A-3
Weighted
Prepayment Average Life Earliest Retirement
Assumption (years)(1) Date(1)
- ---------- ---------- -------
I . . . . . . . . . . . . . . . . . . . . . . .
II . . . . . . . . . . . . . . . . . . . . . . .
III . . . . . . . . . . . . . . . . . . . . . . .
IV . . . . . . . . . . . . . . . . . . . . . . .
V . . . . . . . . . . . . . . . . . . . . . . .
- ------------
(1) Assuming early termination of the Trust at the Clean-Up Call Date.
There is no assurance that prepayments will occur, or, if they do
occur, that they will occur at any constant percentage or in accordance with any
of the aforementioned Prepayment Assumptions.
Payment Delay Feature of Fixed Rate Certificates
The effective yield to the Owners of the Fixed Rate Certificates will
be lower than the yield otherwise produced by the related Fixed Rate Certificate
Pass-Through Rate and the purchase price of such Certificates because principal
and interest distributions will not be payable to such holders until at least
the twentieth day of the month following the month of accrual (without any
additional distributions of interest or earnings thereon in respect of such
delay).
S-34
<PAGE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the mortgage pool and
the Mortgaged Properties is based upon the pool of Initial Mortgage Loans as
constituted at the close of business on the Cut-Off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Offered Certificates, Initial Mortgage Loans may be removed from the
mortgage pool as a result of incomplete documentation or non-compliance with
representations and warranties set forth in the Pooling and Servicing Agreement,
if the Company deems such removal necessary or appropriate. A limited number of
other mortgage loans may be included in the mortgage pool prior to the issuance
of the Offered Certificates.
A current report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed and incorporated by reference to the
Registration Statement, together with the Pooling and Servicing Agreement with
the Commission within fifteen days after the initial issuance of the Offered
Certificates. In the event Initial 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 current report on Form 8-K. Also, the Company has
filed certain additional yield tables and other computational materials with
respect to the Fixed Rate Certificates and the Variable Rate Certificates with
the Commission in a report on Form 8-K. Such tables and materials were prepared
at the request of certain prospective investors, based on assumptions provided
by, and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the Modeling
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The Certificates will consist of the Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates and the Class R Certificates. The
Certificates will be issued by First Alliance Mortgage Loan Trust 199_-_, a
trust to be organized under the laws of the State of New York. Only the Offered
Certificates are offered hereby. The Subordinate Certificates will be retained
by the Company, and are not being offered hereby. The Offered Certificates
together with the Subordinate Certificates are herein referred to as the
"Certificates."
Persons in whose name a Certificate is registered in the Register
maintained by the Trustee are the "Owners" of the Certificates. For so long as
the Offered Certificates are in book-entry form with DTC, the only "Owner" of
the Offered Certificates as the term "Owner" is used in the Pooling and
Servicing Agreement will be Cede. No Owners will be entitled to receive a
definitive certificate representing such person's interest in the Trust, except
in the event that physical Certificates are issued under limited circumstances
set forth in the Pooling and Servicing Agreement. All references herein to the
Owners of Offered Certificates shall mean and include the rights of Owners as
such rights may be exercised through DTC and its participating organizations,
except as otherwise specified in the Pooling and Servicing Agreement.
As described in "The Mortgage Loan Pool" herein, the Mortgage Loan Pool
is divided into the Fixed Rate Group, which contains first and junior lien
Mortgage Loans having fixed rates of interest and the Variable Rate Group, which
contains first lien Mortgage Loans having variable rates of interest. For each
Mortgage Loan Group, the related Class of Class A Certificates will evidence the
right to receive on each Payment Date the Class A Distribution Amount for such
Class of Class A Certificates, in each case until the related Certificate
Principal Balance has been reduced to zero. The Owners of the Subordinate
Certificates will be entitled to receive distributions of residual Net Monthly
Excess Cashflow.
One-hundred percent of the Class A Distribution Amount due to the
Owners of each Class of the Class A Certificates on each Payment Date is insured
by the Certificate Insurer pursuant to the Certificate Insurance Policies.
See "The Certificate Insurance Policies and the Certificate Insurer" herein.
Payment Dates
The Pooling and Servicing Agreement will require that the Trustee
create and maintain a Certificate Account, to be established as a trust account
held by the trust department of the Trustee (the "Certificate Account"). All
funds in the Certificate Account shall be invested and reinvested by the Trustee
for the benefit of the related Owners and Certificate Insurer, as directed by
the Servicer, in Eligible Investments.
One business day prior to the related Payment Date (or, if such day is
not a business day, the immediately preceding business day) (the "Remittance
Date") the Servicer is required to withdraw from the Principal and Interest
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<PAGE>
Account and remit to the Trustee, for deposit in the Certificate Account, the
Monthly Remittance Amount for the related Mortgage Loan Group. The Monthly
Remittance Amount for a Mortgage Loan Group is equal to (a) the sum of (i) the
balance on deposit in the Principal and Interest Account as of the close of
business on the related Determination Date, (ii) all Delinquency Advances and
Compensating Interest (collectively, the "Advances") and (iii) certain amounts
required to be deposited by the Servicer in the Certificate Account, including
Loan Purchase Prices and Substitution Amounts, reduced by (b) the sum of (i)
scheduled payments on the Mortgage Loans collected but due after the related Due
Date, (ii) reinvestment income on amounts in the Principal and Interest Account,
(iii) all amounts reimbursable to the Servicer and (iv) any unscheduled
payments, including Mortgagor prepayments on the Mortgage Loans, Insurance
Proceeds and Net Liquidation Proceeds occurring in the month of such Payment
Date. With respect to any Payment Date, (i) the Due Date is the first day of the
month in which such Payment Date occurs, and (ii) the Determination Date is the
12th day of the month in which such Payment Date occurs or, if such day is not a
business day, the immediately preceding business day. "Remittance Period" means,
the period beginning on the first day of the calendar month immediately
preceding the month in which the related Remittance Date occurs and ending on
the last day of such month. See "The Pooling and Servicing Agreement Servicing
and Other Compensation and Payment of Expenses; Originator's Retained Yield" in
the Prospectus.
The Compensating Interest for any Payment Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
net Mortgage Rates) resulting from principal prepayments in full on the Mortgage
Loans received in the corresponding Remittance Period. Such shortfalls will
result because interest on prepayments in full is distributed only to the date
of prepayment. The Servicer will be obligated to apply amounts otherwise payable
to it as servicing compensation in any month to cover any shortfalls in
collections of one full month's interest at the applicable net Mortgage Rate
resulting from principal prepayments in full. The Servicer is not obligated to
cover any shortfalls in collections of interest for prepayments in part. Such
prepayments in part are applied to reduce the outstanding principal balance of
the related Mortgage Loan as of the Due Date in the month of prepayment.
Distributions
Distributions on the Certificates will be made on each Payment Date to
Owners of record of the Certificates as of the immediately preceding Record Date
in an amount equal to the product of such Owner's Percentage Interest and the
amount distributed in respect of such Owner's Class of such Certificates on such
Payment Date. The "Percentage Interest" represented by any Offered Certificate
will be equal to the percentage obtained by dividing the Original Certificate
Principal Balance of such Offered Certificate by the Original Certificate
Principal Balance of all Certificates of the same Class.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Spread with respect to a Mortgage Loan Group be applied on such Payment Date as
an accelerated payment of principal on the related Class(es) of Class A
Certificates, but only to the limited extent hereafter described. The Net
Monthly Excess Spread equals (i) the excess (such excess being the "Total
Monthly Excess Spread" with respect to the related Mortgage Loan Group), if any,
of (x) the interest which is collected on the Mortgage Loans in such Mortgage
Loan Group during a Remittance Period and with respect to Due Dates occurring in
the month in which such Payment Date occurs (net of the Servicing Fee and of
certain miscellaneous administrative amounts) plus the interest portion of any
Delinquency Advances and Compensating Interest over (y) the sum of (I) the Class
A Current Interest on the related Class(es) of Class A Certificates and (II) the
premiums due to the Certificate Insurer with respect to the related Certificate
Insurance Policy and the fees due to the Trustee, minus (ii) any portion of the
Total Monthly Excess Spread which is used to cover any shortfalls in Available
Funds on such Payment Date in the related Mortgage Loan Group, or in the other
Mortgage Loan Group, or used to reimburse the Certificate Insurer on account of
prior Insured Payments.
Pursuant to the Pooling and Servicing Agreement, each Mortgage Loan
Group's Net Monthly Excess Spread is required to be applied as a payment of
principal on the related Class(es) of Class A Certificates until the related
Subordinated Amount has increased to the level required with respect to the
related Mortgage Loan Group. "Subordinated Amount" means, with respect to any
Mortgage Loan Group and Payment Date, the difference, if any, between (x) the
sum of (i) the aggregate principal balances of the Mortgage Loans in such
Mortgage Loan Group as of the close of business on the last day of the preceding
Remittance Period after taking into account payments of scheduled principal on
the Mortgage Loans due on the Due Date which immediately follows the last day of
such Remittance Period and (ii) any amount on deposit in the Pre-Funding Account
less any Pre-Funding Account Earnings at such time and (y) the Class A Principal
Balance of the related Class(es) of Class A Certificates as of such Payment Date
(and assuming all distributions are made on such Payment Date). With respect to
either Mortgage Loan Group, any amount of Net Monthly Excess Spread actually
applied as a payment of principal is a "Subordination Increase Amount". The
required level of the Subordinated Amount with respect to a Mortgage Loan Group
and Payment Date is the "Specified
S-36
<PAGE>
Subordinated Amount" with respect to such Mortgage Loan Group and Payment Date.
The Pooling and Servicing Agreement generally provides that the related
Specified Subordinated Amount may, over time, decrease, or increase, subject to
certain floors, caps and triggers.
To the extent that any Mortgage Loan Group's Net Monthly Excess Spread
is not required to be applied to the payment of a Subordination Increase Amount
on the related Class(es) of Class A Certificates because the Subordinated Amount
related to such Class is equal to or greater than the then Specified
Subordinated Amount related to such Class(es), such Net Monthly Excess Spread
(together with the amount of any Subordination Reduction Amount, as described in
the second succeeding paragraph) is permitted to be applied to the payment of
Subordination Increase Amounts on the other Class(es) of Class A Certificates to
the extent necessary to increase the related Subordinated Amount to the level of
its Specified Subordinated Amount.
The application of Net Monthly Excess Spread to principal has the
effect of accelerating the amortization of the related Class of Class A
Certificates relative to the amortization of the Mortgage Loans in the related
Mortgage Loan Group. To the extent that any Net Monthly Excess Spread is not so
used, the Pooling and Servicing Agreement provides that it will be used to
reimburse the Servicer or Trustee with respect to any amounts owing to each, or
paid to the Owners of the Subordinated Certificates.
In the event that the required level of the Specified Subordinated
Amount with respect to a Mortgage Loan Group is permitted to decrease or "step
down" on a Payment Date in the future, the Pooling and Servicing Agreement
provides that a portion of the principal which would otherwise be distributed to
the Owners of the related Class(es) of Class A Certificates on such Payment Date
shall be distributed to the Owners of the Subordinated Certificates on such
Payment Date. This has the effect of decelerating the amortization of the
related Class(es) of Class A Certificates relative to the amortization of the
Mortgage Loans in the related Mortgage Loan Group, and of reducing the related
Subordinated Amount. "Excess Subordinated Amount" means, with respect to any
Mortgage Loan Group and Payment Date, the difference, if any, between (x) the
Subordinated Amount that would apply to the related Mortgage Loan Group on such
Payment Date after taking into account all distributions to be made on such
Payment Date (except for any distributions of related Subordination Reduction
Amounts as described in this paragraph) and (y) the related Specified
Subordinated Amount for such Payment Date. If, on any Payment Date, the Excess
Subordinated Amount is, or, after taking into account all other distributions to
be made on such Payment Date would be, greater than zero (i.e., the Subordinated
Amount is or would be greater than the related Specified Subordinated Amount),
then any amounts relating to principal which would otherwise be distributed to
the Owners of the related Class(es) of Class A Certificates on such Payment Date
shall instead be distributed to the Owners of the Subordinated Certificates
(subject to certain other prior applications as described below under
"Crosscollateralization Provisions") in an amount equal to the lesser of (x) the
Excess Subordinated Amount and (y) the amount available for distribution on
account of principal with respect to the related Class(es) of Class A
Certificates on such Payment Date; such amount being the "Subordination
Reduction Amount" with respect to the related Mortgage Loan Group for such
Payment Date. As a technical matter regarding the cash flow structure of the
Trust, Subordination Reduction Amounts may result even prior to the occurrence
of any decrease or "step down" in the related Specified Subordinated Amount.
This is because the Owners of the related Class(es) of Class A Certificates will
generally be entitled to receive 100% of collected principal, even though the
related Class A Principal Balances will, following the accelerated amortization
resulting from the application of the Net Monthly Excess Spread, represent less
than 100% of the related Mortgage Loan Group's aggregate scheduled principal
balance. In the absence of the provisions relating to Subordination Reduction
Amounts, the foregoing may otherwise increase the Subordinated Amounts above
their Specified Subordinated Amount requirements even without the further
application of any Net Monthly Excess Spread.
<PAGE>
The Pooling and Servicing Agreement provides that, on any Payment Date
all amounts (subject to the discussion in the preceding paragraph) collected on
account of principal (including the principal portion of any Delinquency
Advances and other than any such amount applied to the payment of a
Subordination Reduction Amount) with respect to a Mortgage Loan Group during the
prior Remittance Period together with principal due on the Due Date which
immediately follows the last day of such Remittance Period will be distributed
to the Owners of the related Class(es) of Class A Certificates on such Payment
Date. If any Mortgage Loan became a Liquidated Mortgage Loan during such prior
Remittance Period, the Net Liquidation Proceeds related thereto and allocated to
principal may be less than the principal balance of the related Mortgage Loan;
the amount of any such insufficiency is a "Realized Loss." In addition, the
Pooling and Servicing Agreement provides that, the principal balance of any
Mortgage Loan which becomes a Liquidated Mortgage Loan shall thenceforth equal
zero. The Pooling and Servicing Agreement does not contain any rule which
requires that the amount of any Realized Loss be distributed to the Owners of
the related Class(es) of Class A Certificates on the Payment Date which
immediately follows the event of loss; i.e., the Pooling and Servicing Agreement
does not require the current recovery of losses. However, the occurrence of a
Realized Loss will reduce the Subordinated Amount with respect to the related
Mortgage Loan Group, which, to the extent that such reduction causes the
Subordinated Amount to be less than the related Specified Subordinated Amount
applicable to the related Payment Date, will require the payment of a
Subordination Increase Amount on such Payment Date (or, if
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insufficient funds are available on such Payment Date, on subsequent Payment
Dates, until the Subordinated Amount equals the related Specified Subordinated
Amount). The effect of the foregoing is to allocate losses to the Owners of the
Subordinated Certificates by reducing, or eliminating entirely, payments of
Monthly Excess Cash Flow and of Subordination Reduction Amounts which such
Owners would otherwise receive.
Overcollateralization and the Certificate Insurance Policies. The
Pooling and Servicing Agreement defines a "Subordination Deficit" with respect
to a Mortgage Loan Group and Payment Date to be the amount, if any, by which (x)
the Certificate Principal Balance of the related Class(es) of Class A
Certificates, after taking into account all distributions to be made on such
Payment Date, exceeds (y) the sum of (i) the aggregate principal balances of the
Mortgage Loans in the related Mortgage Loan Group as of the close of business on
the Due Date which immediately follows the last day of the prior Remittance
Period and (ii) the amount, if any, on deposit in the Pre-Funding Account less
any Pre-Funding Account Earnings on the last day of the related Remittance
Period. The Pooling and Servicing Agreement requires the Trustee to make a claim
for an Insured Payment under the related Certificate Insurance Policy not later
than the Business Day prior to any Payment Date as to which the Trustee has
determined that a Subordination Deficit will occur for the purpose of applying
the proceeds of such Insured Payment as a payment of principal to the Owners of
the related Class(es) of Class A Certificates on such Payment Date. The
Certificate Insurance Policies are thus similar to the subordination provisions
described above insofar as the Certificate Insurance Policies guarantee
ultimate, rather than current, payment of the amounts of any Realized Losses to
the Owners of the related Class(es) of Class A Certificates. Investors in the
Class A Certificates should realize that, under extreme loss or delinquency
scenarios applicable to the related Mortgage Loan Pool, they may temporarily
receive no distributions of principal.
Crosscollateralization Provisions
On each Payment Date, an amount equal to the sum of (x) the Total
Monthly Excess Spread with respect to each Mortgage Loan Group and Payment Date
plus (y) any Subordination Reduction Amount with respect to each such Mortgage
Loan Group and Payment Date (such amount being the "Total Monthly Excess
Cashflow" with respect to such Mortgage Loan Group and Payment Date) will be
required to be applied in the following order of priority:
(i) such amount shall be used to fund any shortfall on
such Payment Date with respect to the related Mortgage Loan Group and
equal to the difference, if any, between (x) the related Class A
Distribution Amount (calculated only with respect to clause (y) of the
definition thereof and without any Subordination Increase Amount) with
respect to such Mortgage Loan Group for such Payment Date and (y) the
Available Funds with respect to such Mortgage Loan Group for such
Payment Date (the amount of such difference being equal to an
"Available Funds Shortfall" with respect to the related Mortgage Loan
Group);
(ii) any portion of the Total Monthly Excess Cashflow
with respect to such Mortgage Loan Group remaining after the
application described in clause (i) above shall be used to fund any
Available Funds Shortfall with respect to the other Mortgage Loan
Group;
(iii) any portion of the Total Monthly Excess Cashflow
with respect to such Mortgage Loan Group remaining after the
applications described in clauses (i) and (ii) above shall be paid to
the Certificate Insurer in respect of amounts owed on account of any
Insured Payments theretofore made and interest thereon with respect to
the related Mortgage Loan Group (any such amount so owed to the
Certificate Insurer and not theretofore paid, together with accrued
interest thereon, the "Insurer Reimbursable Amount" with respect to the
related Mortgage Loan Group); and
(iv) any portion of the Total Monthly Excess Cashflow
with respect to such Mortgage Loan Group remaining after the
applications described in clauses (i), (ii) and (iii) above shall be
paid to the Certificate Insurer in respect of any Insurer Reimbursable
Amount with respect to the other Mortgage Loan Group.
The amount, if any, of the Total Monthly Excess Cashflow with respect to a
Mortgage Loan Group on a Payment Date remaining after such applications is the
"Net Monthly Excess Cashflow" with respect to such Mortgage Loan Group for such
Payment Date; such amount is required to be applied in the following order of
priority on such Payment Date:
(i) such amount shall be used to fund the payment of
any required Subordination Increase Amount with respect to the related
Mortgage Loan Group as a portion of the distribution of the Class A
Principal Distribution Amount on such Payment Date;
(ii) any portion of the Net Monthly Excess Cashflow
remaining after the application described in clause (i) above shall be
used first, to make any required Subordination Increase Amount with
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respect to the other Mortgage Loan Group and second, to pay any
Available Funds Cap Carry-Forward Amount; and
(iii) any remaining Net Monthly Excess Cashflow may then
be used to reimburse the Servicer and the Trustee for certain amounts
owing to each, or may be paid to the Owners of the Subordinated
Certificates.
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policies is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policies to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
Class A Distributions and Insured Payments to the Owners of the Offered
Certificates
No later than three Business Days prior to each Payment Date the
Trustee will be required to determine the amounts to be on deposit in the
Certificate Account on such Payment Date with respect to each of the two
Mortgage Loan Groups and equal to the sum of (x) such amounts excluding the
amount of any Total Monthly Excess Cashflow amounts included in such amounts,
plus (y) any amounts of Total Monthly Excess Cashflow (as described above under
"Crosscollateralization Provisions") to be applied on account of such Mortgage
Loan Group on such Payment Date plus, (z) any deposit to the Certificate Account
from the Pre-Funding Account and Capitalized Interest Account expected to be
made in accordance with the Pooling and Servicing Agreement. The amounts
described in clause (x) of the preceding sentence with respect to each Mortgage
Loan Group and Payment Date are the "Fixed Rate Group Available Funds" and the
"Variable Rate Group Available Funds", respectively or, generally, "Available
Funds;" the sum of the amounts described in clauses (x), (y) and (z) of the
preceding sentence with respect to each Mortgage Loan Group and Payment Date are
the "Fixed Rate Group Total Available Funds" and the "Variable Rate Group Total
Available Funds," respectively, or, generally, "Total Available Funds." If the
sum of the Class A Distribution Amounts with respect to the Fixed Rate
Certificates, for any Payment Date exceeds the Fixed Rate Group Total Available
Funds for such Payment Date, the Trustee will be required to draw the amount of
such insufficiency from the Certificate Insurer under the Certificate Insurance
Policy applicable to the Fixed Rate Certificates. Similarly, if on any Payment
Date the Class A Distribution Amount with respect to the Variable Rate
Certificates exceeds the Variable Rate Group Total Available Funds for such
Payment Date, the Trustee will be required to draw the amount of such
insufficiency from the Certificate Insurer under the Certificate Insurance
Policy applicable to the Variable Rate Certificates. The Trustee will be
required to deposit to the Certificate Account the amount of any Insured Payment
made by the Certificate Insurer. The Pooling and Servicing Agreement provides
that amounts which cannot be distributed to the Owners of the Offered
Certificates as a result of proceedings under the United States Bankruptcy Code
or similar insolvency laws will not be considered in determining the amount of
Total Available Funds with respect to any Payment Date.
On each Payment Date, and following the making by the Trustee of all
allocations, transfers and deposits heretofore described under this caption,
from amounts (including any related Insured Payment) then on deposit in the
Certificate Account with respect to the related Mortgage Loan Group, the Trustee
will be required to distribute (x) to the Owners of the Fixed Rate Certificates,
the related Class A Distribution Amount for such Payment Date and (y) to the
Owners of the Variable Rate Certificates, the related Class A Distribution
Amount for such Payment Date, together with any portion of any Available Funds
Cap Carry-Forward Amount to be funded on such Payment Date.
Pre-Funding Account
On the Closing Date, the Original Pre-Funded Amount will be deposited
in the Pre-Funding Account, which account shall be in the name of and maintained
by the Trustee and shall be part of the Trust. During the Funding Period, the
Pre-Funded Amount will be maintained in the Pre-Funding Account. The Original
Pre-Funded Amount will be reduced during the Funding Period by the amount
thereof used to purchase Subsequent Mortgage Loans for addition to the Fixed
Rate Group or the Variable Rate Group in accordance with the Pooling and
Servicing Agreement. Any Pre- Funded Amount remaining at the end of the Funding
Period will be distributed to the Owners of the Class or Classes of the Offered
Certificates then entitled to receive principal in accordance with the terms of
the Pooling and Servicing Agreement on the Payment Date that immediately follows
the end of the Funding Period in reduction of the Certificate Principal Balance
of such Owner's Certificates, thus resulting in a principal prepayment of such
Class of Certificates.
Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interest and any other investment earnings on amounts
on deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account prior to each Payment Date during the Funding Period. The
Pre-Funding Account will not be an asset of the REMIC.
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Capitalized Interest Account
On the Closing Date, cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Trustee and
shall be part of the Trust. The amount on deposit in the Capitalized Interest
Account, including reinvestment income thereon and amounts deposited thereto
from the Pre-Funding Account, will be used by the Trustee to fund the excess, if
any, of (i) the sum of (a) the aggregate amount of interest accruing at the
weighted average Pass-Through Rate on the Offered Certificates on the amount by
which the aggregate Certificate Principal Balance of the Offered Certificates
exceeds the aggregate principal balance of the Initial Mortgage Loans plus (b)
the Trustee fees over (ii) the amount of any Pre-Funding Account Earnings; such
amounts on deposit will be so applied by the Trustee on each Payment Date in the
Funding Period to fund such excess, if any. Any amounts remaining in the
Capitalized Interest Account at the end of the Funding Period and not needed for
such purpose will be paid to the Company and will not thereafter be available
for distribution to the Owners of the Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be an asset
of the REMIC.
Calculation of LIBOR
On the second business day preceding each Payment Date, or in the case
of the first Payment Date (each such date, an "Interest Determination Date"),
the Trustee will determine the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR") for the next Accrual Period for the Class A-3
Certificates on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on the Telerate Page 3750,
as of 11:00 a.m. (London time) on such Interest Determination Date. As used in
this section, "business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate Page 3750"
means the display page currently so designated on the Dow Jones Telerate Service
(or such other page as may replace that page on that service for the purpose of
displaying comparable rates or prices); and "Reference Banks" means leading
banks selected by the Trustee and engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Telerate Page 3750 on
the Interest Determination Date in question, (iii) which have been designated as
such by the Trustee and (iv) not controlling, controlled by, or under common
control with, the Company or any Originator.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class A-3 Certificates will be established by the Trustee as
follows:
(a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
LIBOR for the related Accrual Period for the Class
A-3 Certificates shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to
the nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
LIBOR for the related Accrual Period for the Class
A-3 Certificates shall be the higher of (x) LIBOR as
determined on the previous Interest Determination
Date and (y) the Reserve Interest Rate. The "Reserve
Interest Rate" shall be the rate per annum that the
Trustee determines to be either (i) the arithmetic
mean (rounded upwards if necessary to the nearest
whole multiple of 0.0625%) of the one-month U.S.
dollar lending rates which New York City banks
selected by the Trustee are quoting on the relevant
Interest Determination Date to the principal London
offices of leading banks in the London interbank
market or, in the event that the Trustee can
determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York
City banks selected by the Trustee are quoting on
such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-3 Certificates for the related Accrual Period shall (in the absence of
manifest error) be final and binding.
Book Entry Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Beneficial Owners may elect to hold their Book-Entry
Certificates directly through DTC in the United States [, or Cedel or Euroclear
(in Europe)] if they are participants of such systems ("Participants"), or
indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per class of Offered
Certificates which in the aggregate equal the principal balance of such Offered
Certificates and will initially be registered in the
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name of Cede & Co., the nominee of DTC. [Cedel and Euroclear will hold omnibus
positions on behalf of their Participants through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and Chase will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries").] Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing principal amounts of $1,000
and in integral multiples in excess thereof. Except as described below, no
Beneficial Owner will be entitled to receive a physical certificate representing
such Certificate (a "Definitive Certificate"). Unless and until definitive
Certificates are issued, it is anticipated that the only "Owner" of such
Book-Entry Certificates will be Cede & Co., as nominee of DTC. Beneficial Owners
will not be Owners as that term is used in the Pooling and Servicing Agreement.
Beneficial Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant [and on
the records of Cedel or Euroclear, as appropriate)].
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates. Participants
and indirect participants with whom Beneficial Owners have accounts with respect
to Book- Entry Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Owners will
receive distributions and will be able to transfer their interests.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Owners.
[Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences -- Backup Withholding" in the Prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I hereto.]
Transfers between Participants will occur in accordance with DTC rules.
[Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.]
[Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal
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procedures for same day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the European
Depositaries.]
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
[Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear Securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is a branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.]
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
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Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. [Distributions with respect
to Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations.] Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book- Entry Certificates. In addition, issuance of the Book-Entry Certificates
in book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to
Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. [Cedel or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a Cedel Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC.] DTC may take actions, at the direction of the related Participants, with
respect to some Offered Certificates which conflict with actions taken with
respect to other Offered Certificates.
None of the Company, the Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Company advises the Trustee and the Certificate Insurer in writing that
DTC is no longer willing, qualified or able to discharge properly its
responsibilities as a nominee and depository with respect to the Book-Entry
Certificates and the Company or the Trustee is unable to locate a qualified
successor, (b) the Company, at its sole option, elects to terminate a book-entry
system through DTC or (c) DTC, at the direction of the Beneficial Owners
representing a majority of the outstanding Percentage Interests of the Offered
Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners and the Certificate Insurer of the occurrence of such event and the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the global certificate or certificates representing the Book-Entry Certificates
and instructions for re-registration, the Trustee will issue Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Owners under the Pooling and Servicing Agreement.
Although DTC, [Cedel and Euroclear] have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, [Cedel and Euroclear,] they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Certain Activities
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise
reacquire its securities. See "Description of the Securities -- Reports To
Securityholders" in the Prospectus for information regarding reports to the
Owners.
THE COMPANY
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The Company, First Alliance Mortgage Company, was incorporated in the
State of California on May 13, 1975. The Company has been actively involved in
the mortgage lending business since its founding. In July 1996, the Company
became a wholly owned subsidiary of First Alliance Corporation ("FACO") pursuant
to a reorganization in connection with the initial public offering of the Class
A Common Stock of FACO. In September 1997, FACO completed a secondary offering
of its Class A Common Stock. The Company and all of its predecessors have been
located in Orange County, California. All Mortgage Loans included in the Trust
were originated in the United States and are secured by Mortgaged Properties
located in the United States.
The Company maintains its corporate headquarters at 17305 Von Karman
Avenue, Irvine, California 92614- 6203. Its telephone number is (714) 224-8500.
THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Certificate Insurance Policies, thereby
unconditionally and irrevocably guarantees to any Owner (as defined below) that
an amount equal to each full and complete Insured Payment will be received by
the Trustee, or its successor, as trustee for the Owners, on behalf of the
Owners from the Certificate Insurer, for distribution by the Trustee to each
Owner of each Owner's proportionate share of the Insured Payment. The
Certificate Insurer's obligations under the Certificate Insurance Policies with
respect to a particular Insured Payment shall be discharged to the extent funds
equal to the applicable Insured Payment are received by the Trustee, whether or
not such funds are properly applied by the Trustee. Insured Payments shall be
made only at the time set forth in the Certificate Insurance Policies and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Class A Certificates, unless such acceleration is at the sole option of the
Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policies do not cover shortfalls, if any, attributable to the liability of the
Trust, the REMIC or the Trustee for withholding taxes, if any (including
interest and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by the
Fiscal Agent (as described below) of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
the Certificate Insurer that such order is final and not subject to appeal,
(iii) an assignment in such form as is reasonably required by the Certificate
Insurer, irrevocably assigning to the Certificate Insurer all rights and claims
of the Owner relating to or arising under the Class A Certificates against the
debtor which made such preference payment or otherwise with respect to such
preference payment and (iv) appropriate instruments to effect the appointment of
the Certificate Insurer as agent for such Owner in any legal proceeding related
to such preference payment, such instruments being in a form satisfactory to the
Certificate Insurer, provided that if such documents are received after 12:00
noon New York City time on such Business Day, they will be deemed to be received
on the following Business Day. Such payments shall be disbursed to the receiver
or trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to such Owner directly unless such
Owner has returned principal or interest paid on the Class A Certificates to any
receiver or trustee in bankruptcy, in which case such payment shall be disbursed
to such Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policies no later than 12:00 noon New York City time on
the later of the Payment Date on which the related Class A Distribution Amount
is due or the Business Day following receipt in New York, New York on a Business
Day by its fiscal agent (the "Fiscal Agent") of a Notice (as described below);
provided that if such Notice is received after 12:00 noon New York City time on
such Business Day, it will be deemed to be received on the following Business
Day. If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim under the related
Certificate Insurance Policy it shall be deemed not to have been received by the
Fiscal Agent for purposes of this paragraph, and the Certificate Insurer or the
Fiscal Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice.
Insured Payments due under the Certificate Insurance Policies unless
otherwise stated in the Certificate Insurance Policies will be disbursed by the
Fiscal Agent to the Trustee on behalf of Owners by wire transfer of immediately
available funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for the
payment of such Insured Payment and legally available therefor.
The Certificate Insurance Policies are being issued under and pursuant
to, and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
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THE INSURANCE PROVIDED BY THE CERTIFICATE INSURANCE POLICIES IS NOT
COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76
OF THE NEW YORK INSURANCE LAW.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement, there is set forth below a
summary of certain other provisions of the Pooling and Servicing Agreement.
Formation of the Trust
On the Closing Date, the Trust will be created and established pursuant
to the Pooling and Servicing Agreement. On such date, the Company will sell
without recourse the Initial Mortgage Loans to the Trust and the Trust will
issue the Offered Certificates to the Owners thereof pursuant to the Pooling and
Servicing Agreement.
The property of the Trust shall include all money, instruments and
other property to the extent such money, instruments and other property are
subject or intended to be held in trust for the benefit of the Owners and the
Certificate Insurer, as their interests may appear, and all proceeds thereof,
including, without limitation, (i) the Mortgage Loans, (ii) such amounts,
including Eligible Investments, as from time to time may be held by the Trustee
in the Certificate Account, the Pre-Funding Account and the Capitalized Interest
Account and by the Servicer in the Principal and Interest Account (except as
otherwise provided in the Pooling and Servicing Agreement), each to be created
pursuant to the Pooling and Servicing Agreement, (iii) any Mortgaged Property,
the ownership of which has been effected on behalf of the Trust as a result of
foreclosure or acceptance by the Servicer of a deed in lieu of foreclosure and
that has not been withdrawn from the Trust, (iv) any insurance policies relating
to the Mortgage Loans and any rights of the Company under any insurance
policies, (v) Net Liquidation Proceeds with respect to any Liquidated Loan, (vi)
the Certificate Insurance Policies and (vii) the proceeds of the foregoing
(collectively, the "Trust Estate").
The Offered Certificates will not represent an interest in or an
obligation of, nor will the Mortgage Loans be guaranteed by, any Originator, the
Company, the Servicer or the Trustee.
Sale of Mortgage Loans
Pursuant to the Pooling and Servicing Agreement, on the Closing Date
the Company will sell without recourse to the Trust all right, title and
interest of the Company in each Mortgage Loan listed on the related schedules of
the Mortgage Loans delivered to the Trustee, prior to the Closing Date with
respect to the Initial Mortgage Loans and prior to each Subsequent Transfer Date
with respect to the Subsequent Mortgage Loans (the "Schedules of Mortgage
Loans") and all of its right, title and interest in all scheduled payments due
on each Initial Mortgage Loan after the Cut-Off Date (or on each Subsequent
Mortgage Loan after the related Subsequent Cut-Off Date) and all principal and
all interest collected on each such Initial Mortgage Loan after the Cut-Off Date
(or on each Subsequent Mortgage Loan after the related Subsequent Cut-Off Date).
In connection with the sale of the Initial Mortgage Loans on the
Closing Date and the Subsequent Mortgage Loans on each Subsequent Transfer Date,
the Company will be required to deliver to the Trustee, at least five Business
Days prior to the Closing Date a file consisting of (i) the original Notes or
certified copies thereof, endorsed by the Originator thereof in blank or to the
order of the holder, (ii) originals of all intervening assignments, showing a
complete chain of title from origination to the applicable Originators, if any,
including warehousing assignments, with evidence of recording thereon, (iii)
originals of all assumption and modification agreements, if any, and, unless
such Mortgage Loan is covered by a counsel's opinion as described in the next
paragraph, (iv) either: (a) the original Mortgage, with evidence of recording
thereon, or a certified copy of the Mortgage as recorded, or (b) if the original
Mortgage has not yet been returned from the recording office, a certified copy
of the Mortgage, (v) evidence of title insurance with respect to the mortgaged
property in the form of a binder or commitment and (vi) at the Company's
expense, an opinion of counsel with respect to the sale and perfection of all
Subsequent Mortgage Loans delivered to the Trustee in form and substance
satisfactory to the Trustee and the Certificate Insurer. The Trustee will agree,
for the benefit of the Owners and the Certificate Insurer, as their interests
may appear, to review each such file on or before the Closing Date and again
within 90 days after the Closing Date or to ascertain that all required
documents (or certified copies of documents) have been executed and received.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Company shall assign to the Trustee for the benefit of the holders of the
Certificates and the Certificate Insurer, as their interests may appear, all of
the Company's right, title and interest in each Master Loan Transfer Agreement
insofar as it relates to the representations and warranties made therein by the
Originators and the Company in respect of the origination of the Mortgage Loans
and the remedies
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provided for breach of such representations and warranties. Upon discovery by
the Trustee of a breach of any representation, warranty or covenant which
materially and adversely affects the interests of the Owners of the Certificates
in a Mortgage Loan or of the Certificate Insurer, the Trustee will promptly
notify the Originator, the Company and the Certificate Insurer. The Originators
and the Company will have 60 days from its discovery or its receipt of such
notice to cure such breach or repurchase the Mortgage Loan.
The Company is additionally required to cause to be prepared and
recorded, within 75 business days of the Closing Date with respect to the
Initial Mortgage Loans, or Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans (or, if original recording information is unavailable,
within such later period as is permitted by the Pooling and Servicing Agreement)
assignments of the Mortgages from the Originators (other than the Company) to
the Company and then to the Trustee, in the appropriate jurisdictions in which
such recordation is necessary to perfect the lien of the Trust thereof as
against creditors of or purchasers from the Originators; provided, however, that
if the Company furnishes to the Trustee executed recordable assignments of the
Mortgages and to the Trustee and the Certificate Insurer an opinion of counsel
to the effect that no such recording is necessary to perfect the Trustee's
interests in the Mortgages with respect to any of the relevant jurisdictions,
then such recording will not be required with respect to such jurisdictions.
However, the Certificate Insurer may require recordation at a future date at its
reasonable discretion.
Removal and Resignation of the Servicer
The Pooling and Servicing Agreement provides that the Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it. No such resignation will become effective until the Trustee (or an
affiliate thereof) or a successor Servicer has assumed the Servicer's
obligations and duties under the Pooling and Servicing Agreement. The
Certificate Insurer, the Trustee or the Owners with the consent of the
Certificate Insurer, will have the right, pursuant to the Pooling and Servicing
Agreement, to remove the Servicer upon the occurrence of any of (a) the
continuing failure of the Servicer to deliver to the Trustee any proceeds or
required payment for a period of five business days after written notice; (b)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer and certain actions by
the Servicer indicating its insolvency or inability to pay its obligations; (c)
the continuing failure of the Servicer to perform any one or more of its
material obligations under the Pooling and Servicing Agreement for a period of
sixty (60) days after notice by the Trustee or the Certificate Insurer of said
failure; or (d) the failure of the Servicer to cure any breach of any of its
representations and warranties set forth in the Pooling and Servicing Agreement
which materially and adversely affects the interests of the Owners or the
Certificate Insurer for a period of sixty (60) days after the Servicer's
discovery or receipt of notice thereof.
The Pooling and Servicing Agreement additionally provides that the
Certificate Insurer may remove the Servicer upon the occurrence of any of the
following events:
(i) with respect to any Payment Date, if the sum of the
Fixed Rate Group and Variable Rate Group Total
Available Funds will be less than the sum of the
Class A Distribution Amounts with respect to all of
the Class A Certificates, in respect of such Payment
Date; provided, however, that the Certificate Insurer
will have no right to remove the Servicer pursuant to
the provision described in this clause (i) if the
Servicer can demonstrate to the reasonable
satisfaction of the Certificate Insurer that such
event was due to circumstances beyond the control of
the Servicer;
(ii) the failure by the Servicer to make any required
Servicing Advance;
(iii) the failure of the Servicer to perform one or more of
its obligations under the Pooling and Servicing
Agreement and the continuance thereof for a period of
thirty (30) days or such longer period as agreed to
in writing by the Certificate Insurer;
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating
Interest by the Remittance Date; or
(v) if the delinquency or loss levels applicable to the
Mortgage Loans exceed certain "trigger" levels set
forth in the Pooling and Servicing Agreement.
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The Trustee
In accordance with the Pooling and Servicing Agreement, following the
termination of the Servicer and pending the appointment of any other person as
successor servicer, the Trustee (for this purpose, the term Trustee includes an
affiliate thereof) shall be the successor Servicer and is empowered to perform
the duties of the Servicer; it being expressly understood, however, that the
Trustee, the Company, the Servicer and the Owners, agree, prior to any
termination of the Servicer, that the Servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall, upon
termination of the Servicer, during its performance as successor Servicer and
pending the appointment of any other person as successor servicer, have the
power and duty:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into
assumption and substitution agreements as permitted
by the Pooling and Servicing Agreement;
(iv) to deliver instruments of satisfaction;
(v) to make Delinquency Advances and Servicing Advances
and to pay Compensating Interest; and
(vi) to enforce the Mortgage Loans.
During any period in which the Trustee is successor Servicer, the
Trustee shall be entitled to all compensation due to the Servicer.
Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Termination of the Trust
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the earlier of (i) the payment to the Owners of all Certificates
from amounts other than those available under the Certificate Insurance Policies
of all amounts required to be paid such Owners upon the later to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Mortgage Loan or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate or (ii)
any time when a Qualified Liquidation (as defined in the Pooling and Servicing
Agreement) of the Trust Estate is effected.
Optional Termination
By the Servicer. At its option, the Servicer acting directly or through
one or more affiliates may determine to purchase from the Trust all of the
Mortgage Loans and other property then held by the Trust, and thereby effect
early retirement of the Certificates, on any Remittance Date after the Clean-Up
Call Date at a price equal to 100% of the aggregate principal balance of the
Mortgage Loans as of the day of purchase minus amounts remitted from the
Principal and Interest Account to the Certificate Account representing
collections of principal on the Mortgage Loans during the current Remittance
Period, plus one month's interest on such amount computed at the weighted
average Pass-Through Rate of the Class A Certificates plus the aggregate amount
of any Delinquency Advances and Servicing Advances and Delinquency Advances
remaining unreimbursed together with Reimbursement Amounts then owed to the
Certificate Insurer. Under certain circumstances described in the Pooling and
Servicing Agreement the Certificate Insurer may also exercise such purchase
rights if the Servicer does not do so.
Upon Loss of REMIC Status. Following a final determination by the
Internal Revenue Service, or by a court of competent jurisdiction, in each case
from which no appeal is taken within the permitted time for such appeal, or if
any appeal is taken, following a final determination of such appeal from which
no further appeal can be taken to the effect that the REMIC held by the Trust
does not and will no longer qualify as a "REMIC" pursuant to Section 860D of the
Internal Revenue Code of 1986, as amended (the "Code") (the "Final
Determination"), at any time on or after the date which is 30 calendar days
following such Final Determination, (i) the Certificate Insurer or the Owners of
a majority in Percentage Interest represented by the Class of Offered
Certificates then outstanding with the consent of the Certificate Insurer (which
consent may not be unreasonably withheld) may direct the Trustee on behalf of
the Trust to
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adopt a plan of complete liquidation as contemplated by Section 860F(a)(4) of
the Code and (ii) the Certificate Insurer may notify the Trustee of the
Certificate Insurer's determination to purchase from the Trust all Mortgage
Loans and other property acquired by foreclosure, deed in lieu of foreclosure,
or otherwise in respect of any Mortgage Loan then remaining in the Trust, and
thereby effect the early retirement of the Certificates. The purchase price for
any purchase of the property of the Trust Estate shall be the Termination Price
(as defined in the Pooling and Servicing Agreement).
Upon receipt of such notice or direction from the Certificate Insurer,
the Trustee will be required to notify the Owners of the Subordinated
Certificates of such election to liquidate or such determination to purchase, as
the case may be (the "Termination Notice"). The Owners of a majority of the
Percentage Interest of the Subordinated Certificates then outstanding may,
within sixty (60) days from the date of receipt of the Termination Notice (the
"Purchase Option Period"), at their option, purchase from the Trust all (but not
fewer than all) Mortgage Loans and all property theretofore acquired by
foreclosure, deed in lieu of foreclosure, or otherwise in respect of any
Mortgage Loan then remaining in the Trust Estate at a purchase price equal to
the Termination Price. If, during the Purchase Option Period, the Owners of the
Subordinated Certificates have not exercised the option described in the
immediately preceding sentence, then upon the expiration of the Purchase Option
Period (i) in the event that the Certificate Insurer or the Owners of the Class
A Certificates with the consent of the Certificate Insurer have given the
Trustee the direction described in clause (a)(i) above, the Trustee will be
required to sell the Mortgage Loans and distribute the proceeds of the
liquidation of the Trust Estate, each in accordance with the plan of complete
liquidation, such that, if so directed, the liquidation of the Trust Estate, the
distribution of the proceeds of the liquidation and the termination of the
Pooling and Servicing Agreement occur no later than the close of the sixtieth
(60th) day, or such later day as the Certificate Insurer or the Owners of the
Class A Certificates with the consent of the Certificate Insurer permit or
direct in writing, after the expiration of the Purchase Option Period and (ii)
in the event that the Certificate Insurer has given the Trustee notice of the
Certificate Insurer's determination to purchase the Trust Estate described in
clause (a)(ii) preceding the Certificate Insurer will be required to, within
sixty (60) days, purchase all (but not fewer than all) Mortgage Loans and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure or
otherwise in respect of any Mortgage Loan then remaining in the Trust Estate. In
connection with such purchase, the Servicer will be required to remit to the
Trustee all amounts then on deposit in the Principal and Interest Account for
deposit to the Certificate Account, which deposit will be deemed to have
occurred immediately preceding such purchase.
Following a Final Determination, the Owners of a majority of the
Percentage Interest of the Subordinated Certificates then outstanding may, at
their option and upon delivery to the Certificate Insurer of an opinion of
counsel experienced in Federal income tax matters acceptable to the Certificate
Insurer selected by the Owners of the Subordinated Certificates which opinion
shall be reasonably satisfactory in form and substance to the Certificate
Insurer, to the effect that the effect of the Final Determination is to increase
substantially the probability that the gross income of the Trust will be subject
to federal taxation, purchase from the Trust all (but not fewer than all)
Mortgage Loans and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate at a purchase price equal to the Termination Price. In
connection with such purchase, the Servicer will be required to remit to the
Trustee all amounts then on deposit in the Principal and Interest Account for
deposit to the Certificate Account, which deposit shall be deemed to have
occurred immediately preceding such purchase. The foregoing opinion shall be
deemed satisfactory unless the Certificate Insurer gives the Owners of a
majority of the Percentage Interest of the Subordinated Certificates notice that
such opinion is not satisfactory within thirty days after receipt of such
opinion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Offered Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates.
REMIC Elections
The Trustee will cause an election to be made to treat the Trust as a
REMIC (other than the Non-REMIC Accounts) for federal income tax purposes. Arter
& Hadden LLP, special tax counsel, will advise that, in its opinion, for federal
income tax purposes, assuming (i) the REMIC election is made and (ii) compliance
with the Pooling and Servicing Agreement, the Trust (other than the non-REMIC
Accounts) will be treated as a REMIC, each Class of Offered Certificates will be
treated as "regular interests" in the REMIC and the Class R Certificates will be
treated as the sole class of "residual interests" in the REMIC.
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For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Offered Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to such
Offered Certificates under an accrual method. The Offered Certificates may be
issued with "original issue discount" for federal income tax purposes. The
prepayment assumption to be used in determining whether any Class of Offered
Certificates is issued with original issue discount and the rate of accrual of
original issue discount is __% HEP for the Fixed Rate Certificates and __% CPR
for the Class A-3 Certificates. No representation is made that any of the
Mortgage Loans will prepay at this rate or any other rate. See "Certain Federal
Income Tax Consequences -- Discount and Premium -- Original Issue Discount" in
the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans and
individual retirement arrangements (and entities whose underlying assets include
plan assets by reason of such a plan's or arrangement's investment in such
entities) to which it applies (each, a "Plan") and on those persons who are
fiduciaries with respect to such Plans. Any Plan fiduciary which proposes to
cause a Plan to acquire any of the Offered Certificates should consult with
counsel with respect to the consequences under ERISA and the Code of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations --
Plan Asset Regulations," "-- Prohibited Transaction Class Exemption," "-- Tax
Exempt Investors" and "-- Consultation with Counsel" in the Prospectus.
Section 406 of ERISA prohibits Plans from engaging in certain
transactions involving the assets of such Plans with Parties in Interest with
respect to such Plans, unless a statutory or administrative exemption is
applicable to the transaction. Excise taxes under Section 4975 of the Code,
penalties under Section 502 of ERISA and other penalties may be imposed on Plan
fiduciaries and Parties in Interest (or "disqualified persons" under the Code)
that engage in "prohibited transactions" involving assets of a Plan. Individual
retirement arrangements and other plans that are not subject to ERISA, but are
subject to Section 4975 of the Code, and disqualified persons with respect to
such arrangements and plans, also may be subject to excise taxes and other
penalties if they engage in prohibited transactions. Furthermore, based on the
reasoning of the United States Supreme Court in John Hancock Life Ins. Co. v.
Harris Trust and Sav. Bank, 510 U.S. 86 (1993) an insurance company may be
subject to excise taxes and other penalties if such insurance company's general
account is deemed to include assets of the Plans investing in the general
account (e.g., through the purchase of an annuity contract).
The Department of Labor (the "DOL") has issued a regulation (the "Plan
Asset Regulation") describing what constitutes the assets of a Plan when the
Plan acquires an equity interest in another entity. The Plan Asset Regulation
states that, unless an exception described in the regulation is applicable, the
underlying assets of an entity are considered, for purposes of ERISA, to be the
assets of the investing Plan. Pursuant to the Plan Asset Regulation, if the
assets of the Trust were deemed to be plan assets by reason of a Plan's
investment in any Offered Certificates, such plan assets would include an
undivided interest in each asset of the Trust, and the purchase, sale or holding
of any Certificate by a Plan subject to Section 406 of ERISA or Section 4975 of
the Code might result in prohibited transactions and the imposition of excise
taxes and civil penalties.
The DOL has issued to [the Underwriters] individual prohibited
transaction exemptions (collectively, the "Exemptions"), which generally exempt
from the application of the prohibited transaction provision of Section 406(a),
Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes imposed
pursuant to Sections 4975(a) and (b) of the Code, with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemptions. The
loans covered by the Exemptions include mortgage loans such as the Mortgage
Loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the certificates by a Plan is on
terms (including the price for the certificates) that
are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated
party;
(2) the rights and interests evidenced by the
certificates acquired by the Plan are not
subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) the certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of
the three highest generic rating categories from
either Standard & Poor's,
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Moody's, Duff & Phelps Credit Rating Co. ("D&P") or
Fitch IBCA, Inc. (formerly known as Fitch Investors
Service, L.P.)("Fitch");
(4) the Trustee is not an affiliate of any other member
of the Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
Underwriter in connection with the distribution of
the certificates represents not more than reasonable
compensation for underwriting the certificates; the
sum of all payments made to and retained by the
Seller pursuant to the assignment of the loans to the
Trust represents not more than the fair market value
of such loans; the sum of all payments made to and
retained by any Servicer represents 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; and
(6) the Plan investing in the certificates is an
"accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The Trust must also meet the following requirements:
(i) the corpus of the Trust must consist solely
of assets of the type that have been
included in other investment pools;
(ii) certificates in such other investment pools
must have been rated in one of the three
highest rating categories of Standard &
Poor's, Moody's, Fitch or D&P for at least
one year prior to the Plan's acquisition of
certificates; and
(iii) certificates evidencing interests in such
other investment pools must have been
purchased by investors other than Plans for
at least one year prior to the Plan's
acquisition of certificates.
Moreover, the Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemptions do not apply to Plans sponsored by the Company, the Certificate
Insurer, the Underwriter, the Trustee, any Servicer, any obligor with respect to
Mortgage Loans included in the Trust constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust, or any
affiliate of such parties (the "Restricted Group").
On July 21, 1997, the DOL published in the Federal Register amendments
to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendments generally allow Mortgage Loans supporting payments
to Owners, and having a value equal to no more than 25% of the total principal
amount of the Certificates being offered by the Trust, to be transferred to the
Trust within a funding period no longer than 90 days or three months following
the Closing Date instead of requiring that all such Mortgage Loans be either
identified or transferred on or before the Closing Date. The relief will apply
to the purchase, sale and holding of the Offered Certificates, provided that the
following general conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding Account to the
total principal amount of the Certificates being offered ("Pre-Funding Limit")
does not exceed 25%;
(2) all Subsequent Mortgage Loans meet the same terms and conditions
for eligibility as the original Mortgage Loans used to create the Trust, which
terms and conditions have been approved by the Rating Agencies;
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(3) the transfer of such Subsequent Mortgage Loans to the Trust during
the Funding Period does not result in the Certificates to be covered by the
Exemptions receiving a lower credit rating from a Rating Agency upon termination
of the Funding Period than the rating that was obtained at the time of the
initial issuance of the Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the "Average Interest Rate") for all of the
Mortgage Loans and Subsequent Mortgage Loans in the Trust at the end of the
Funding Period is not more than 100 basis points lower than the Average Interest
Rate for the Mortgage Loans which were transferred to the Trust on the Closing
Date;
(5) either: (i) the characteristics of the Subsequent Mortgage Loans
are monitored by an insurer or other credit support provider which is
independent of the Company; or (ii) an independent accountant retained by the
Company provides the Company with a letter (with copies provided to the Rating
Agencies, the Underwriters and the Trustee) stating whether or not the
characteristics of the Subsequent Mortgage Loans conform to the characteristics
described in the Prospectus or Prospectus Supplement and/or Pooling and
Servicing Agreement. In preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Mortgage Loans which
were transferred to the Trust as of the Closing Date;
(6) the Funding Period ends no later than three months or 90 days after
the Closing Date or earlier in certain circumstances if the Pre-Funding Account
falls below the minimum level specified in the Pooling and Servicing Agreement
or an event of default occurs;
(7) amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested only in
investments which are permitted by the Rating Agencies and: (i) are direct
obligations of, or obligations fully guaranteed as to timely payment of
principal and interest by, the United States or any agency or instrumentality
thereof (provided that such obligations are backed by the full faith and credit
of the United States); or (ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by such Rating Agency;
(8) the Prospectus or Prospectus Supplement describes: (i) any
Pre-Funding Account and/or Capitalized Interest Account; (ii) the duration of
the Funding Period; (iii) the percentage and/or dollar amount of the Pre-Funding
Limit for the Funding Period that will be remitted to Owners as repayments of
principal; and (iv) that the amounts remaining in the Pre-Funding Account at the
end of the Funding Period will be remitted to Owners as repayments of principal;
and
(9) the Pooling and Servicing Agreement describes the permitted
investments for the Pre-Funding Account and/or Capitalized Interest Account and,
if not disclosed in the Prospectus or Prospectus Supplement, the terms and
conditions for eligibility of Subsequent Mortgage Loans.
It is believed that all of the conditions for exemptive relief under
the amendments to the Exemptions with respect to pre-funding have been or will
be satisfied.
RATINGS
It is a condition of the original issuance of the Class A Certificates
that they receive ratings of AAA by Standard & Poor's and Aaa by Moody's. The
ratings assigned to the Class A Certificates will be based on the claims-paying
ability of the Certificate Insurer.
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. The security rating assigned to the Offered
Certificates should be evaluated independently of similar security ratings
assigned to other kinds of securities.
Explanations of the significance of such ratings may be obtained from
Moody's Investors Service, Inc., 99 Church Street, New York, New York, 10007 and
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.
25 Broadway, New York, New York 10004. Such ratings will be the views only of
such rating agencies. There is no assurance that any such ratings will continue
for any period of time or that such ratings will not be revised or withdrawn.
Any such revision or withdrawal of such ratings may have an adverse effect on
the market price of the Offered Certificates.
S-51
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions with legal authority to invest in
comparably rated securities may not be legally authorized to invest in the Class
A Certificates.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Offered Certificates, dated December
9, 1997, the Company has agreed to cause the Trust to sell to each of the
Underwriters named below (the "Underwriters") and each of the Underwriters have
severally agreed to purchase the principal amount of the Offered Certificates
set forth opposite its name below:
Class A-1 Certificates
----------------------
Underwriter Principal Amount
----------- ----------------
Class A-2 Certificates
----------------------
Underwriter Principal Amount
----------- ----------------
Class A-3 Certificates
----------------------
Underwriter Principal Amount
----------- ----------------
The Underwriters have advised the Company that they propose to offer
the Offered Certificates for sale from time to time in one or more negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. The Underwriters
may effect such transactions by selling such Certificates to or through dealers,
and such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters or purchasers of the Offered
Certificates for whom they may act as agent. Any dealers that participate with
the Underwriters in the distribution of the Offered Certificates purchased by
the Underwriters may be deemed to be underwriters, and any discounts or
commissions received by them or the Underwriters and any profit on the resale of
Offered Certificates by them or the Underwriters may be deemed to be
underwriting discounts or commissions under the Securities Act.
Proceeds to the Company, including accrued interest, are expected to be
approximately ______% aggregate principal balance of the Offered Certificates,
before deducting expenses payable by the Company in connection with the Offered
Certificates, estimated to be $_______. In connection with the purchase and sale
of the Offered Certificates, the Underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
S-52
<PAGE>
The Company has been advised by the Underwriters that the Underwriters
presently intend to make a market in each Class of Offered Certificates, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in either Class of Offered Certificates and
such market-making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Certificates.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Offered
Certificates. Such transactions may include stabilization transactions effected
in accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase the Offered Certificates for the purpose of stabilizing its
market price. In addition, Prudential Securities Incorporated, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the offering) for the account of the other Underwriters, the selling
concession with respect to the Offered Certificates that is distributed in the
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Offered Certificates at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
REPORT OF EXPERTS
[To be provided.]
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Company and the Servicer by Arter &
Hadden LLP, Washington, D.C. Certain legal matters relating to insolvency issues
and certain federal income tax matters concerning the Certificates will be
passed upon for the Company by Arter & Hadden LLP.
S-53
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First
Alliance Mortgage Loan Trust 199_-_ Mortgage Pass-Through Certificates, Class A
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lockup" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement
I-1
<PAGE>
has been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel Participant's or Euroclear Participant's account. The
securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase side of
the trade is reflected in their Cedel or Euroclear accounts) in accordance with
the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC Participant is at least one day
prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
I-2
<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
I-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that information herein or therein is correct as of any
time since the date of this Prospectus Supplement or the Prospectus.
----------------------
TABLE OF CONTENTS
Prospectus Supplement
Summary......................................................................S-1
Risk Factors.................................................................S-
The Portfolio of Mortgage Loans..............................................S-
Use of Proceeds..............................................................S-
The Mortgage Loan Pool.......................................................S-
Prepayment and Yield Considerations..........................................S-
Additional Information.......................................................S-
Description of the Offered Certificates......................................S-
The Company..................................................................S-
The Certificate Insurance Policies and the Certificate Insurer ..............S-
The Pooling and Servicing Agreement..........................................S-
Certain Federal Income Tax Consequences......................................S-
ERISA Considerations.........................................................S-
Ratings......................................................................S-
Legal Investment Considerations..............................................S-
Underwriting.................................................................S-
Report of Experts............................................................S-
Certain Legal Matters........................................................S-
Global Clearance, Settlement and
Tax Documentation Procedures.................................................I-1
Index to Location of Principal Defined Terms.................................A-1
Prospectus
Available Information..........................................................2
Reports to Owners..............................................................3
Incorporation of Certain Documents by Reference................................3
Prospectus Supplement..........................................................3
Summary of Prospectus..........................................................4
Risk Factors..................................................................13
The Trusts....................................................................18
The Mortgage Pools............................................................21
Mortgage Loan Program.........................................................23
Description of the Securities.................................................31
Subordination.................................................................44
Description of Credit Enhancement.............................................45
Hazard Insurance; Claims Thereunder...........................................50
The Company...................................................................50
The Servicer..................................................................51
The Master Servicer...........................................................51
The Pooling and Servicing Agreement...........................................51
Yield Considerations..........................................................55
Maturity and Prepayment Considerations........................................57
Certain Legal Aspects of Mortgage Loans and Related Matters...................58
Certain Federal Income Tax Consequences.......................................63
ERISA Considerations..........................................................73
Legal Investment Matters......................................................76
Use of Proceeds ..............................................................77
Methods of Distribution.......................................................77
Legal Matters.................................................................78
Financial Information.........................................................78
Rating........................................................................78
Index to Location of Principal Defined Terms..................................79
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the related Securities, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus
Supplement and the related 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.
================================================================================
<PAGE>
================================================================================
First Alliance Mortgage Loan Trust 199_-_
$___________
[GRAPHIC OMITTED]
Company and Servicer
$__________ _____% Class A-1
Fixed Rate Group Certificates
$__________ _____% Class A-2
Fixed Rate Group Certificates
$__________ Class A-3
Variable Rate Group Certificates
Mortgage Loan
Asset Backed Certificates
Series 199_-_
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
================================================================================
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
2/28 Loans...................................................................S-4
3/27 Loans...................................................................S-5
5/25 Loans...................................................................S-5
Accrual Period...............................................................S-6
Actuarial Loans.............................................................S-31
Advances....................................................................S-36
Appraised Values............................................................S-21
Available Funds.............................................................S-39
Available Funds Cap..........................................................S-5
Available Funds Shortfall...................................................S-38
Average Interest Rate.......................................................S-51
Balloon Loans...............................................................S-16
Beneficial Owners...........................................................S-12
Book-Entry Certificates.....................................................S-40
Capitalized Interest Account................................................S-11
Carry-Forward Amount.........................................................S-8
CEDEL.......................................................................S-12
Cede........................................................................S-13
CEDEL Participants..........................................................S-42
Certificate Account.........................................................S-35
Certificate Insurer.........................................................S-12
Certificate Principal Balance................................................S-1
Certificates.................................................................S-1
Chase.......................................................................S-13
Citibank....................................................................S-13
CLTV.........................................................................S-3
Class A Certificates.........................................................S-1
Class A Current Interest.....................................................S-6
Class A Distribution Amount..................................................S-8
Class A Principal Distribution Amount........................................S-7
Class A-1 Certificates.......................................................S-1
Class A-1 Original Certificate Principal Balance.............................S-5
Class A-1 Pass-Through Rate..................................................S-5
Class A-2 Certificates.......................................................S-1
Class A-2 Original Certificate Principal Balance.............................S-5
Class A-2 Pass-Through Rate..................................................S-5
Class A-3 Certificates.......................................................S-1
Class A-3 Original Certificate Principal Balance.............................S-5
Class A-3 Pass-Through Rate..................................................S-5
Closing Date.................................................................S-1
Code........................................................................S-47
Company......................................................................S-1
Compensating Interest.......................................................S-12
Cooperative.................................................................S-42
Cut-Off Date.................................................................S-1
D&P.........................................................................S-50
Definitive Certificate......................................................S-41
Delinquency Advances........................................................S-12
DOL.........................................................................S-49
DTC.........................................................................S-12
DTC Participants............................................................S-42
ERISA.......................................................................S-49
Euroclear...................................................................S-12
Euroclear Operator..........................................................S-42
Euroclear Participants......................................................S-42
European Depositaries.......................................................S-13
Excess Subordinated Amount..................................................S-37
Exemptions..................................................................S-49
Fannie Mae...................................................................S-3
Financial Intermediary......................................................S-41
Fiscal Agent................................................................S-44
Fitch.......................................................................S-50
Fixed Rate Certificates......................................................S-1
Fixed Rate Group.............................................................S-1
Fixed Rate Group Available Funds............................................S-39
Fixed Rate Group Servicing Fee..............................................S-13
Fixed Rate Group Total Available Funds......................................S-39
Funding Period..............................................................S-11
Group........................................................................S-1
Initial Mortgage Loans.......................................................S-1
Insurer Reimbursable Amount.................................................S-38
Interest Determination Date.................................................S-40
Junior Lien Ratio............................................................S-4
Last Scheduled Payment Date.................................................S-32
LIBOR........................................................................S-5
Liquidated Mortgage Loan.....................................................S-8
LTV..........................................................................S-3
Modeling Assumptions........................................................S-33
Moody's.....................................................................S-13
Mortgage Loan Group..........................................................S-1
Mortgaged Properties.........................................................S-1
Mortgages....................................................................S-1
Mortgagor...................................................................S-31
Net Monthly Excess Cashflow.................................................S-38
Non-REMIC Accounts..........................................................S-14
Notes.......................................................................S-19
Offered Certificates.........................................................S-1
Original Aggregate Loan Balance..............................................S-2
Original Pre-Funded Amount...................................................S-2
Originator...................................................................S-1
Participants................................................................S-40
Payment Date.................................................................S-5
Percentage Interest..........................................................S-6
Plan........................................................................S-49
Plan Asset Regulation.......................................................S-49
Pooling and Servicing Agreement..............................................S-1
Prepayment..................................................................S-31
Pre-Funded Amount...........................................................S-11
Pre-Funding Account..........................................................S-2
Pre-Funding Account Earnings................................................S-11
Pre-Funding Limit...........................................................S-50
REMIC.......................................................................S-14
Realized Loss...............................................................S-37
Record Date..................................................................S-6
Reference Banks.............................................................S-40
Relevant Depositary.........................................................S-41
Remittance Date.............................................................S-35
Remittance Period...........................................................S-36
Restricted Group............................................................S-50
Riegle Act..................................................................S-17
Rules.......................................................................S-41
Servicer.....................................................................S-1
Servicing Fee...............................................................S-13
Six-Month LIBOR Loans........................................................S-4
SMMEA.......................................................................S-14
Specified Subordinated Amount...............................................S-36
Standard & Poor's...........................................................S-13
Subordinate Certificates.....................................................S-1
Subordination Deficit........................................................S-9
Subordination Increase Amount...............................................S-36
Subordination Reduction Amount..............................................S-37
Subsequent Cut-Off Date.....................................................S-15
Subsequent Mortgage Loans....................................................S-2
Subsequent Transfer Agreement...............................................S-15
Subsequent Transfer Date....................................................S-11
Telerate Page 3750..........................................................S-40
A-1
<PAGE>
Page
----
Terms and Conditions........................................................S-42
Total Available Funds.......................................................S-39
Total Monthly Excess Cashflow...............................................S-38
Total Monthly Excess Spread.................................................S-36
Trust........................................................................S-1
Trustee......................................................................S-1
Underwriters................................................................S-52
Variable Rate Certificates...................................................S-1
Variable Rate Group..........................................................S-2
Variable Rate Group Available Funds.........................................S-39
Variable Rate Group Servicing Fee...........................................S-13
Variable Rate Group Total Available Funds...................................S-39
A-2
<PAGE>
PROSPECTUS SUPPLEMENT NOTES
To Prospectus Dated January , 1998
- --------------------------------------------------------------------------------
First Alliance Mortgage Loan Owner Trust 199_-_
$__________ Adjustable Rate Mortgage Loan
Asset Backed Notes, Series 199_-_
Due ____________, 20___
[GRAPHIC OMITTED]
Company and Servicer
- --------------------------------------------------------------------------------
The First Alliance Mortgage Loan Owner Trust 199_-_ (the "Issuer") will
be formed pursuant to an owner trust agreement to be dated as of ________ _,
199_ (the "Trust Agreement") between First Alliance Mortgage Company (the
"Seller") and _________________________, as owner trustee (the "Owner Trustee").
The Issuer is hereby offering $______________ aggregate principal amount of its
Adjustable Rate Mortgage Loan Asset Backed Notes, Series 199_-_ (the "Notes").
The Notes will be issued pursuant to an indenture, dated as of ________ _, 199_
(the "Indenture"), between the Issuer and ________________________ as indenture
trustee (the "Indenture Trustee"), and will be secured by a trust estate (the
"Trust Estate") consisting primarily of (i) a pool (the "Pool") of adjustable
rate mortgage loans secured by liens on one-to-four family residential
properties (the "Mortgage Loans"), (ii) the Issuer's rights under the Sale and
Servicing Agreement (as defined herein), (iii) the Note Insurance Policy, as
described herein and (iv) certain other assets described in the Indenture. The
Issuer also will issue instruments evidencing the residual interest in the Trust
Estate (the "Residual Interest"). The Residual Interest and the Notes are
collectively referred to as the "Securities." Only the Notes are offered hereby.
For a discussion of significant matters affecting investment in the
Notes, see "Risk Factors" beginning on page S-__ herein and beginning on page __
in the Prospectus.
(Cover continued on next page)
- --------------------------------------------------------------------------------
THE NOTES REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF FIRST ALLIANCE MORTGAGE COMPANY, THE
INDENTURE TRUSTEE , THE OWNER TRUSTEE, ANY ORIGINATOR, THE NOTE INSURER OR ANY
OF THEIR AFFILIATES. NEITHER THE NOTES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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 Notes will be purchased by the Underwriters from the Issuer and
will be offered by the Underwriters from time to time in negotiated transactions
or otherwise, at varying prices to be determined at the time of sale. Proceeds
to the Company, including accrued interest, are expected to be approximately
______% of the aggregate principal balance of the Notes before deducting
expenses payable by the Company estimated to be $_______. See "Underwriting"
herein.
The Notes are offered subject to prior sale, when, as, and if accepted
by the Underwriters and subject to the approval of certain legal matters. It is
expected that delivery of the Notes in book-entry form will be made on or about
_________ __, 199_ only through the facilities of The Depository Trust Company,
[Cedel Bank S.A. and Euroclear].
[Underwriters]
_________ _, 199_
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there by any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(Cover continued from previous page)
The Sale and Servicing Agreement provides that additional
adjustable-rate Mortgage Loans (the "Subsequent Mortgage Loans") may be
purchased by the Issuer from the Company from time to time on or before ________
__, 199_ from funds on deposit in the Pre- Funding Account. On the Closing Date
an aggregate cash amount of $_____________ will be deposited with the Indenture
Trustee in the Pre-Funding Account to be used to acquire Subsequent Mortgage
Loans.
Distributions on the Residual Interests are subordinate to
distributions on the Notes to the extent described herein. Distributions of
principal and interest payable to the Owners of the Notes will be made on the
20th day of each month or if the 20th day is not a business day, the first
business day thereafter (each, a "Payment Date"), beginning in _______ 199_.
[LOGO]
On or before the issuance of the Notes, the Company will obtain from
[____________________________] (the "Note Insurer") a note insurance policy (the
"Note Insurance Policy") in favor of the Indenture Trustee. The Note Insurance
Policy will provide for 100% coverage of the principal amount of, and scheduled
interest due on, the Notes.
The Final Payment Date for the Notes is ________ __, 202_. It is
expected that the actual last Payment Date will occur significantly earlier than
the Final Payment Date. The yield to maturity on the Notes will depend on, among
other things, the rate and timing of principal payments (including prepayments,
which rate may vary significantly over time, repurchases, defaults and
liquidations) on the Mortgage Loans. See "Prepayment and Yield Considerations"
in this Prospectus Supplement.
The Notes will constitute non-recourse obligations of the Issuer. The
Company will have limited obligations arising in respect of certain
representations and warranties on the Mortgage Loans in connection with the
conveyance thereof to the Issuer. The Servicer will have limited obligations
that arise pursuant to certain representations and warranties and to its
contractual servicing obligations under that certain agreement to be entered
into among the Company, the Servicer, the Indenture Trustee and the Issuer (the
"Sale and Servicing Agreement"), including any obligation it may have to advance
delinquent interest payments on the Mortgage Loans.
The Notes are subject to optional redemption in full by [the Servicer]
[the holder(s) of at least 50% of the Residual Interest] at any time after the
aggregate Loan Balance of the Mortgage Loans has declined to less than 10% of
the original aggregate loan balance of the Mortgage Loans. [In addition, the
Note Insurer will have rights, under the limited circumstances described in the
Sale and Servicing Agreement, to acquire all of the Mortgage Loans from the
Issuer and thereby effect a redemption of the Notes.] See
"Administration--Redemption of the Notes" herein.
No election will be made to treat any part of the Trust Estate as a
real estate mortgage investment conduit (a "REMIC") for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
Prior to their issuance there has been no market for the Notes nor can
there be any assurance that one will develop, or if it does develop, that it
will provide the Owners of the Notes with liquidity or will continue for the
life of the Notes. __________________________________ and
________________________________. (each an "Underwriter" and together, the
"Underwriters") intend, but are not obligated, to make a market in the Notes.
-----------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE NOTES, INCLUDING PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICE AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------------------
To the extent statements contained herein do not relate to historical
or current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations" herein. As a consequence, no assurance can be given as
to the actual distributions on, or the yield of, the Notes.
The Notes offered by this Prospectus Supplement will be part of a
separate series of Notes being offered by the Company pursuant to its Prospectus
dated _________ __, 199_ of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Notes. This Prospectus Supplement and the related
Prospectus, which form a part of the Registration Statement, omit certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York, 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
electronically through the Commissioner's Electronic Data Gathering, Analysis
and Retrieval System at the Commission's web site (http:\\www.sec.gov).
REPORTS TO OWNERS
The Indenture Trustee will mail monthly reports concerning the Notes to
all registered Owners pursuant to the Sale and Servicing Agreement.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY......................................................................S-1
RISK FACTORS................................................................S-11
THE PORTFOLIO OF MORTGAGE LOANS.............................................S-13
General ..............................................................S-13
Acquisitions...........................................................S-13
Delinquencies..........................................................S-13
THE ISSUER..................................................................S-14
USE OF PROCEEDS.............................................................S-14
THE MORTGAGE LOAN POOL......................................................S-14
General ..............................................................S-14
Initial Mortgage Loans.................................................S-15
Conveyance of Subsequent Mortgage Loans................................S-19
Interest Payments on the Mortgage Loans................................S-20
PREPAYMENT AND YIELD CONSIDERATIONS.........................................S-20
Mandatory Prepayment...................................................S-20
Projected Prepayments and Yields for Notes.............................S-20
ADDITIONAL INFORMATION......................................................S-22
DESCRIPTION OF THE NOTES....................................................S-22
General ..............................................................S-22
Payment Dates..........................................................S-23
Distributions..........................................................S-23
Overcollateralization Provisions.......................................S-23
Credit Enhancement Does Not Apply to Prepayment Risk...................S-25
Payments and Insured Payments to the Owners of the Notes...............S-25
Pre-Funding Account....................................................S-25
Capitalized Interest Account...........................................S-25
Calculation of LIBOR...................................................S-26
Book Entry Registration of the Notes...................................S-26
Certain Activities.....................................................S-29
THE COMPANY.................................................................S-29
THE NOTE INSURANCE POLICY AND THE NOTE INSURER..............................S-29
ADMINISTRATION..............................................................S-30
Formation of the Issuer................................................S-30
Sale of Mortgage Loans.................................................S-31
Removal and Resignation of the Servicer................................S-31
The Indenture Trustee..................................................S-32
Voting ..............................................................S-33
Governing Law..........................................................S-33
Termination of the Trust Estate........................................S-33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................S-33
STATE TAX CONSEQUENCES......................................................S-33
ERISA CONSIDERATIONS........................................................S-33
RATINGS.....................................................................S-35
LEGAL INVESTMENT CONSIDERATIONS.............................................S-35
UNDERWRITING................................................................S-35
REPORT OF EXPERTS...........................................................S-36
CERTAIN LEGAL MATTERS.......................................................S-36
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES...................................................................I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.................................A-1
Prospectus
Page
----
Available Information..........................................................?
Reports to Owners..............................................................?
Incorporation of Certain Documents by Reference................................3
Prospectus Supplement..........................................................?
Summary of Prospectus..........................................................4
Risk Factors..................................................................13
The Trusts....................................................................18
The Mortgage Pools............................................................21
General..................................................................21
The Mortgage Pools.......................................................22
Mortgage Loan Program.........................................................23
Underwriting Guidelines..................................................24
Qualifications of Originators............................................26
Sub-Servicers............................................................28
Representations by Originators...........................................28
Sub-Servicing by Originators.............................................29
Description of the Securities.................................................31
General..................................................................31
General Payment Terms of Securities......................................32
Form of Securities.......................................................33
Assignment of Mortgage Loans.............................................34
Forward Commitments; Pre-Funding.........................................35
Payments on Mortgage Loans; Deposits to
Distribution Account.................................................. 36
Withdrawals from the Principal and Interest Account..................... 38
Distributions............................................................39
Principal and Interest on the Securities.................................39
Advances.................................................................40
Reports to Securityholders.............................................. 41
Collection and Other Servicing Procedures................................42
Realization upon Defaulted Mortgage Loans................................43
Subordination.................................................................44
Description of Credit Enhancement.............................................45
Hazard Insurance; Claims Thereunder...........................................50
Hazard Insurance Policies............................................... 50
The Company...................................................................50
The Servicer..................................................................51
The Master Servicer...........................................................51
The Pooling and Servicing Agreement...........................................51
Servicing and Other Compensation and Payment
of Expenses; Originator's Retained Yield...............................51
Evidence as to Compliance................................................52
Removal and Resignation of the Servicer..................................52
Resignation of the Master Servicer.......................................53
Rights Upon Event of Default.............................................53
Amendment................................................................53
Termination; Retirement of Securities....................................54
The Trustee..............................................................54
Yield Considerations..........................................................55
Maturity and Prepayment Considerations........................................57
Certain Legal Aspects of Mortgage Loans and
Related Matters...............................................................58
General..................................................................58
Foreclosure..............................................................58
Rights of Redemption.....................................................59
Anti-Deficiency Legislation and Other Limitations
on Lenders......................................................59
Environmental Legislation................................................60
Enforceability of Certain Provisions.....................................61
Certain Provisions of California Deeds of Trust..........................61
Applicability of Usury Laws..............................................62
Alternative Mortgage Instruments.........................................62
Soldiers' and Sailors' Civil Relief Act of 1940..........................62
Certain Federal Income Tax Consequences.......................................63
General..................................................................63
Grantor Trust Estates....................................................63
REMIC Securities.........................................................64
Sales of REMIC Securities................................................68
Debt Securities..........................................................69
Discount and Premium.....................................................70
Backup Withholding.......................................................72
Foreign Investors........................................................73
ERISA Considerations..........................................................73
Plan Asset Regulations...................................................74
Prohibited Transaction Class Exemption...................................74
Tax Exempt Investors.....................................................75
Consultation with Counsel................................................76
Legal Investment Matters......................................................76
Use of Proceeds...............................................................77
Methods of Distribution.......................................................77
Legal Matters.................................................................78
Financial Information.........................................................78
Rating.........................................................................?
Index of Principal Definitions................................................79
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the "Index to Location of
Principal Defined Terms" herein and "Index of Principal Definitions" in the
Prospectus for the definitions of certain capitalized terms.
Securities Offered: $__________________ Mortgage Loan
Asset Backed Notes, Series 199_-_ (the
"Notes"). The Notes represent
non-recourse obligations of the
Issuer. Proceeds of the assets in the
Trust Estate will be the sole source
of payments on the Notes.
Note Issuer: First Alliance Mortgage Loan Owner
Trust 199_-_ (the "Issuer"), a
Delaware business trust established by
the Depositor pursuant to an owner
trust agreement, dated as of ______ _,
199_ (the "Trust Agreement"), between
the Company and the Owner Trustee. The
Issuer does not have, nor is it
expected in the future to have, any
significant assets, other than the
assets included in the Trust Estate.
See "The Issuer" herein.
Company and Servicer: First Alliance Mortgage Company, a
California corporation (the "Company"
and in its separate capacity as
servicer, the "Servicer"). The
Company's principal executive offices
are located at 17305 Von Karman
Avenue, Irvine, California 92614-6203,
and its phone number is (714)
224-8500.
Indenture Trustee: [______________________], a [________]
banking corporation, as Indenture
Trustee (the "Indenture Trustee"). The
Indenture Trustee shall receive a fee
(the "Indenture Trustee Fee") as
provided in the Sale and Servicing
Agreement.
Owner Trustee: [______________________], a Delaware
banking corporation, as owner trustee
under the Trust Agreement (the "Owner
Trustee"). The Owner Trustee shall
receive a fee (the "Owner Trustee
Fee") as provided under the Trust
Agreement.
Originators: The Company and any entity from which
the Company, on or prior to the
Closing Date with respect to the
Initial Mortgage Loans and on or prior
to any Subsequent Transfer Date with
respect to the Subsequent Mortgage
Loans, acquires Mortgage Loans is an
"Originator" of the related Mortgage
Loans for purposes of this Prospectus
Supplement.
Cut-Off Date: ________ _, 199_.
Closing Date: On or about ________ __, 199_.
Description of the Notes: The Notes represent non-recourse
obligations of the Issuer and will be
issued pursuant to an indenture to be
dated as of ________ _, 199_ (the
"Indenture"), entered into between the
Issuer and the Indenture Trustee. The
assets included in the trust estate
created by the Indenture (the "Trust
Estate") will be the sole source of
payments on the Notes. The Notes will
be issued in a single class.
The assets of the Trust Estate
initially will include (i) a pool of
closed-end mortgage loans (the
"Initial Mortgage Loans") secured by
mortgages or deeds of trust (the
"Mortgages") on one-to-four family
residential properties (the "Mortgaged
Properties") to be conveyed to the
Issuer on the Closing Date; (ii) all
payments in respect of principal and
interest on the Loans (other than any
principal or interest payments due
thereon [on or prior] to the Cut-Off
Date whether or not received); (iii)
security interests in the Mortgaged
Properties; (iv) the Issuer's rights
under the Sale and Servicing
Agreement; (v) the Note Insurance
Policy and (vi) certain other
property.
On the Closing Date, an aggregate cash
amount of $_____________ (the
"Original Pre-Funded Amount") will be
deposited in a trust account in the
name of the Indenture Trustee (the
"Pre-Funding Account"). It is intended
that additional Mortgage Loans
satisfying the criteria specified in
the Sale and Servicing Agreement (the
"Subsequent Mortgage Loans") will be
purchased by the Issuer from the
Company from time to time on or before
___________ __,
S-1
<PAGE>
199_ from funds on deposit in the
Pre-Funding Account. As a result, the
aggregate principal balance of the
Mortgage Loans will increase by an
amount equal to the aggregate
principal balance of the Subsequent
Mortgage Loans so purchased and the
amount in the Pre-Funding Account will
decrease proportionately.
As described below, on the Closing
Date, cash will be deposited in the
name of the Indenture Trustee in the
Capitalized Interest Account (as
defined herein). Funds in the
Capitalized Interest Account will be
applied by the Indenture Trustee to
cover shortfalls in interest during
the Funding Period (as described under
"Pre-Funding Account") on the Notes
attributable to the provisions
allowing for purchase of Subsequent
Mortgage Loans.
Other Securities: In addition to the Notes, the Issuer
will issue a class of security (the
"Residual Interest") which will
represent the residual interest in the
Trust Estate. The Notes and the
Residual Interest are herein referred
to as the "Securities." Only the Notes
are offered hereby.
Denominations: The Notes are issuable in book entry
form in minimum denominations of
original principal amounts of $1,000
and integral multiples thereof.
The Mortgage Loans: Unless otherwise noted, all
statistical percentages in this
Prospectus Supplement are approximate
and are measured by the aggregate
principal balance of the Initial
Mortgage Loans (the "Original
Aggregate Loan Balance") or of the
Initial Mortgage Loans in each case as
of the Cut-Off Date. See "Additional
Information" herein. The statistical
characteristics of the Mortgage Loans
as a whole will vary upon the transfer
of Subsequent Mortgage Loans.
The Initial Mortgage Loans to be
conveyed by the Company to the Issuer
on the Closing Date consist of _____
fixed-rate and variable-rate Mortgage
Loans on single-family homes,
including investment properties (which
may be condominiums, one-to-four
family residences or homes in planned
unit developments), which are located
in __ states and the District of
Columbia. The Initial Mortgage Loans
are secured by Mortgages of which
_____% by aggregate principal balance
are first mortgages or deeds of trust,
[____% by aggregate principal balance
are secured by second mortgages or
deeds of trust and_____% by aggregate
principal balance are secured by third
mortgages or deeds of trust.] The
Initial Mortgage Loans in the Trust
Estate are all closed-end mortgage
loans in that the mortgagee is not
required to make future advances
thereunder. All of the Initial
Mortgage Loans are actuarial loans, as
discussed herein under "The Mortgage
Loan Pool -- Interest Payments on the
Mortgage Loans."
As of the Cut-Off Date, the Initial
Mortgage Loans had an Original
Aggregate Loan Balance of
$_____________.
[All] [_____%] of the Initial Mortgage
Loans were originated or acquired by
the Company in accordance with the
Company's mortgage loan program as
described in the Prospectus. As a
general matter, the Company's mortgage
loan program consists of the
origination and packaging of Mortgage
Loans relating to non-conforming
credits. A non-conforming credit means
a mortgage loan which is ineligible
for purchase by the Fannie Mae
("Fannie Mae") due to credit
characteristics that do not meet
Fannie Mae guidelines. Mortgage Loans
originated under the Company's
mortgage loan program are likely to
experience rates of delinquency,
bankruptcy and loss that are higher
than mortgage loans originated under
Fannie Mae guidelines. ____% of the
Initial Mortgage Loans by aggregate
principal balance were 30 days or more
delinquent in their monthly payments
as of the Cut-Off Date. However,
investors in the Notes should be aware
that approximately _____% (by
aggregate principal balance as of the
Cut-Off Date) of the Initial Mortgage
Loans had a first monthly payment due
on or before _______ _, ____.
Therefore, it was not possible for any
Mortgage Loan other than such Mortgage
Loans to have had a monthly payment
that was
S-2
<PAGE>
delinquent 30 days or more.
See "Risk Factors -- Risk of Higher
Delinquencies Associated with
Underwriting Standards" herein.
The Combined Loan-to-Value Ratio
("CLTV") of a Mortgage Loan is equal
to the ratio (expressed as a
percentage) of (x) the sum of the (i)
original principal balance of the
Mortgage Loan and (ii) the outstanding
principal balances of any senior
mortgage loans (computed at the date
of origination of the Mortgage Loan)
and (y) the appraised value of the
Mortgaged Property at the time of
origination. The Loan-to-Value Ratio
("LTV") of a Mortgage Loan is equal to
the ratio (expressed as a percentage)
of the original principal balance of
the Mortgage Loan and the appraised
value of the Mortgaged Property at the
time of origination.
The weighted average LTV of the
Initial Mortgage Loans as of the
Cut-Off Date was _____%, and the
weighted average remaining term to
stated maturity was ___ months, with a
range from ___ months to 360 months.
The average principal balance of the
Initial Mortgage Loans was $_________,
with a range from $_________ to
$__________. All of the Initial
Mortgage Loans have initial and
maximum Mortgage Rates. The initial
Mortgage Rates are the minimum
Mortgage Rates for the Initial
Mortgage Loans. The weighted average
current Mortgage Rate of Initial
Mortgage Loans was _____% per annum,
with current Mortgage Rates that
ranged from _____% to ______% per
annum. The weighted average maximum
Mortgage Rate of the Initial Mortgage
Loans was ______% per annum, with
maximum Mortgage Rates that ranged
from ______% to ______% per annum. The
gross margin range for the Initial
Mortgage Loans was _____% to _____%.
The weighted average gross margin for
the Initial Mortgage Loans was _____%.
As of the Cut-Off Date, substantially
all of the Initial Mortgage Loans had
interest rates which were not fully
indexed (i.e., the entire gross margin
had not yet been added to the rate
given by the index). None of the
Initial Mortgage Loans are Balloon
Loans.
All of the Initial Mortgage Loans were
secured by first mortgages. As a
percentage of the aggregate principal
balance of the Initial Mortgage Loans
as of the Cut-Off Date, _____% were
secured by mortgages on one-family
detached dwellings, _____% by
mortgages on two-to-four family
dwellings, ____% by mortgages on
condominiums and ____% by mortgages on
planned unit developments. See "The
Mortgage Loan Pool -- Variable Rate
Group" herein.
Approximately $_____________or _____%
of the Initial Mortgage Loans by
aggregate principal balance as of the
Cut-Off Date bear interest at rates
that adjust, along with the related
monthly payments, semiannually based
on the London interbank offered rate
for six-month United States Dollar
deposits in the London Market based on
quotations of major banks published in
The Wall Street Journal (the
"Six-Month LIBOR Loans").
Approximately $_____________ or _____%
of the Initial Mortgage Loans by
aggregate principal balance as of the
Cut-Off Date bear interest at a fixed
rate for two years after origination
and thereafter have periodic
adjustments at frequencies in the same
manner as the Six-Month LIBOR Loans
(as described above) (the "2/28
Loans").
Approximately $__________ or ____% of
the Initial Mortgage Loans by
aggregate principal balance as of the
Cut-Off Date bear interest at a fixed
rate for three years after origination
and thereafter have periodic
adjustments at frequencies in the same
manner as the Six-Month LIBOR Loans
(as described above) (the "3/27
Loans").
Approximately $__________ or ____% of
the Initial Mortgage Loans by
aggregate principal balance as of the
Cut-Off Date bear interest at a fixed
rate for five years after origination
and thereafter have periodic
adjustments at frequencies in the same
manner as the Six-Month LIBOR Loans
(as described above) (the "5/25
Loans").
S-3
<PAGE>
General. The Mortgage Loans are not
insured by either primary or pool
mortgage insurance policies; however,
certain distributions due to the
Owners of the Notes are insured by the
Note Insurance Policy. The Note
Insurance Policy will provide for 100%
coverage of the principal amount of,
and scheduled interest due on, the
Notes. See "Credit Enhancement" in
this Summary and "The Note Insurance
Policy and the Note Insurer" in this
Prospectus Supplement. The Mortgage
Loans are not guaranteed by the
Issuer, the Company, any Originator or
any of their respective affiliates.
The Mortgage Loans are required to be
serviced by the Servicer in accordance
with the terms of the Sale and
Servicing Agreement and with
reasonable care, using that degree of
skill and attention that the Servicer
exercises with respect to comparable
mortgage loans that it services for
itself and others. See "The Sale and
Servicing Agreement" herein.
Note Rate: On each Payment Date, the Note Rate
will be equal to the lesser of (i)
with respect to any Payment Date which
occurs on or prior to the Clean-Up
Call Date, the London interbank
offered rate for one-month United
States dollar deposits ("LIBOR")
(calculated as described under
"Description of the Notes--
Calculation of LIBOR" herein) as of
the second to last business day prior
to the immediately preceding Payment
Date (or in the case of the first
Payment Date) plus ____% per annum and
with respect to any Payment Date
thereafter, LIBOR plus ____% per annum
and (ii) the "Available Funds Cap",
which is defined to be the weighted
average of the Mortgage Rates on
Mortgage Loans, less the sum of (a)
Servicing Fee (as defined herein), (b)
beginning on the [third] Payment Date
following the Closing Date, the
premiums due to the Note Insurer with
respect to the Note Insurance Policy,
(c) the fees due to the Indenture
Trustee and the Owner Trustee, and (d)
beginning on the [seventh] Payment
Date following the Closing Date,
____%, expressed as a percentage of
the Mortgage Loans, calculated as of
the first day of the related
Remittance Period.
Distributions, Generally: Distributions on the Notes will be
made on the twentieth day of each
calendar month, or if such day is not
a business day, the next succeeding
business day (each, a "Payment Date")
commencing in _______ 199_, to the
Owners of record (see "Description of
the Notes-- General" herein). The
Owners of record shall be such Owners
as of the [last day of the calendar
month immediately preceding the
calendar month in which such Payment
Date occurs, whether or not such day
is a business day] [the Business Day
immediately preceding such Payment
Date] (each a "Record Date") in an
amount equal to the product of such
Owner's Percentage Interest and the
amount distributed in respect of the
Note on such Payment Date.
The "Percentage Interest" represented
by any Note will be equal to the
percentage obtained by dividing the
Original Note Principal Balance of
such Note by the Original Note
Principal Balance of all Notes.
Distributions of Interest: For each Payment Date, the interest
due with respect to the Notes will be
the interest which has accrued thereon
at the then applicable Note Rate from
the preceding Payment Date (or from
the Closing Date in the case of the
first Payment Date) to and including
the day prior to the current Payment
Date. Such period referred to in the
prior sentence relating to the accrual
of interest is the "Accrual Period"
and the amount of interest due on a
Payment Date is the "Current Interest"
for such Payment Date. Calculations of
interest on the Notes will be made on
the basis of the actual number of days
elapsed in the related Accrual Period
and a year of 360 days.
Distributions of Principal: The Owners of the Notes are entitled
to receive certain monthly
distributions of principal on each
Payment Date which generally reflect
collections of principal during the
prior calendar month. The Note
Insurance Policy only guarantees the
amount by which the sum of the Current
Interest and the Subordination
Deficit, if any, exceeds the Total
Available Funds (after taking into
account the portion of the Principal
Distribution Amount to be actually
distributed on such Payment Date
without regard to any related Insured
Payment to be made with respect to
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<PAGE>
such Payment Date) as more fully
described herein under "The Note
Insurance Policy and the Note
Insurer."
The credit enhancement provisions
described herein result in a limited
acceleration of the principal payments
to the Owners of each the Notes; such
credit enhancement provisions are more
fully described under "Description of
the Notes -- Overcollateralization
Provisions" herein. Such credit
enhancement provisions also have the
effect of accelerating and shortening
the weighted average lives of the
Notes by increasing the rate at which
principal is distributed to the
Owners. See "Prepayment and Yield
Considerations" herein. In addition,
the following discussion makes use of
a number of technical defined terms
which are defined under "Description
of the Notes -- Overcollateralization
Provisions" herein.
On each Payment Date, distributions in
reduction of the Note Principal
Balance will be made in the amounts
described herein. The "Principal
Distribution Amount" with respect to
each Payment Date shall be the lesser
of:
(a) the Total Available Funds
plus any Insured Payment
minus the Current Interest;
and
(b) (i) the sum, without any
duplication of:
(a) the Carry-Forward
Amount;
(b) the principal portion
of all scheduled
monthly payments on the
Mortgage Loans due
during the related Due
Period, to the extent
actually received by
the Indenture Trustee
on or prior to the
related Remittance Date
or to the extent
actually advanced by
the Servicer on or
prior to the related
Remittance Date and the
principal portion of
all full and partial
principal prepayments
made by the respective
Mortgagors during the
related Remittance
Period;
(c) the scheduled principal
balance of each
Mortgage Loan that
either was repurchased
by the Company or an
Originator or purchased
by the Servicer on the
related Remittance
Date, to the extent
such scheduled
principal balance is
actually received by
the Indenture Trustee
on or prior to the
related Remittance
Date;
(d) any Substitution
Amounts delivered by
the Company or an
Originator on the
related Remittance Date
in connection with a
substitution of a
Mortgage Loan (to the
extent such
Substitution Amounts
relate to principal),
to the extent such
Substitution Amounts
are actually received
by the Indenture
Trustee on or prior to
the related Remittance
Date;
(e) all Net Liquidation
Proceeds actually
collected by the
Servicer with respect
to the Mortgage Loans
during the related
Remittance Period (to
the extent such Net
Liquidation Proceeds
relate to principal) to
the extent actually
received by the
Indenture Trustee on or
prior to the related
Remittance Date;
(f) the amount of any
Subordination Deficit
for such Payment Date;
(g) the proceeds received
by the Indenture
Trustee of any
termination of the
Trust Estate (to the
extent such proceeds
relate to principal);
and
(h) any moneys released
from the Pre-Funding
Account as a prepayment
of the Notes on the
Payment Date which
immediately follows the
end of the Funding
Period; and
S-5
<PAGE>
(i) the amount of any
Subordination Increase
Amount for such Payment
Date consisting of the
amount of any Net
Monthly Excess Cash
Flow to be actually
applied for the
accelerated payment of
principal on the Notes;
minus
(ii) the amount of any
Subordination Reduction
Amount for such Payment
Date consisting of the
amount of any Net
Monthly Excess Cash
Flow to be actually
paid to the Owners of
the Residual Interests.
In no event will the Principal
Distribution Amount for any Payment
Date (x) be less than zero or (y) be
greater than the then-outstanding Note
Principal Balance.
The sum of the Current Interest and
the Principal Distribution Amount for
any Payment Date is the "Monthly
Distribution Amount" for such Payment
Date.
The "Carry-Forward Amount" for any
Payment Date is the sum of (x) the
amount, if any, by which (i) the
Monthly Distribution Amount as of the
immediately preceding Payment Date
exceeded (ii) the amount of the actual
distribution made to the Owners of the
Notes on such immediately preceding
Payment Date plus (y) 30 days'
interest on the interest portion of
such amount, calculated at the Note
Rate. See "Description of the Notes --
Distributions" herein.
A "Liquidated Mortgage Loan" is, in
general, a defaulted Mortgage Loan as
to which the Servicer has determined
that all amounts that it expects to
recover on such Mortgage Loan have
been recovered (exclusive of any
possibility of a deficiency judgment).
Any loss on a Liquidated Mortgage Loan
(i.e., a Realized Loss) may or may not
be allocated to the Owners of the
Notes on the Payment Date which
immediately follows the event of loss.
However, the Owners of the Notes are
entitled to receive ultimate recovery
of any Realized Losses which receipt
will be no later than the Payment Date
occurring after such Realized Loss
creates a Subordination Deficit and
will be in the form of an Insured
Payment if not covered through Net
Monthly Excess Cashflow.
Insured Payments do not include
Realized Losses until such time as the
aggregate cumulative Realized Losses
have created a Subordination Deficit
nor do Insured Payments cover the
Servicer's failure to make Delinquency
Advances until such time as the
aggregate cumulative amount of such
unpaid Delinquency Advances, when
added to Realized Losses have created
a Subordination Deficit.
A "Subordination Deficit" with respect
to a Payment Date is the amount, if
any, by which (x) the Note Principal
Balance, after taking into account all
distributions to be made on such
Payment Date, exceeds (y) the sum of
(i) the aggregate principal balances
of the Mortgage Loans as of the close
of business on the Due Date in the
calendar month in which such Payment
Date occurs and (ii) the amount, if
any, on deposit in the Pre-Funding
Account as of the close of business on
the Due Date in the calendar month in
which such Payment Date occurs.
Credit Enhancement: The Credit Enhancement provided for
the benefit of the Notes consists of
(x) the overcollateralization
mechanics which utilize the internal
cash flows of the Mortgage Loan Pool
and (y) the Note Insurance Policy.
Overcollateralization. The credit
enhancement provisions of the Mortgage
Loan Pool result in a limited
acceleration of the Notes relative to
the amortization of
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<PAGE>
the Mortgage Loans in the early months
of the transaction. The accelerated
amortization is achieved by the
application of certain excess interest
to the payment of principal on the
Notes. This acceleration feature
creates overcollateralization which
results from the excess of the
aggregate scheduled principal balances
of the Mortgage Loans plus the amount,
if any, on deposit in the Pre-Funding
Account over the Note Principal
Balance. Once the required level of
overcollateralization is reached, and
subject to the provisions described in
the next paragraph, the acceleration
feature will cease, unless necessary
to maintain the required level of
overcollateralization.
The Sale and Servicing Agreement
provides that, subject to certain
floors, caps and triggers, the
required level of
overcollateralization may increase or
decrease over time. An increase would
result in a temporary period of
accelerated amortization of the Notes
to increase the actual level of
overcollateralization to its required
level; a decrease would result in a
temporary period of decelerated
amortization to reduce the actual
level of overcollateralization to its
required level. See "Description of
the Notes--Overcollateralization
Provisions" herein.
The Note Insurance Policy. The Company
will obtain the Note Insurance Policy,
which is noncancelable, in favor of
the Indenture Trustee on behalf of the
Owners of the Notes. On each Payment
Date, the Note Insurer will be
required to make available to the
Indenture Trustee the amount by which
the Current Interest and any
Subordination Deficit exceeds the
Total Available Funds (after deducting
the amount necessary to pay the
premium amount to the Note Insurer) as
of such Payment Date. The Note
Insurance Policy does not guarantee to
Owners of the Notes any specified rate
of Prepayments. See "Credit
Enhancement" in this Summary and "The
Note Insurance Policy and the Note
Insurer" herein and "Description of
Credit Enhancement" in the Prospectus.
Pre-Funding Account: On the Closing Date, the Original
Pre-Funded Amount will be deposited in
the Pre-Funding Account which account
will be in the name of, and maintained
by, the Indenture Trustee for
inclusion in the Trust Estate. During
the period (the "Funding Period") from
and including the Closing Date until
the earliest of (i) the date on which
the amount on deposit in the
Pre-Funding Account is less than
$100,000 and (ii) ________ __, 199_,
the Pre-Funded Amount will be
maintained in the Pre-Funding Account.
The Original Pre-Funded Amount will be
reduced during the Funding Period by
the amount thereof used to purchase
Subsequent Mortgage Loans in
accordance with the Sale and Servicing
Agreement. The amount on deposit in
the Pre-Funding Account at any time is
the "Pre-Funded Amount". Subsequent
Mortgage Loans purchased by and added
to the Mortgage Loan Pool on any date
(each, a "Subsequent Transfer Date")
must satisfy the criteria set forth in
the Sale and Servicing Agreement. Any
Pre- Funded Amount, less any interest
and other investment earnings on
amounts on deposit in the Pre-Funding
Account (the "Pre-Funding Account
Earnings"), remaining at the end of
the Funding Period will be distributed
to the Owners of the Notes on the
Payment Date that immediately follows
the end of the Funding Period in
reduction of the Note Principal
Balances, thus resulting in a partial
principal prepayment of the Notes as
specified herein under "Description of
the Notes -- Distributions." All
earnings in the Pre-Funding Account
will be deposited in the Capitalized
Interest Account.
Although no assurance can be given, it
is intended that the principal amount
of Subsequent Mortgage Loans added to
the Trust Estate will require
application of substantially all of
the Original Pre-Funded Amount and it
is not intended that there will be any
material amount of principal prepaid
to the Owners of the Notes from the
Pre-Funding Account. In the event that
the Company is unable to sell
Subsequent Mortgage Loans to the
Indenture Trustee for addition to the
Trust Estate in an amount equal to the
Original Pre-Funded Amount, a
principal
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<PAGE>
prepayment to Owners of the Notes
will occur on the Payment Date
in _______ 199_ in an amount equal to
the Pre-Funded Amount, less any
Pre-Funding Account Earnings remaining
at the end of the Funding Period.
Capitalized Interest Account: On the Closing Date, cash will be
deposited in a trust account (the
"Capitalized Interest Account") in the
name of, and maintained by, the
Indenture Trustee on behalf of the
Trust Estate. The amount on deposit in
the Capitalized Interest Account,
including reinvestment income thereon,
will be used by the Indenture Trustee
to fund the excess, if any, of (i) the
sum of (a) the aggregate amount of
interest accruing during the related
Accrual Period at the Note Rate on the
amount by which the aggregate Note
Principal Balance exceeds the
aggregate principal balance of the
Initial Mortgage Loans plus (b) the
Indenture Trustee and Owner Trustee
fees over (ii) the amount of any
Pre-Funding Account Earnings; such
amounts on deposit will be so applied
by the Indenture Trustee on each
Payment Date in the Funding Period to
fund such excess, if any. Any amounts
remaining in the Capitalized Interest
Account not needed for such purpose
will be paid to the Company at the end
of the Funding Period.
Mandatory Prepayment of
Notes: In the event that at the end of the
Funding Period, not all of the
$_____________ funded from the sale of
the Notes has been used to acquire
Subsequent Mortgage Loans then the
Owners of the Notes will receive a
prepayment on the Payment Date in
_______ 199_.
Note Insurer: [________________________] (the "Note
Insurer").
Delinquency Advances
and Compensating Interest: The Servicer will be obligated to make
advances ("Delinquency Advances") with
respect to delinquent payments of
interest (at the related Mortgage Rate
less the Servicing Fee, as defined
below) and scheduled principal due on
each Mortgage Loan to the extent that
such Delinquency Advances, in good
faith and in the Servicer's reasonable
judgment, are reasonably recoverable
from the related Mortgage Loan.
Delinquency Advances are recoverable
from (i) future collections on the
Mortgage Loan which gave rise to the
Delinquency Advance, (ii) Liquidation
Proceeds for such Mortgage Loan and
(iii) from certain excess moneys which
would otherwise be paid to the Owners
of the Residual Interest.
In addition, the Servicer will also be
required to deposit in the Principal
and Interest Account with respect to
any full Prepayment received on a
Mortgage Loan during the related
Remittance Period out of its own funds
without any right of reimbursement
therefor, an amount equal to the
difference between (x) 30 days'
interest at such Mortgage Loan's
Mortgage Rate (less the Servicing Fee)
on the principal balance of such
Mortgage Loan as of the first day of
the related Remittance Period and (y)
to the extent not previously advanced,
the interest (less the Servicing Fee)
paid by the Mortgagor with respect to
such Mortgage Loan during such
Remittance Period (any such amount
paid by the Servicer, "Compensating
Interest"). The Servicer will not be
required to pay Compensating Interest
with respect to any Remittance Period
in an amount in excess of the
aggregate Servicing Fee received by
the Servicer for such Remittance
Period or to cover shortfalls in
collections of interest due to
curtailments.
Any failure by the Servicer to remit
to the Indenture Trustee a Delinquency
Advance or Compensating Interest to
the extent required under the Sale and
Servicing Agreement will constitute an
event of default under the Sale and
Servicing Agreement, in which case,
upon the removal of the Servicer, the
Trustee or the successor Servicer will
be obligated to make such advances in
accordance with the terms of the Sale
and Servicing Agreement. See
"Description of the Securities --
Advances" in the Prospectus.
Book-Entry Registration of the
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<PAGE>
Notes: The Notes will initially be issued in
book-entry form. Persons acquiring
beneficial ownership interests in such
Note ("Beneficial Owners") may elect
to hold their interests through The
Depository Trust Company ("DTC"), in
the United States, [or Cedel Bank,
S.A. ("Cedel") or the Euroclear System
("Euroclear"), in Europe]. Transfers
within DTC [, Cedel or Euroclear, as
the case may be,] will be in
accordance with the usual rules and
operating procedures of the relevant
system. So long as the Notes are
Book-Entry Notes (as defined herein),
such Notes will be evidenced by one or
more Notes registered in the name of
Cede & Co. ("Cede"), as the nominee of
DTC or one of the European
Depositaries (as defined below).
[Cross-market transfers between
persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or
indirectly through Cedel or Euroclear,
on the other, will be effected in DTC
through Citibank N.A. ("Citibank") or
The Chase Manhattan Bank ("Chase," and
together with Citibank, the "European
Depositaries"), the relevant
depositaries of Cedel and Euroclear,
respectively, and each a participating
member of DTC.] The Notes will
initially be registered in the name of
Cede. The interests of the Owners of
such Notes will be represented by
book-entries on the records of DTC and
participating members thereof. No
Beneficial Owner will be entitled to
receive a definitive certificate
representing such person's interest,
except in the event that Definitive
Notes (as defined herein) are issued
under the limited circumstances
described herein. All references in
this Prospectus Supplement to any
Notes reflect the rights of Beneficial
Owners only as such rights may be
exercised through DTC and its
participating organizations for so
long as such Notes are held by DTC.
See "Description of the
Notes--Book-Entry Registration of the
Notes" herein and Annex I hereto.
Monthly Servicing Fee: The Servicer will retain a fee equal
to ____% per annum (the "Servicing
Fee"), payable monthly at one-twelfth
the annual rate, of the
then-outstanding principal amount of
each Mortgage Loan, payable monthly at
one-twelfth the annual rate, of the
then-outstanding principal amount of
each Mortgage Loan.
Optional Redemption --
Clean-Up Call: The [Servicer] [the holders of
Residual Interests exceeding in the
aggregate a 50% percentage interest
(the "Majority Residualholders")] may,
at [its] [their] option, effect an
early redemption of the Notes and
terminate the Indenture on any Payment
Date after the Clean-Up Call Date by
purchasing all of the Mortgage Loans
at a price equal to or greater than
the Redemption Price (as defined in
the Sale and Servicing Agreement). In
addition, the Note Insurer will have
rights, under the limited
circumstances described in the Sale
and Servicing Agreement, to acquire
all of the Mortgage Loans from the
Issuer and thereby effect a redemption
of the Notes. See
"Administration--Redemption of the
Notes" herein.
Ratings: It is a condition of the original
issuance of the Notes that the Notes
receive ratings of AAA by Standard &
Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
("Standard & Poor's") and Aaa by
Moody's Investors Service, Inc.
("Moody's"). A security rating is not
a recommendation to buy, sell or hold
securities, and may be subject to
revision or withdrawal at any time by
the assigning entity. See "Prepayment
and Yield Considerations" and
"Ratings" herein and "Prepayment and
Yield Considerations" in the
Prospectus.
Risk Factors: Credit Considerations. For information
with regard to the Mortgage Loans and
their related risks, see "The Mortgage
Loan Pool" herein.
Prepayment Considerations. For
information regarding the consequences
of prepayments of the Mortgage Loans
and of the failure of the Company to
purchase Subsequent Mortgage Loans
during the Funding Period in an amount
equal to the Original Pre-Funded
Amount, see "Prepayment and Yield
Considerations" and "Risk Factors --
The Subsequent Mortgage Loans and the
Pre-Funding Account" herein.
S-9
<PAGE>
Other Considerations. For a discussion
of other risk factors that should be
considered by prospective investors in
the Offered Notes, see "Risk Factors"
herein and in the Prospectus.
Federal Income Tax Aspects: No election will be made to treat the
Trust Estate or any portion thereof as
a "real estate mortgage investment
conduit" (a "REMIC") for federal
income tax purposes.
For federal income tax purposes, the
Notes will be treated as debt
obligations of the Issuer and the
Issuer will not be characterized as an
association (or a publicly traded
partnership or taxable mortgage pool)
taxable as a corporation. An Owner of
Notes, by its acceptance of a Note,
will agree to treat the Notes as
indebtedness. An Owner will not be
required to report income with respect
to the Notes under an accrual method
unless the Owner otherwise uses the
accrual method or purchases a Note
which has original issue discount.
The Notes will not represent interests
in "qualifying real property loans"
within the meaning of Section 593(d)
of the Internal Revenue Code of 1986,
as amended (the "Code"), "real estate
assets" for purposes of Section
856(c)(5)(A) of the Code or "[l]oans
. . . principally secured by an
interest in real property" within the
meaning of Section 7701(a)(19)(C)(v)
of the Code.
Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations: Subject to the limitations described
under "ERISA Considerations" herein
and in the Prospectus, the Notes may
be purchased by employee benefit plans
that are subject to the Employee
Retirement Income Security Act of
1974, as amended. See "ERISA
Considerations" herein and in the
Prospectus.
Legal Investment
Considerations: The Notes will [not] constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"). Accordingly, many
institutions with legal authority to
invest in comparably rated securities
based on first mortgage loans may not
be legally authorized to invest in the
Notes.
S-10
<PAGE>
RISK FACTORS
Prospective investors in the Notes should consider the following
factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of the Notes.
Risk of Mortgage Loan Yield Reducing the Note Rate. Subject to the
Available Funds Cap, the Note Rate is based upon the value of an index (LIBOR)
which is different from the value of the indices applicable to the Mortgage
Loans, as described under "The Mortgage Pool" herein (either as a result of the
use of a different index rate determination date, rate adjustment date or rate
cap or floor). _____% of the Initial Mortgage Loans are Six-Month LIBOR Loans
which adjust semi-annually based upon a six-month LIBOR index, whereas the Note
Rate adjusts monthly based upon a one-month LIBOR index and is limited by the
Available Funds Cap. Consequently, the Note Rate for any Payment Date may not
equal the interest which becomes due on the Initial Mortgage Loans (net of
Servicing Fee and certain other required reductions) during the related
Remittance Period. In addition, _____% of the Initial Mortgage Loans by
aggregate principal balance as of the Cut-Off Date are 2/28 Loans that provide
for a fixed interest rate for a period of approximately two years following
origination, ____% of the Initial Mortgage Loans by aggregate principal balance
as of the Cut-Off Date are 3/27 Loans that provide for a fixed interest rate for
a period of approximately three years following origination and ____% of the
Initial Mortgage Loans by aggregate principal balance as of the Cut-Off Date are
5/25 Loans that provide for a fixed interest rate for a period of approximately
five years following origination. Thereafter, such Mortgage Loans provide for
interest rate and payment adjustments in a manner similar to the Six-Month LIBOR
Loans. In particular, the Note Rate adjusts monthly, while the interest rates of
the Mortgage Loans adjust less frequently, with the result that the Available
Funds Cap may be lower than the otherwise applicable Note Rate for extended
periods in a rising interest rate environment. Moreover, one-month LIBOR and the
index applicable to such Mortgage Loans may respond to different economic and
market factors, and there is not necessarily any correlation between them. Thus,
it is possible, for example, that one-month LIBOR may rise during periods in
which the Mortgage Loan's index is stable or is falling or that, even if both
one-month LIBOR and such index rise during the same period, one-month LIBOR may
rise much more rapidly than such index.
The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible Mortgage Loans available during the Funding Period
is less than 100% of the Original Pre-Funded Amount, the Company will have
insufficient Mortgage Loans to sell to the Issuer for addition to the Trust
Estate on the Subsequent Transfer Dates, thereby resulting in a prepayment of
principal to Owners of the Notes as described herein. See "Social, Economic and
Other Factors" below. In addition, any conveyance of Subsequent Mortgage Loans
is subject to the following conditions, among others: (i) each such Subsequent
Mortgage Loan must satisfy the representations and warranties specified in the
agreement pursuant to which such Subsequent Mortgage Loans are transferred to
the Issuer (each a "Subsequent Transfer Agreement") and in the Sale and
Servicing Agreement; (ii) the Subsequent Mortgage Loans must be selected by the
Company in a manner that it believes is not adverse to the interest of the
Owners of the Notes or the Note Insurer; (iii) certain opinions of counsel with
respect to the validity of the conveyance of such Subsequent Mortgage Loans must
be delivered by the Company; and (iv) as of each cut-off date (each, a
"Subsequent Cut-Off Date") applicable thereto, the Mortgage Loans, including the
Subsequent Mortgage Loans to be conveyed by the Company as of such Subsequent
Cut-Off Date, must satisfy the criteria set forth in the Sale and Servicing
Agreement, as described herein under "The Mortgage Loan Pool--Conveyance of
Subsequent Mortgage Loans."
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the
Issuer for inclusion in the Trust Estate by the end of the Funding Period, the
Owners of the Notes then entitled to payments of principal will receive a
prepayment of principal in an amount equal to the Pre-Funded Amount, less any
Pre-Funding Account Earnings, remaining in the Pre-Funding Account on the first
Payment Date following the end of the Funding Period (in no event later than the
_______ 199_ Payment Date). Although no assurances can be given, the Company
intends that the principal amount of Subsequent Mortgage Loans sold to the
Issuer will require the application of substantially all amounts on deposit in
the Pre-Funding Account and that there will be no material principal prepayment
to the Owners of the from the Pre-Funded Amount.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may be of a different credit quality. Therefore, following the transfer of
Subsequent Mortgage Loans to the Trust Estate, the aggregate characteristics of
the Mortgage Loans then comprising the Trust Estate may vary from those of the
Initial Mortgage Loans. See "The Mortgage Loan Pool--Conveyance of Subsequent
Mortgage Loans."
Social, Economic and Other Factors. The ability of the Issuer to invest
in Subsequent Mortgage Loans is largely dependent upon the ability of the
Company to originate or purchase additional mortgage loans. The ability of the
Company to originate or purchase additional loans may be affected by a variety
of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
S-11
<PAGE>
conditions generally. However, the Company is unable to determine and has no
basis to predict whether or to what extent economic or social factors will
affect its origination ability and the availability of Subsequent Mortgage
Loans.
Risk of Higher Delinquencies Associated with Underwriting Standards.
All of the Mortgage Loans were originated or acquired by the Company in
accordance with the Company's mortgage loan program described in the Prospectus.
See "Mortgage Loan Program -- Underwriting Guidelines" in the Prospectus. As a
general matter, the Company's mortgage loan program consists of the origination
and packaging of mortgage loans relating to non-conforming credits. A
non-conforming credit means a mortgage loan which is ineligible for purchase by
Fannie Mae due to credit characteristics that do not meet Fannie Mae guidelines.
Mortgage Loans originated under the Company's mortgage loan program may
experience rates of delinquency, foreclosure and bankruptcy that are higher than
mortgage loans originated under Fannie Mae guidelines. ____% of the Initial
Mortgage Loans were 30 days or more delinquent in their monthly payments as of
the Cut-Off Date. However, investors in the Notes should be aware that
approximately _____% (by aggregate principal balance as of the Cut-Off Date) of
the Initial Mortgage Loans had a first monthly payment due on or before
_______ _, 199_. Therefore, it was not possible for any Mortgage Loan other than
such Mortgage Loans to have had a monthly payment that was delinquent 30 days or
more.
Risk of Higher Default Rates Associated with California Real Property.
Since _____% of the Mortgaged Properties relating to the Initial Mortgage Loans
are located in California, an overall decline in the California residential real
estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans, causing the principal balances of the related
Mortgage Loans to equal or exceed the value of such Mortgaged Properties.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mudflows). See
"Hazard Insurance; Claims Thereunder" in the Prospectus. Accordingly, should
such event cause losses in respect of the Mortgage Loans, if the protection
afforded by the overcollateralization of the Notes is insufficient and upon the
occurrence of a Subordination Deficit the Note Insurer is unable to meet its
obligations under the Note Insurance Policy, then the Owners of the Notes could
experience a loss on their investment.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the Company. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The Company will be required to
repurchase any Mortgage Loans which, at the time of origination, did not comply
with applicable federal and state laws and regulations. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Company to damages and
administrative enforcement. See "Certain Legal Aspects of Mortgage Loans and
Related Matters" in the Prospectus.
_____% of the Initial Mortgage Loans will be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act"),
which incorporates the Home Ownership and Equity Protection Act of 1994. The
Riegle Act adds certain additional provisions to Regulation Z, which is the
implementing regulation of the Truth-In-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money home equity loans with high interest rates or high upfront
fees and charges. In general, home equity loans within the purview of the Riegle
Act have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. The provisions of the Riegle Act
apply on a mandatory basis to all home equity loans originated on or after
October 1, 1995. These provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the home equity loan. The Company will represent and warrant in the Sale and
Servicing Agreement that each Mortgage Loan was originated in compliance with
all applicable laws including the Truth-in-Lending Act, as amended.
Risk of Seller Insolvency. The Company believes that the transfer of
the Mortgage Loans to the Issuer constitutes a sale by the Company to the Issuer
and, accordingly, that such Mortgage Loans will not be part of the assets of the
Company in the event of the insolvency of the Company and will not be available
to the creditors of the Company. However, in the event of an insolvency of the
Company, it is possible that a bankruptcy trustee or a creditor of the Company
may argue that the transaction between the Company and the Issuer was a pledge
of such Mortgage Loans in connection with a borrowing by the Company rather than
a true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Notes.
S-12
<PAGE>
On the Closing Date, the Indenture Trustee, the Company, the
Underwriters, the Rating Agencies and the Note Insurer will have received an
opinion of Arter & Hadden LLP, counsel to the Company, with respect to the true
sale of the Mortgage Loans from the Company to the Issuer, in form and substance
satisfactory to the Note Insurer and the Rating Agencies.
THE PORTFOLIO OF MORTGAGE LOANS
General
The Mortgage Loan Pool includes newly-originated fixed and variable
rate loans which were originated directly by the Company or one or more
unrelated third party Originators.
Substantially all of the Initial Mortgage Loans adjust based on the
London interbank offered rate for six-month United States Dollar deposits in the
London Market based on quotations of major banks published in The Wall Street
Journal. See "Mortgage Loan Program -- Underwriting Guidelines" in the
Prospectus.
Acquisitions
All of the Mortgage Loans were originated by the Company and were
underwritten pursuant to the Company's Guidelines or acquired by the Company
from an Originator based on Approved Guidelines or Bulk Guidelines as described
in the Prospectus. See "Mortgage Loan Program" in the Prospectus. Initial
Mortgage Loans representing an aggregate principal balance of $_____________ or
approximately _____% of the Initial Mortgage Loans by aggregate principal
balance were acquired from an Originator other than the Company. All of the 2/28
Loans, 3/27 Loans and 5/25 Loans were acquired by the Company from the
Originators. The Company reviewed 100% of the acquisitions included in the Trust
Estate.
Delinquencies
The following tables set forth information relating to the delinquency,
foreclosure and loan loss experience of the Servicer for its servicing portfolio
of fixed and variable rate mortgage loans as of and for the period ended
September 30, 1997 and for each of the three prior calendar years. The Servicer
is not an approved seller/servicer by Fannie Mae or the Federal Home Loan
Mortgage Corporation.
Delinquency and Foreclosure Experience of the
Servicer's Servicing Portfolio
<TABLE>
<CAPTION>
As of September 30, As of December 31,
----------------------- -----------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total Servicing Portfolio.................. $745,173 $641,191 $613,791 $555,685
Delinquent Loans(1)
30-59 days........................ 8,429 9,359 8,339 6,084
60-89 days........................ 5,644 6,704 6,538 4,471
90 days or more................... $17,625 19,081 21,002 13,589
-- ------- ------ ------ ------
Total.................... $31,698 $ 35,144 $ 35,879 $ 24,144
======= ======== ======== ========
Total Delinquency Percentage 4.3% 5.5% 5.8% 4.3%
REO Properties(2).......................... $2,652 $3,951 $7,854 $3,386
</TABLE>
- ---------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due and includes all loans in foreclosure.
(2) Includes REO Properties owned by the Company as well as REO Properties
owned by REMIC Trusts and serviced by the Company; however, excludes
private investor REO Properties not serviced by the Company.
S-13
<PAGE>
Loan Loss Experience of the
Servicer's Servicing Portfolio
<TABLE>
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Average Servicing Portfolio Balance
Outstanding(1).............................. $683,861 $615,393 $583,943 $470,628
Net Losses(2)................................... $1,531 $2,160 $169 $44
As a percentage of Average Portfolio 0.30% 0.35% 0.03% 0.01%
Balance(3)...................................
</TABLE>
- --------------------------
(1) For 1997, 1996 and 1995 periods, the average servicing portfolio
balance equals the quarterly average of the servicing portfolio
computed as the average of the balance at the beginning and end of each
quarter. For 1994, the average servicing portfolio balance equals the
average of the balance at the beginning and end of each period.
(2) "Net Losses" means actual net losses realized with respect to the
disposition of the REO properties.
(3) For the nine months ended September 30, 1997, "As a percentage of
Average Portfolio Balance" was annualized by multiplying "Net Losses"
by 1.33 before calculating the percentage of "Average Portfolio
Balance."
THE ISSUER
The Issuer is a Delaware business trust established by the Depositor
pursuant to the Trust Agreement under the laws of the State of Delaware. After
its formation, the Issuer will not engage in any activity other than (i)
acquiring, holding and managing the Mortgage Loans and the other assets of the
Trust Estate and the proceeds therefrom, (ii) issuing the Notes and the Residual
Interest, (iii) making payments on the Notes and the Residual Interest and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or in connection therewith.
The Residual Interest represents the residual interest in the assets of the
Trust Estate. The Notes and the Residual Interests will be delivered by the
Issuer to the Company as consideration for the Mortgage Loans pursuant to the
Sale and Servicing Agreement. The Issuer does not have, nor is it expected in
the future to have, any significant assets, other than the assets included in
the Trust Estate.
USE OF PROCEEDS
The Company will sell the Mortgage Loans to the Issuer concurrently
with the delivery of the Notes. Net proceeds from the sale of the Notes will be
applied by the Issuer to the purchase of the Initial Mortgage Loans from the
Company. Such net proceeds less the Pre-Funded Amount and the amount deposited
in the Capitalized Interest Account will (together with the Residual Interest
retained by the Company or its affiliates) represent the purchase price to be
paid by the Issuer to the Company for the Initial Mortgage Loans.
THE MORTGAGE LOAN POOL
General
Unless otherwise noted, all references to statistical percentages in
this Prospectus Supplement appearing "as of the Cut-Off Date," together with all
dollar amount references herein to aggregate principal balances appearing "as of
the Cut-Off Date" have been calculated using the aggregate scheduled principal
balances of the Initial Mortgage Loans as of the close of business on the
Cut-Off Date. Subsequent Mortgage Loans are intended to be purchased by the
Issuer for inclusion in the Trust Estate from the Company from time to time on
or before ________ __, 199_ from funds on deposit in the Pre-Funding Account.
The Initial Mortgage Loans and the Subsequent Mortgage Loans are referred to
herein collectively as the "Mortgage Loans." The Subsequent Mortgage Loans, if
available, will be sold by the Company to the Issuer.
S-14
<PAGE>
This subsection describes generally certain characteristics of the
Initial Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of Initial Mortgage Loans refer in each case to the approximate
percentage of the aggregate principal balance of the Initial Mortgage Loans as
of the Cut-Off Date, based on the outstanding principal balances of the Initial
Mortgage Loans as of the Cut-Off Date, and giving effect to all payments due on
or prior to the Cut-Off Date. The Mortgage Loan Pool will initially consist of
____ loans evidenced by promissory notes (the "Notes") secured by deeds of
trust, security deeds or mortgages on the Mortgaged Properties, which are
located in __ states and the District of Columbia. The Mortgaged Properties
securing the Mortgage Loans consist of single-family residences (which may be
detached, part of a two-to-four family dwelling, a condominium unit or a unit in
a planned unit development). The Mortgaged Properties may be owner-occupied
(which includes second and vacation homes) or non-owner occupied investment
properties. The Initial Mortgage Loans consist of _____% of loans secured by
first lien mortgages on the related Mortgage Properties[, ____% of loans secured
by second liens on the related Mortgaged Properties and ____% of loans secured
by third liens on the related Mortgaged Properties].
The Initial Mortgage Loans were required to satisfy the following
criteria as of the Cut-Off Date: had remaining terms to stated maturity of no
greater than 360 months; had a Mortgage Rate as of the Cut-Off Date of at least
____% and had a CLTV not in excess of _____%.
Initial Mortgage Loans
All of the Initial Mortgage Loans are Actuarial Loans and are secured
by [first] mortgages. All of the Initial Mortgage Loans require monthly payments
of principal that will fully amortize such Initial Mortgage Loans by their
respective stated maturity dates. No Initial Mortgage Loan had a stated maturity
date later than ________ 1, 202_. As of the Cut-Off Date, the aggregate
principal balance of the Initial Mortgage Loans was _____% of the aggregate
principal balance of such Initial Mortgage Loans at the times of their
origination. As of the Cut-Off Date, substantially all of the Initial Mortgage
Loans had interest rates which were not fully indexed (i.e., the entire gross
margin has not yet been added to the rate given by the index).
The Initial Mortgage Loans had the following aggregate characteristics
as of the Cut-Off Date:
Aggregate Number of Initial Mortgage Loans............................
Principal Balance
Aggregate....................................................
Average......................................................
Range........................................................
Current Mortgage Rate
Weighted Average.............................................
Range........................................................
Original Term to Stated Maturity
Weighted Average.............................................
Range........................................................
Remaining Term to Stated Maturity
Weighted Average.............................................
Range........................................................
LTV
Weighted Average ............................................
Range........................................................
Gross Margin
Weighted Average ............................................
Range........................................................
Semi-Annual Rate Adjustment Cap Range.................................
Maximum Mortgage Rate
Weighted Average ............................................
Range........................................................
Minimum Mortgage Rate
Weighted Average ............................................
Range .......................................................
S-15
<PAGE>
DISTRIBUTION OF LTV's
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Range of LTV's Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.01 - 10.00%........................................
10.01 - 15.00..........................................
15.01 - 20.00..........................................
20.01 - 25.00..........................................
25.01 - 30.00..........................................
30.01 - 35.00..........................................
35.01 - 40.00..........................................
40.01 - 45.00..........................................
45.01 - 50.00..........................................
50.01 - 55.00..........................................
55.01 - 60.00..........................................
60.01 - 65.00..........................................
65.01 - 70.00..........................................
70.01 - 75.00..........................................
75.01 - 80.00..........................................
80.01 - 85.00..........................................
Total.............................................
</TABLE>
The LTV's shown above were calculated based upon the Appraised Values
of the Mortgaged Properties. No assurance can be given that Appraised Values of
the Mortgaged Properties have remained or will remain at their levels on the
dates of origination of the related Initial Mortgage Loans. If property values
decline such that the outstanding balances of the Initial Mortgage Loans become
equal to or greater than the value of the Mortgaged Properties, the actual rates
of delinquencies, foreclosures and losses could be higher than those heretofore
experienced by the Servicer, as set forth above under "The Portfolio of Mortgage
Loans," and by the mortgage lending industry in general.
DISTRIBUTION OF REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Months Mortgage Loans Principal Balance Principal Balance
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
109 - 120.................................................
169 - 180.................................................
229 - 240.................................................
349 - 360.................................................
Total..................................................
</TABLE>
S-16
<PAGE>
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Principal Balances Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 15,000.01 - 20,000.00 . . . . . . . . . . . . . . . . .
20,000.01 - 25,000.00 . . . . . . . . . . . . . . . . .
25,000.01 - 30,000.00 . . . . . . . . . . . . . . . . .
30,000.01 - 35,000.00 . . . . . . . . . . . . . . . . .
35,000.01 - 40,000.00 . . . . . . . . . . . . . . . . .
40,000.01 - 45,000.00 . . . . . . . . . . . . . . . . .
45,000.01 - 50,000.00 . . . . . . . . . . . . . . . . .
50,000.01 - 55,000.00 . . . . . . . . . . . . . . . . .
55,000.01 - 60,000.00 . . . . . . . . . . . . . . . . .
60,000.01 - 65,000.00 . . . . . . . . . . . . . . . . .
65,000.01 - 70,000.00 . . . . . . . . . . . . . . . . .
70,000.01 - 75,000.00 . . . . . . . . . . . . . . . . .
75,000.01 - 80,000.00 . . . . . . . . . . . . . . . . .
80,000.01 - 85,000.00 . . . . . . . . . . . . . . . . .
85,000.01 - 90,000.00 . . . . . . . . . . . . . . . . .
90,000.01 - 95,000.00 . . . . . . . . . . . . . . . . .
95,000.01 - 100,000.00 . . . . . . . . . . . . . . . . .
100,000.01 - 125,000.00 . . . . . . . . . . . . . . . . .
125,000.01 - 150,000.00 . . . . . . . . . . . . . . . . .
150,000.01 - 200,000.00 . . . . . . . . . . . . . . . . .
200,000.01 - 250,000.00 . . . . . . . . . . . . . . . . .
250,000.01 - 300,000.00 . . . . . . . . . . . . . . . . .
300,000.01 - 350,000.00 . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family............................................
Two-to-Four Family.......................................
Condominium..............................................
Planned Unit Development.................................
Total..........................................
</TABLE>
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
Occupancy Status Mortgage Loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Investor Property........................................
Owner Occupied...........................................
Total...............................................
</TABLE>
S-17
<PAGE>
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Current Number of Initial Unpaid Unpaid
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6.51 - 7.00%.......................................
7.01 - 7.50........................................
7.51 - 8.00........................................
8.01 - 8.50........................................
8.51 - 9.00........................................
9.01 - 9.50........................................
9.51 - 10.00........................................
10.01 - 10.50........................................
10.51 - 11.00........................................
11.01 - 11.50........................................
11.51 - 12.00........................................
12.01 - 12.50........................................
12.51 - 13.00........................................
13.51 - 14.00........................................
14.01 - 14.50........................................
Total................................................
</TABLE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Maximum Number of Initial Unpaid Unpaid
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
13.51 - 14.00%......................................
14.01 - 14.50.......................................
14.51 - 15.00.......................................
15.01 - 15.50.......................................
15.51 - 16.00.......................................
16.01 - 16.50.......................................
16.51 - 17.00.......................................
17.01 - 17.50.......................................
17.51 - 18.00.......................................
18.01 - 18.50.......................................
18.51 - 19.00.......................................
19.51 - 20.00.......................................
20.01 - 20.50.......................................
Total.............................................
</TABLE>
S-18
<PAGE>
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Initial Unpaid Unpaid
Margins Mortgage Loans Principal Balance Principal Balance
------- -------------- ----------------- -----------------
<S> <C> <C> <C>
3.01 - 4.00%...................................
4.01 - 5.00....................................
5.01 - 6.00....................................
6.01 - 7.00....................................
7.01 - 8.00....................................
8.01 - 9.00....................................
9.01 - 10.00....................................
Total.......................................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Initial Unpaid Unpaid
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona..............................................
California...........................................
Colorado.............................................
District of Columbia.................................
Florida..............................................
Georgia..............................................
Idaho................................................
Illinois.............................................
Maryland.............................................
Massachusetts........................................
Michigan.............................................
Minnesota............................................
New Jersey...........................................
New York.............................................
Ohio.................................................
Oregon...............................................
Pennsylvania.........................................
Utah.................................................
Virginia.............................................
Washington...........................................
Total..........................................
</TABLE>
Conveyance of Subsequent Mortgage Loans
The Sale and Servicing Agreement permits the Issuer to acquire
$_____________ in aggregate principal balance of Subsequent Mortgage Loans for
addition to the Trust Estate. Accordingly, the statistical characteristics of
the Mortgage Loan Pool will vary as of any Subsequent Cut-Off Date upon the
acquisition of Subsequent Mortgage Loans. Pursuant to the Sale and Servicing
Agreement, however, the Company has covenanted to deliver Subsequent Mortgage
Loans for inclusion in the Trust Estate that will not materially change the
statistical characteristics of the Mortgage Loan Pool.
The obligation of the Issuer to purchase Subsequent Mortgage Loans on a
Subsequent Transfer Date is subject to the requirements as defined in the Sale
and Servicing Agreement by the Note Insurer.
S-19
<PAGE>
Interest Payments on the Mortgage Loans
Each Mortgage Loan provides for monthly payments by the obligor on the
related Note (the "Mortgagor") according to the actuarial method ("Actuarial
Loans"). Actuarial loans provide that interest is charged to the Mortgagors
thereunder, and payments are due from such Mortgagors, as of a scheduled day of
each month which is fixed at the time of origination. Scheduled monthly payments
made by the Mortgagors on the actuarial loans either earlier or later than the
scheduled due dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par the
yield to maturity on a Note will be directly related to the rate of payment of
principal of the Mortgage Loans including for this purpose voluntary payment in
full of Mortgage Loans prior to stated maturity (a "Prepayment"), liquidations
due to defaults, casualties and condemnations, and repurchases of Mortgage Loans
by the Company or by the Note Insurer. The actual rate of principal prepayments
on pools of mortgage loans is influenced by a variety of economic, tax,
geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Notes will not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase any of the Notes The Company does not make any representations or
warranties as to the rate of prepayment or the factors to be considered in
connection with such determination.
Mandatory Prepayment
In the event that at the end of the Funding Period, not all of the
Original Pre-Funded Amount has been used to acquire Subsequent Mortgage Loans
for inclusion in the Trust Estate, then the Owners of the Notes will receive a
partial prepayment on the Payment Date in _______ 199_.
Although no assurances can be given, the Company expects that the
principal amount of Subsequent Mortgage Loans sold to the Issuer for inclusion
in the Trust Estate will require the application of substantially all the amount
on deposit in the Pre-Funding Account and that there should be no material
principal prepaid to the Owners of the Notes.
Projected Prepayments and Yields for Notes
If purchased at other than par, the yield to maturity on a Note will be
affected by the rate of the payment of principal of the Mortgage Loans. If the
actual rate of payments on the Mortgage Loans is slower than the rate
anticipated by an investor who purchases a Note at a discount, the actual yield
to such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Mortgage Loans is faster than the rate
anticipated by an investor who purchases a Note at a premium, the actual yield
to such investor will be lower than such investor's anticipated yield.
All of the Mortgage Loans are adjustable rate mortgage loans. As is the
case with conventional fixed rate mortgage loans, adjustable rate mortgage loans
may be subject to a greater rate of principal prepayments in a declining
interest rate environment. For example, if prevailing interest rates fall
significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed rate mortgage loans at competitive interest rates may
encourage mortgagors to refinance their adjustable rate mortgage loans to a
lower fixed interest rate. However, no assurance can be given as to the level of
prepayments that the Mortgage Loans will experience. The Company does not
believe that data compiled by Fannie Mae or FHLMC is representative of the types
of borrowers included in the Company's lending program and cannot assure that
such prepayment experience is relevant to the Mortgage Loans.
S-20
<PAGE>
As described under "Mortgage Loan Program" in the Prospectus, in
addition to direct origination, the Company also purchases pools of Mortgage
Loans from Originators. The Company has a policy of soliciting certain of the
Mortgagors from time to time with respect to such purchased Mortgage Loans for
refinancing. If any such Mortgage Loans are refinanced as a result, the
prepayment level of the Mortgage Loans may be increased over the level which
such Mortgage Loans would experience in the absence of such solicitations.
The prepayment behavior of the 2/28 Loans, 3/27 Loans and 5/25 Loans
may differ from that of the other Mortgage Loans. As a 2/28 Loan, 3/27 Loan or
5/25 Loan approaches its initial adjustment date, the borrower may become more
likely to refinance such loan to avoid an increase in the coupon rate, even if
fixed rate loans are only available at rates that are slightly lower or higher
than the coupon rate before adjustment. The existence of the applicable periodic
rate cap, lifetime cap and lifetime floor also may affect the likelihood of
prepayments resulting from refinancings.
The "Final Payment Date" for the Notes is ______ __, 202_. This date is
the date that [insert description]. The weighted average life of the Notes is
likely to be shorter, and the actual final Payment Date with respect to the
Notes could occur significantly earlier than the Final Payment Date because (i)
Prepayments are likely to occur which shall be applied to the payment of the
Note Principal Balance, (ii) Net Monthly Excess Spread to the extent available
will be applied as an accelerated payment of principal on the Notes up to the
Specified Subordinated Amount and (iii) the Servicer or, in limited
circumstances, the Note Insurer, may cause a termination of the Issuer when the
aggregate outstanding principal balance of the Mortgage Loans in the Trust
Estate has declined to 10% or less of the Maximum Collateral Amount.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement is
the Constant Prepayment Rate ("CPR") assumption. The CPR represents an assumed
constant rate of prepayment each month, expressed as an annual rate, relative to
the then outstanding principal balance on a pool of new mortgage loans for the
life of such Mortgage Loans. Such model does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans. The
Company believes that no existing statistics of which it is aware provide a
reliable basis for Owners of the Notes to predict the amount or the timing of
receipt of prepayments on the Mortgage Loans.
The tables entitled "Weighted Average Lives" have been prepared on the
basis of the following assumptions (collectively, the "Modeling Assumptions"):
(i) the Mortgage Loans prepay at the indicated CPR; (ii) distributions on the
Notes are received, in cash, on the 20th day of each month, commencing in
_______ 199_; (iii) no defaults or delinquencies in, or modifications, waivers
or amendments respecting, the payment by the Mortgagors of principal and
interest on the Mortgage Loans occur; (iv) scheduled payments are assumed to be
received on the first day of each month commencing in _______ 199_ (or as set
forth in the following table) and prepayments represent payment in full of
individual Mortgage Loans and are assumed to be received on the last day of each
month, commencing in ________ 199_ (or as set forth in the following table) and
include 30 days' interest thereon; (v) the level of Six-Month LIBOR remains
constant at ______% (vi) the Note Rate remains constant at _____% per annum;
(vii) the Notes are purchased on ________ __, 199_; (viii) the Mortgage Rate for
each Mortgage Loan is adjusted on its next Mortgage Rate change date (and on
subsequent Mortgage Rate change dates, if necessary) to equal the sum of (a) the
assumed level of the Six- Month LIBOR index and (b) the respective gross margin
(such sum being subject to the respective periodic adjustment, as applicable);
and (ix) the Mortgage Loans have the following characteristics:
Initial and Subsequent Mortgage Loans
<TABLE>
<CAPTION>
Number of
Remaining Months to
Current Term to Next
Current Mortgage Stated Mortgage Periodic
Principal Mortgage Rate Net of Maturity Seasoning Gross Rate Change Adjustment
Balance Rate Servicing Fee (in months) (in months) Margin (in months) Cap
------- ---- ------------- ----------- ----------- ------ ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
S-21
<PAGE>
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a Note until each dollar of principal of
such Note will be repaid to the investor. The weighted average life of the Notes
will be influenced by the rate at which principal payments on the Mortgage Loans
are paid, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments, liquidations due to
default or early termination of the Trust Estate). The weighted average lives of
the Notes also will be influenced by the overcollateralization of the Notes
because collections otherwise payable to the Residual Interest are applied as
principal prepayments to the Notes until the outstanding aggregate principal
balance of the Notes is less than the aggregate outstanding principal balance of
the Mortgage Loans by the Specified Subordinated Amount. These prepayments have
the effect of accelerating the amortization of the Notes, thereby shortening
their respective weighted average lives.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the mortgage pool and
the Mortgaged Properties is based upon the pool of Initial Mortgage Loans as
constituted at the close of business on the Cut-Off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Notes, Initial Mortgage Loans may be removed from the mortgage pool as a
result of incomplete documentation or non-compliance with representations and
warranties set forth in the Sale and Servicing Agreement, if the Company deems
such removal necessary or appropriate. A limited number of other mortgage loans
may be included in the mortgage pool prior to the issuance of the Notes.
A current report on Form 8-K will be available to purchasers of the
Notes and will be filed and incorporated by reference to the Registration
Statement, together with the Sale and Servicing Agreement, the Trust Agreement
and the Indenture with the Commission within fifteen days after the initial
issuance of the Notes. In the event Initial 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 current report on Form 8-K. Also, the Company
has filed certain additional yield tables and other computational materials with
respect to the Notes with the Commission in a report on Form 8-K. Such tables
and materials were prepared at the request of certain prospective investors,
based on assumptions provided by, and satisfying the special requirements of,
such prospective investors. Such tables and assumptions may be based on
assumptions that differ from the Modeling Assumptions. Accordingly, such tables
and other materials may not be relevant to or appropriate for investors other
than those specifically requesting them.
DESCRIPTION OF THE NOTES
General
The Issuer will issue the Notes pursuant to the Indenture. The Issuer
will also issue the Residual Interest pursuant to the Trust Agreement, which
represents the residual interest in the Trust Estate. The summaries of certain
provisions of the Indenture, the Sale and Servicing Agreement and the Trust
Agreement (collectively, the "Agreements") set forth below, under the caption
"Administration" herein while complete in material respects, do not purport to
be exhaustive. For more details regarding the terms of the Agreements,
prospective investors in the Notes are advised to review the Agreements, a copy
of each of which the Company will provide (without exhibits) without charge upon
written request addressed to the Company.
The Notes will be secured by the Trust Estate created by the Indenture.
The Notes represent non-recourse obligations of the Issuer and proceeds of the
assets in the Trust Estate will be the sole source of payments of the Notes. The
Notes will not represent an interest in or obligation of the Depositor, the
Servicer, the Note Insurer, the Owner Trustee, the Indenture Trustee, the
Underwriters, any of their respective affiliates or any other entity.
Persons in whose name a Note is registered in the Register maintained
by the Indenture Trustee are the "Owners" of the Notes. For so long as the Notes
are in book-entry form with DTC, the only "Owner" of the Notes as the term
"Owner" is used in the Agreements will be Cede. No Owners will be entitled to
receive a definitive certificate representing such person's interest in the
Trust Estate, except in the event that physical Notes are issued under limited
circumstances set forth in the Indenture. All references herein to the Owners of
Notes shall mean and include the rights of Owners as such rights may be
exercised through DTC and its participating organizations, except as otherwise
specified in the Agreements.
One-hundred percent of the Monthly Distribution Amount due to the
Owners of the Notes on each Payment Date is insured by the Note Insurer pursuant
to the Note Insurance Policy. See "The Note Insurance Policy and the Note
Insurer" herein.
S-22
<PAGE>
Payment Dates
The Sale and Servicing Agreement will require that the Indenture
Trustee create and maintain a Note Account, to be established as a trust account
held by the trust department of the Indenture Trustee (the "Note Account"). All
funds in the Note Account shall be invested and reinvested by the Indenture
Trustee for the benefit of the related Owners and Note Insurer, as directed by
the Servicer, in Eligible Investments.
One business day prior to the related Payment Date (or, if such day is
not a business day, the immediately preceding business day) (the "Remittance
Date") the Servicer is required to withdraw from the Principal and Interest
Account and remit to the Indenture Trustee, for deposit in the Note Account, the
Monthly Remittance Amount. The Monthly Remittance Amount is equal to (a) the sum
of (i) the balance on deposit in the Principal and Interest Account as of the
close of business on the related Determination Date, (ii) all Delinquency
Advances and Compensating Interest (collectively, the "Advances") and (iii)
certain amounts required to be deposited by the Servicer in the Note Account,
including Loan Purchase Prices and Substitution Amounts, reduced by (b) the sum
of (i) scheduled payments on the Mortgage Loans collected but due after the
related Due Date, (ii) reinvestment income on amounts in the Principal and
Interest Account, (iii) all amounts reimbursable to the Servicer and (iv) any
unscheduled payments, including Mortgagor prepayments on the Mortgage Loans,
Insurance Proceeds and Net Liquidation Proceeds occurring in the month of such
Payment Date. With respect to any Payment Date, (i) the Due Date is the first
day of the month in which such Payment Date occurs, and (ii) the Determination
Date is the 12th day of the month in which such Payment Date occurs or, if such
day is not a business day, the immediately preceding business day. "Remittance
Period" means, the period beginning on the first day of the calendar month
immediately preceding the month in which the related Remittance Date occurs and
ending on the last day of such month. See "The Pooling and Servicing Agreement
- -- Servicing and Other Compensation and Payment of Expenses; Originator's
Retained Yield" in the Prospectus.
The Compensating Interest for any Payment Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
net Mortgage Rates) resulting from principal prepayments in full on the Mortgage
Loans received in the corresponding Remittance Period. Such shortfalls will
result because interest on prepayments in full is distributed only to the date
of prepayment. The Servicer will be obligated to apply amounts otherwise payable
to it as servicing compensation in any month to cover any shortfalls in
collections of one full month's interest at the applicable net Mortgage Rate
resulting from principal prepayments in full. The Servicer is not obligated to
cover any shortfalls in collections of interest for prepayments in part. Such
prepayments in part are applied to reduce the outstanding principal balance of
the related Mortgage Loan as of the Due Date in the month of prepayment.
Distributions
Distributions on the Notes will be made on each Payment Date to Owners
of record of the Notes as of the immediately preceding Record Date in an amount
equal to the product of such Owner's Percentage Interest and the amount
distributed in respect of such Owner's Class of such Notes on such Payment Date.
The "Percentage Interest" represented by any Notes will be equal to the
percentage obtained by dividing the Note Principal Balance of such Notes by the
Original Note Principal Balance of all Notes.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Sale and
Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Spread be applied on such Payment Date as an accelerated payment of principal on
the Notes, but only to the limited extent hereafter described. The Net Monthly
Excess Spread equals (i) the excess (such excess being the "Total Monthly Excess
Spread"), if any, of (x) the interest which is collected on the Mortgage Loans
during a Remittance Period and with respect to Due Dates occurring in the month
in which such Payment Date occurs (net of the Servicing Fee and of certain
miscellaneous administrative amounts) plus the interest portion of any
Delinquency Advances and Compensating Interest over (y) the sum of (I) Current
Interest and (II) the premiums due to the Note Insurer with respect to the Note
Insurance Policy and the fees due to the Indenture Trustee and the Owner
Trustee, minus (ii) any portion of the Total Monthly Excess Spread which is used
to cover any shortfalls in Available Funds on such Payment Date, or used to
reimburse the Note Insurer on account of prior Insured Payments.
Pursuant to the Sale and Servicing Agreement, Net Monthly Excess Spread
is required to be applied as a payment of principal on the Notes until the
Subordinated Amount has increased to the level required. "Subordinated Amount"
means, with respect to any Payment Date, the difference, if any, between (x) the
sum of (i) the aggregate principal balances of the Mortgage Loans as of the
close of business on the last day of the preceding Remittance Period after
taking into account payments of scheduled principal on the Mortgage Loans due on
the Due Date which immediately follows the last day of such Remittance Period
and (ii) any amount on deposit in the Pre-Funding Account less any Pre-Funding
Account Earnings at such time and (y) the Note Principal Balance as of such
Payment Date (and assuming all distributions are made on such Payment Date). Any
amount of Net Monthly Excess Spread actually applied as a payment of principal
is a "Subordination Increase Amount". The required level of the Subordinated
Amount with respect to a Payment Date is the "Specified Subordinated Amount"
with respect to such Payment Date. The Sale
S-23
<PAGE>
and Servicing Agreement generally provides that the Specified Subordinated
Amount may, over time, decrease, or increase, subject to certain floors, caps
and triggers.
The application of Net Monthly Excess Spread to principal has the
effect of accelerating the amortization of the Notes relative to the
amortization of the Mortgage Loans. To the extent that any Net Monthly Excess
Spread is not so used, the Sale and Servicing Agreement provides that it will be
used to reimburse the Servicer or Indenture Trustee with respect to any amounts
owing to each, or paid to the Owners of the Residual Interest.
In the event that the required level of the Specified Subordinated
Amount is permitted to decrease or "step down" on a Payment Date in the future,
the Sale and Servicing Agreement provides that a portion of the principal which
would otherwise be distributed to the Owners of the Residual Interest on such
Payment Date shall be distributed to the Owners of the Residual Interest on such
Payment Date. This has the effect of decelerating the amortization of the Notes
relative to the amortization of the Mortgage Loans, and of reducing the
Subordinated Amount. "Excess Subordinated Amount" means, with respect to any
Payment Date, the difference, if any, between (x) the Subordinated Amount that
would apply on such Payment Date after taking into account all distributions to
be made on such Payment Date (except for any distributions of Subordination
Reduction Amounts as described in this paragraph) and (y) the Specified
Subordinated Amount for such Payment Date. If, on any Payment Date, the Excess
Subordinated Amount is, or, after taking into account all other distributions to
be made on such Payment Date would be, greater than zero (i.e., the Subordinated
Amount is or would be greater than the Specified Subordinated Amount), then any
amounts relating to principal which would otherwise be distributed to the Owners
of the Notes on such Payment Date shall instead be distributed to the Owners of
the Notes in an amount equal to the lesser of (x) the Excess Subordinated Amount
and (y) the amount available for distribution on account of principal with
respect to such Payment Date; such amount being the "Subordination Reduction
Amount" with respect to such Payment Date. As a technical matter regarding the
cash flow structure, Subordination Reduction Amounts may result even prior to
the occurrence of any decrease or "step down" in the Specified Subordinated
Amount. This is because the Owners of the Notes will generally be entitled to
receive 100% of collected principal, even though the Note Principal Balance
will, following the accelerated amortization resulting from the application of
the Net Monthly Excess Spread, represent less than 100% of the aggregate
scheduled principal balance. In the absence of the provisions relating to the
Subordination Reduction Amount, the foregoing may otherwise increase the
Subordinated Amount above its Specified Subordinated Amount requirement even
without the further application of any Net Monthly Excess Spread.
The Sale and Servicing Agreement provides that, on any Payment Date all
amounts (subject to the discussion in the preceding paragraph) collected on
account of principal (including the principal portion of any Delinquency
Advances and other than any such amount applied to the payment of a
Subordination Reduction Amount) during the prior Remittance Period together with
principal due on the Due Date which immediately follows the last day of such
Remittance Period will be distributed to the Owners of the Notes on such Payment
Date. If any Mortgage Loan became a Liquidated Mortgage Loan during such prior
Remittance Period, the Net Liquidation Proceeds related thereto and allocated to
principal may be less than the principal balance of the related Mortgage Loan;
the amount of any such insufficiency is a "Realized Loss." In addition, the Sale
and Servicing Agreement provides that the principal balance of any Mortgage Loan
which becomes a Liquidated Mortgage Loan shall thenceforth equal zero. The Sale
and Servicing Agreement does not contain any rule which requires that the amount
of any Realized Loss be distributed to the Owners of the Notes on the Payment
Date which immediately follows the event of loss; i.e., the Sale and Servicing
Agreement does not require the current recovery of losses. However, the
occurrence of a Realized Loss will reduce the Subordinated Amount, which, to the
extent that such reduction causes the Subordinated Amount to be less than the
Specified Subordinated Amount applicable to the related Payment Date, will
require the payment of a Subordination Increase Amount on such Payment Date (or,
if insufficient funds are available on such Payment Date, on subsequent Payment
Dates, until the Subordinated Amount equals the Specified Subordinated Amount).
The effect of the foregoing is to allocate losses to the Owners of the Residual
Interest by reducing, or eliminating entirely, payments of Monthly Excess Cash
Flow and of Subordination Reduction Amounts which such Owners would otherwise
receive.
Overcollateralization and the Note Insurance Policy. The Sale and
Servicing Agreement defines a "Subordination Deficit" with respect to a Payment
Date to be the amount, if any, by which (x) the Note Principal Balance after
taking into account all distributions to be made on such Payment Date, exceeds
(y) the sum of (i) the aggregate principal balances of the Mortgage Loans as of
the close of business on the Due Date which immediately follows the last day of
the prior Remittance Period and (ii) the amount, if any, on deposit in the
Pre-Funding Account less any Pre-Funding Account Earnings on the last day of the
related Remittance Period. The Sale and Servicing Agreement requires the
Indenture Trustee to make a claim for an Insured Payment under the Note
Insurance Policy not later than the Business Day prior to any Payment Date as to
which the Indenture Trustee has determined that a Subordination Deficit will
occur for the purpose of applying the proceeds of such Insured Payment as a
payment of principal to the Owners of the Notes on such Payment Date. The Note
Insurance Policy is thus similar to the subordination provisions described above
insofar as the Note Insurance Policy guarantees ultimate, rather than current,
payment of the amounts of any Realized Losses to the Owners of the Notes.
Investors in the Notes should realize that,
S-24
<PAGE>
under extreme loss or delinquency scenarios applicable to the related Mortgage
Loan Pool, they may temporarily receive no distributions of principal.
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the subordination provisions and
by the Note Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Note Insurance Policy to guarantee or insure that any
particular rate of prepayment is experienced by the Mortgage Loan Pool.
Payments and Insured Payments to the Owners of the Notes
No later than three Business Days prior to each Payment Date the
Indenture Trustee will be required to determine the amounts to be on deposit in
the Note Account on such Payment Date and equal to the sum of (x) such amounts
excluding the amount of any Total Monthly Excess Cashflow amounts included in
such amounts, plus (y) any deposit to the Note Account from the Pre-Funding
Account and Capitalized Interest Account expected to be made in accordance with
the Sale and Servicing Agreement. The amounts described in clause (x) of the
preceding sentence are the "Available Funds," the sum of the amounts described
in clauses (x) and (y) of the preceding sentence are the "Total Available
Funds." If on any Payment Date the Monthly Distribution Amount exceeds the Total
Available Funds for such Payment Date, the Indenture Trustee will be required to
draw the amount of such insufficiency from the Note Insurer under the Note
Insurance Policy. The Indenture Trustee will be required to deposit to the Note
Account the amount of any Insured Payment made by the Note Insurer. The Sale and
Servicing Agreement provides that amounts which cannot be distributed to the
Owners of the Notes as a result of proceedings under the United States
Bankruptcy Code or similar insolvency laws will not be considered in determining
the amount of Total Available Funds with respect to any Payment Date.
On each Payment Date, and following the making by the Indenture Trustee
of all allocations, transfers and deposits heretofore described under this
caption, from amounts (including any related Insured Payment) then on deposit in
the Note Account, the Indenture Trustee will be required to distribute to the
Owners of the Notes, the Monthly Distribution Amount for such Payment Date,
[together with any portion of any Available Funds Cap Carry-Forward Amount to be
funded on such Payment Date].
Pre-Funding Account
On the Closing Date, the Original Pre-Funded Amount will be deposited
in the Pre-Funding Account, which account shall be in the name of and maintained
by the Indenture Trustee and shall be part of the Trust Estate. During the
Funding Period, the Pre-Funded Amount will be maintained in the Pre-Funding
Account. The Original Pre-Funded Amount will be reduced during the Funding
Period by the amount thereof used to purchase Subsequent Mortgage Loans for
addition to the Trust Estate in accordance with the Sale and Servicing
Agreement. Any Pre-Funded Amount remaining at the end of the Funding Period will
be distributed to the Owners of the Notes in accordance with the terms of the
Sale and Servicing Agreement on the Payment Date that immediately follows the
end of the Funding Period in reduction of the Note Principal Balance of such
Owner's Notes, thus resulting in a principal prepayment of the Notes.
Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interest and any other investment earnings on amounts
on deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account prior to each Payment Date during the Funding Period.
Capitalized Interest Account
On the Closing Date, cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Indenture
Trustee and shall be part of the Trust Estate. The amount on deposit in the
Capitalized Interest Account, including reinvestment income thereon and amounts
deposited thereto from the Pre- Funding Account, will be used by the Indenture
Trustee to fund the excess, if any, of (i) the sum of (a) the aggregate amount
of interest accruing at the Note Rate on the amount by which the aggregate Note
Principal Balance of the Notes exceed the aggregate principal balance of the
Initial Mortgage Loans plus (b) the Indenture Trustee and Owner Trustee fees
over (ii) the amount of any Pre-Funding Account Earnings; such amounts on
deposit will be so applied by the Indenture Trustee on each Payment Date in the
Funding Period to fund such excess, if any. Any amounts remaining in the
Capitalized Interest Account at the end of the Funding Period and not needed for
such purpose will be paid to the Company and will not thereafter be available
for distribution to the Owners of the Notes.
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<PAGE>
Calculation of LIBOR
On the second business day preceding each Payment Date, or in the case
of the first Payment Date (each such date, an "Interest Determination Date"),
the Indenture Trustee will determine the London interbank offered rate for
one-month U.S. dollar deposits ("LIBOR") for the next Accrual Period for the
Notes on the basis of the offered rates of the Reference Banks for one-month
U.S. dollar deposits, as such rates appear on the Telerate Page 3750, as of
11:00 a.m. (London time) on such Interest Determination Date. As used in this
section, "business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate Page 3750"
means the display page currently so designated on the Dow Jones Telerate Service
(or such other page as may replace that page on that service for the purpose of
displaying comparable rates or prices); and "Reference Banks" means leading
banks selected by the Indenture Trustee and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) whose quotations appear on the
Telerate Page 3750 on the Interest Determination Date in question, (iii) which
have been designated as such by the Indenture Trustee and (iv) not controlling,
controlled by, or under common control with, the Company or any Originator.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Notes will be established by the Indenture Trustee as follows:
(a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
LIBOR for the related Accrual Period for the Notes
shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the
nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
LIBOR for the related Accrual Period for the Notes
shall be the higher of (x) LIBOR as determined on the
previous Interest Determination Date and (y) the
Reserve Interest Rate. The "Reserve Interest Rate"
shall be the rate per annum that the Indenture
Trustee determines to be either (i) the arithmetic
mean (rounded upwards if necessary to the nearest
whole multiple of 0.0625%) of the one-month U.S.
dollar lending rates which New York City banks
selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal
London offices of leading banks in the London
interbank market or, in the event that the Indenture
Trustee can determine no such arithmetic mean, (ii)
the lowest one-month U.S. dollar lending rate which
New York City banks selected by the Indenture Trustee
are quoting on such Interest Determination Date to
leading European banks.
The establishment of LIBOR on each Interest Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Notes for the related Accrual Period shall (in the
absence of manifest error) be final and binding.
Book Entry Registration of the Notes
The Notes will be book-entry Notes (the "Book-Entry Notes"). Beneficial
Owners may elect to hold their Book-Entry Notes directly through DTC in the
United States [, or Cedel or Euroclear (in Europe)] if they are participants of
such systems ("Participants"), or indirectly through organizations which are
Participants. The Book-Entry Notes will be issued in one or more Notes per class
of Notes which in the aggregate equal the principal balance of such Notes and
will initially be registered in the name of Cede & Co., the nominee of DTC.
[Cedel and Euroclear will hold omnibus positions on behalf of their Participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries").] Investors may hold such beneficial
interests in the Book-Entry Notes in minimum denominations representing
principal amounts of $1,000 and in integral multiples in excess thereof. Except
as described below, no Beneficial Owner will be entitled to receive a physical
certificate representing such Note (a "Definitive Note"). Unless and until
definitive Notes are issued, it is anticipated that the only "Owner" of such
Book-Entry Notes will be Cede & Co., as nominee of DTC. Beneficial Owners will
not be Owners as that term is used in the Sale] and Servicing Agreement.
Beneficial Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Note will be recorded on the records
of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose
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<PAGE>
interest will in turn be recorded on the records of DTC, if the Beneficial
Owner's Financial Intermediary is not a DTC Participant [and on the records of
Cedel or Euroclear, as appropriate)].
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Notes from the Indenture Trustee through DTC and DTC
Participants. While such Notes are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
such Notes and is required to receive and transmit distributions of principal
of, and interest on, such Notes. Participants and indirect participants with
whom Beneficial Owners have accounts with respect to Book-Entry Notes are
similarly required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess certificates, the Rules provide a
mechanism by which Beneficial Owners will receive distributions and will be able
to transfer their interests.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Beneficial Owners who are not Participants may transfer ownership of
Notes only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer such Notes, by book-entry
transfer, through DTC for the account of the purchasers of such Notes, which
account is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of such Notes
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and indirect
participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Beneficial Owners.
[Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Notes, see "Certain Federal Income Tax
Consequences -- Backup Withholding" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures -- Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.]
Transfers between Participants will occur in accordance with DTC rules.
[Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.]
[Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.]
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Notes, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Notes will be
subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
[Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
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Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear Securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is a branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.]
Distributions on the Book-Entry Notes will be made on each Payment Date
by the Indenture Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Notes that it represents and to each Financial Intermediary for which
it acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Owners of the Book-Entry Notes that it
represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Indenture Trustee to Cede. [Distributions with respect to
Notes held through Cedel or Euroclear will be credited to the cash accounts of
Cedel Participants or Euroclear Participants in accordance with the relevant
system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations.] Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Notes to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Notes, may be limited due to the lack of physical certificates for such
Book-Entry Notes. In addition, issuance of the Book-Entry Notes in book-entry
form may reduce the liquidity of such Notes in the secondary market since
certain potential investors may be unwilling to purchase Notes for which they
cannot obtain physical certificates.
Monthly and annual reports on the Trust Estate provided by the Servicer
to Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Notes of such Beneficial Owners are credited.
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DTC has advised the Indenture Trustee that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book-Entry Notes under the Sale and Servicing Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Notes are credited, to the extent that such actions are taken on
behalf of Financial Intermediaries whose holdings include such Book-Entry Notes.
[Cedel or the Euroclear Operator, as the case may be, will take any action
permitted to be taken by an Owner under the Sale and Servicing Agreement on
behalf of a Cedel Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC.] DTC may take
actions, at the direction of the related Participants, with respect to some
Notes which conflict with actions taken with respect to other Notes.
None of the Company, the Issuer, the Servicer, the Owner Trustee or the
Indenture Trustee will have any responsibility for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Book-Entry Notes held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Definitive Notes will be issued to Beneficial Owners of the Book-Entry
Notes, or their nominees, rather than to DTC, only if (a) DTC or the Company
advises the Indenture Trustee and the Note Insurer in writing that DTC is no
longer willing, qualified or able to discharge properly its responsibilities as
a nominee and depository with respect to the Book-Entry Notes and the Company or
the Indenture Trustee is unable to locate a qualified successor, (b) the
Company, at its sole option, elects to terminate a book-entry system through DTC
or (c) DTC, at the direction of the Beneficial Owners representing a majority of
the outstanding Percentage Interests of the Offered Notes, advises the Indenture
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all
Beneficial Owners and the Note Insurer of the occurrence of such event and the
availability through DTC of Definitive Notes. Upon surrender by DTC of the
global certificate or certificates representing the Book-Entry Notes and
instructions for re-registration, the Indenture Trustee will issue Definitive
Notes, and thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as Owners under the Sale and Servicing Agreement.
Although DTC, [Cedel and Euroclear] have agreed to the foregoing
procedures in order to facilitate transfers of Notes among Participants of DTC,
[Cedel and Euroclear,] they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Certain Activities
The Issuer has not and will not: (i) issue securities (except for the
Notes and the Residual Interest); (ii) borrow money; (iii) make loans; (iv)
invest in securities for the purpose of exercising control; (v) underwrite
securities; (vi) except as provided in the Sale and Servicing Agreement, engage
in the purchase and sale (or turnover) of investments; (vii) offer securities in
exchange for property (except Notes for the Mortgage Loans); or (viii)
repurchase or otherwise reacquire its securities. See "Description of the
Securities -- Reports To Securityholders" in the Prospectus for information
regarding reports to the Owners.
THE COMPANY
The Company, First Alliance Mortgage Company, was incorporated in the
State of California on May 13, 1975. The Company has been actively involved in
the mortgage lending business since its founding. In July 1996, the Company
became a wholly owned subsidiary of First Alliance Corporation ("FACO") pursuant
to a reorganization in connection with the initial public offering of the Class
A Common Stock of FACO. In September 1997, FACO completed a secondary offering
of its Class A Common Stock. The Company and all of its predecessors have been
located in Orange County, California. All Mortgage Loans included in the Trust
Estate were originated in the United States and are secured by Mortgaged
Properties located in the United States.
The Company maintains its corporate headquarters at 17305 Von Karman
Avenue, Irvine, California 92614- 6203. Its telephone number is (714) 224-8500.
THE NOTE INSURANCE POLICY AND THE NOTE INSURER
The Note Insurer, in consideration of the payment of the premium and
subject to the terms of the Note Insurance Policy, thereby unconditionally and
irrevocably guarantees to any Owner (as defined below) that an amount
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equal to each full and complete Insured Payment will be received by the
Indenture Trustee, or its successor, as trustee for the Owners, on behalf of the
Owners from the Note Insurer, for distribution by the Indenture Trustee to each
Owner of each Owner's proportionate share of the Insured Payment. The Note
Insurer's obligations under the Note Insurance Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Indenture Trustee, whether or not
such funds are properly applied by the Indenture Trustee. Insured Payments shall
be made only at the time set forth in the Note Insurance Policy and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Notes, unless such acceleration is at the sole option of the Note Insurer.
Notwithstanding the foregoing paragraph, the Note Insurance Policy does
not cover shortfalls, if any, attributable to the liability of the Issuer or the
Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Note Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (i) a certified copy of the order requiring the
return of a preference payment, (ii) an opinion of counsel satisfactory to the
Note Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Note Insurer,
irrevocably assigning to the Note Insurer all rights and claims of the Owner
relating to or arising under the Notes against the debtor which made such
preference payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Note Insurer as agent
for such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Note Insurer, provided that if
such documents are received after 12:00 noon New York City time on such Business
Day, they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named in
the final order of the court exercising jurisdiction on behalf of the Owner and
not to such Owner directly unless such Owner has returned principal or interest
paid on the Notes to any receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Note Insurer will pay any other amount payable under the Note
Insurance Policy no later than 12:00 noon New York City time on the later of the
Payment Date on which the Monthly Distribution Amount is due or the Business Day
following receipt in New York, New York on a Business Day by its fiscal agent
(the "Fiscal Agent") of a Notice (as described below); provided that if such
Notice is received after 12:00 noon New York City time on such Business Day, it
will be deemed to be received on the following Business Day. If any such Notice
received by the Fiscal Agent is not in proper form or is otherwise insufficient
for the purpose of making claim under the related Note Insurance Policy it shall
be deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the Note Insurer or the Fiscal Agent, as the case may be, shall
promptly so advise the Indenture Trustee and the Indenture Trustee may submit an
amended Notice.
Insured Payments due under the Note Insurance Policy unless otherwise
stated in the Note Insurance Policy will be disbursed by the Fiscal Agent to the
Indenture Trustee on behalf of Owners by wire transfer of immediately available
funds in the amount of the Insured Payment less, in respect of Insured Payments
related to Preference Amounts, any amount held by the Indenture Trustee for the
payment of such Insured Payment and legally available therefor.
The Note Insurance Policy are being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
THE INSURANCE PROVIDED BY THE NOTE INSURANCE POLICY IS NOT COVERED BY
THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
ADMINISTRATION
In addition to the provisions of the Agreements summarized elsewhere in
this Prospectus Supplement, there is set forth below a summary of certain other
provisions of the Agreements.
Formation of the Issuer
On the Closing Date, the Issuer will be created and established
pursuant to the Trust Agreement. On such date, the Company will sell without
recourse the Initial Mortgage Loans to the Issuer and the Issuer will issue the
Notes to the Owners thereof pursuant to the Indenture.
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Sale of Mortgage Loans
On the Closing Date the Company will sell without recourse to the
Issuer all right, title and interest of the Company in each Mortgage Loan listed
on the related schedules of the Mortgage Loans delivered to the Indenture
Trustee, prior to the Closing Date with respect to the Initial Mortgage Loans
and prior to each Subsequent Transfer Date with respect to the Subsequent
Mortgage Loans (the "Schedules of Mortgage Loans") and all of its right, title
and interest in all scheduled payments due on each Initial Mortgage Loan after
the Cut-Off Date (or on each Subsequent Mortgage Loan after the related
Subsequent Cut-Off Date) and all principal and all interest collected on each
such Initial Mortgage Loan after the Cut-Off Date (or on each Subsequent
Mortgage Loan after the related Subsequent Cut-Off Date). The Issuer will pledge
each Mortgage Loan to the Indenture Trustee for the benefit of the Owners of the
Notes and the Note Insurer pursuant to the Indenture.
In connection with the sale of the Initial Mortgage Loans on the
Closing Date and the Subsequent Mortgage Loans on each Subsequent Transfer Date,
the Company will be required to deliver to the Indenture Trustee, at least five
Business Days prior to the Closing Date a file consisting of (i) the original
Notes or certified copies thereof, endorsed by the Originator thereof in blank
or to the order of the holder, (ii) originals of all intervening assignments,
showing a complete chain of title from origination to the applicable
Originators, if any, including warehousing assignments, with evidence of
recording thereon, (iii) originals of all assumption and modification
agreements, if any, and, unless such Mortgage Loan is covered by a counsel's
opinion as described in the next paragraph, (iv) either: (a) the original
Mortgage, with evidence of recording thereon, or a certified copy of the
Mortgage as recorded, or (b) if the original Mortgage has not yet been returned
from the recording office, a certified copy of the Mortgage, (v) evidence of
title insurance with respect to the mortgaged property in the form of a binder
or commitment and (vi) at the Company's expense, an opinion of counsel with
respect to the sale and perfection of all Subsequent Mortgage Loans delivered to
the Indenture Trustee in form and substance satisfactory to the Indenture
Trustee and the Note Insurer. The Indenture Trustee will agree, for the benefit
of the Owners and the Note Insurer, as their interests may appear, to review
each such file on or before the Closing Date and again within 90 days after the
Closing Date or to ascertain that all required documents (or certified copies of
documents) have been executed and received.
Pursuant to the terms of the Sale and Servicing Agreement, the Company
shall assign to the Indenture Trustee for the benefit of the holders of the
Notes and the Note Insurer, as their interests may appear, all of the Company's
right, title and interest in each Master Loan Transfer Agreement insofar as it
relates to the representations and warranties made therein by the Originators
and the Company in respect of the origination of the Mortgage Loans and the
remedies provided for breach of such representations and warranties. Upon
discovery by the Indenture Trustee of a breach of any representation, warranty
or covenant which materially and adversely affects the interests of the Owners
of the Notes in a Mortgage Loan or of the Note Insurer, the Indenture Trustee
will promptly notify the Originator, the Company and the Note Insurer. The
Originators and the Company will have 60 days from its discovery or its receipt
of such notice to cure such breach or repurchase the Mortgage Loan.
The Company is additionally required to cause to be prepared and
recorded, within 75 business days of the Closing Date with respect to the
Initial Mortgage Loans, or Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans (or, if original recording information is unavailable,
within such later period as is permitted by the Sale and Servicing Agreement)
assignments of the Mortgages from the Originators (other than the Company) to
the Company and then to the Indenture Trustee on behalf of the Owners of the
Notes, in the appropriate jurisdictions in which such recordation is necessary
to perfect the lien of the Issuer thereof as against creditors of or purchasers
from the Originators; provided, however, that if the Company furnishes to the
Indenture Trustee executed recordable assignments of the Mortgages and to the
Indenture Trustee and the Note Insurer an opinion of counsel to the effect that
no such recording is necessary to perfect the Indenture Trustee's interests in
the Mortgages with respect to any of the relevant jurisdictions, then such
recording will not be required with respect to such jurisdictions. However, the
Note Insurer may require recordation at a future date at its reasonable
discretion.
Removal and Resignation of the Servicer
The Sale and Servicing Agreement provides that the Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it. No such resignation will become effective until the Indenture Trustee
(or an affiliate thereof) or a successor Servicer has assumed the Servicer's
obligations and duties under the Sale and Servicing Agreement. The Note Insurer,
the Indenture Trustee or the Owners with the consent of the Note Insurer, will
have the right, pursuant to the Sale and Servicing Agreement, to remove the
Servicer upon the occurrence of any of (a) the continuing failure of the
Servicer to deliver to the Indenture Trustee any proceeds or required payment
for a period of five business days after written notice; (b) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer and certain actions by the Servicer
indicating its insolvency or
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inability to pay its obligations; (c) the continuing failure of the Servicer to
perform any one or more of its material obligations under the Sale and Servicing
Agreement for a period of sixty (60) days after notice by the Indenture Trustee
or the Note Insurer of said failure; or (d) the failure of the Servicer to cure
any breach of any of its representations and warranties set forth in the Sale
and Servicing Agreement which materially and adversely affects the interests of
the Owners or the Note Insurer for a period of sixty (60) days after the
Servicer's discovery or receipt of notice thereof.
The Sale and Servicing Agreement additionally provides that the Note
Insurer may remove the Servicer upon the occurrence of any of the following
events:
(i) with respect to any Payment Date, if the Total
Available Funds will be less than the Monthly
Distribution Amount, in respect of such Payment Date;
provided, however, that the Note Insurer will have no
right to remove the Servicer pursuant to the
provision described in this clause (i) if the
Servicer can demonstrate to the reasonable
satisfaction of the Note Insurer that such event was
due to circumstances beyond the control of the
Servicer;
(ii) the failure by the Servicer to make any required
Servicing Advance;
(iii) the failure of the Servicer to perform one or more of
its obligations under the Sale and Servicing
Agreement and the continuance thereof for a period of
thirty (30) days or such longer period as agreed to
in writing by the Note Insurer;
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating
Interest by the Remittance Date; or
(v) if the delinquency or loss levels applicable to the
Mortgage Loans exceed certain "trigger" levels set
forth in the Sale and Servicing Agreement.
Redemption of the Notes
The Notes will be subject to redemption in whole but not in part, at
the option of the Majority Residualholders, on or after the Clean-Up Call Date.
Under certain circumstances, the Note Insurer may also exercise such purchase
rights if the Majority Residualholders do not do so. The Notes will be redeemed
at the Redemption Price and the payment of the Redemption Price shall be in lieu
of the payment otherwise required to be made on such Payment Date in respect of
the Notes. The "Redemption Price" is equal to 100% of the aggregate Loan
Balances of the Mortgage Loans plus the appraised value of any REO Property as
of the Redemption Date minus amounts remitted from the Principal and Interest
Account to the Note Account representing collections of principal on the
Mortgage Loans during the current Remittance Period, plus one month's interest
on such amount [plus any Available Funds Cap Carry Forward Amount] plus all
accrued and unpaid Servicing Fees plus the aggregate amount of any unreimbursed
Delinquency Advances and Servicing Advances and Delinquency Advances which the
Servicer has theretofore failed to remit plus all amounts owed to the Note
Insurer under the Insurance Agreement.
The Indenture Trustee
The Indenture will provide that the Indenture Trustee may resign at any
time, upon notice to the Issuer, the Note Insurer, the Servicer and each Rating
Agency, in which event the Issuer (with the consent of the Note Insurer) will be
obligated to appoint a successor Indenture Trustee. The Issuer or the Note
Insurer may remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee. The Indenture will provide that
the Indenture Trustee is under no obligation to exercise any of the rights or
powers vested in it by the Indenture at the request or direction of any of the
Owners, unless such Owners shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction. The
Indenture Trustee may execute any of the rights of powers granted by the
Indenture or perform any duties thereunder either directly or by or through
agents or attorneys, and the Indenture Trustee is responsible for any misconduct
or negligence on the part of any agent or attorney appointed and supervised with
due care by it thereunder. Pursuant to the Indenture, the Indenture Trustee is
not liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Indenture. The Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee may rely and will
be protected in acting or refraining from acting in good faith in reliance on
any certificate, notice or other document of any kind prima facie properly
executed and submitted by the authorized officer of any person respecting any
matters arising under the Indenture.
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Voting
Unless otherwise specified in the Indenture, with respect to any
provisions of the Indenture providing for the action, consent or approval of the
Owners evidencing specified "Voting Interests", each Owner will have a Voting
Interest equal to the Percentage Interest represented by such Owner's Note. Any
Note registered in the name of the Issuer or any affiliate thereof will be
deemed not to be outstanding and the Percentage Interest evidenced thereby shall
not be taken into account in determining whether the requisite amount of Voting
Interests necessary to take any such action, or effect any such consent, has
been obtained.
Governing Law
The Agreements and each Note will be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein.
Termination of the Trust Estate
The Indenture will provide that the Trust Estate will terminate upon
the payment to the Owners of all Notes from amounts other than those available
under the Note Insurance Policy of all amounts required to be paid such Owners
upon the later to occur of (a) the final payment or other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following section discusses certain of the material anticipated
federal income tax consequences of the purchase, ownership and disposition of
the Notes. Such section must be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Notes.
No election will be made to treat the Trust Estate or any portion
thereof as a REMIC for federal income tax purposes.
In the opinion of Arter & Hadden, LLP, special tax counsel, for federal
income tax purposes, the Notes will be treated as newly originated debt
instruments and the Issuer will not be characterized as an association (or a
publicly traded partnership or taxable mortgage pool) taxable as a corporation.
Each Owner of a Note, by its acceptance of a Note, will agree to treat the Notes
as indebtedness. It is anticipated that the Notes will be issued without
original issue discount for federal income tax purposes. However, it is possible
that the Internal Revenue Service could treat a portion of the additional
interest which would become payable on the Notes after the Clean-Up Call Date as
original issue discount. Owners are urged to consult their tax advisor with
respect to the tax consequences of holding the Notes.
The prepayment assumption that is to be used in determining whether the
Notes are issued with original issue discount and the rate of accrual of
original issue discount is a CPR of __%. No representation is made as to the
actual rate at which the Mortgage Loans will prepay. See "Certain Federal Income
Tax Consequences -- Notes" in the Prospectus.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences" herein, potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the Notes. State income tax law may differ substantially from the
corresponding federal tax law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Notes.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) and plans described in Code section
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4975(e)(1), including individual retirement accounts (the "Plans") and (b)
persons who have certain specified relationships to such Plans or who constitute
"disqualified persons" under Code section 4975(e)(2) with respect to such Plans
("parties in interest"). Certain employee benefit plans, such as governmental
plans and church plans (if no election has been made under section 410(d) of the
Code), are not subject to the restrictions of ERISA, and assets of such plans
may be invested in the Notes without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
such governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes should
consult with its counsel with respect to the potential consequences under ERISA,
and the Code, of the Plan's acquisition and ownership of the Notes. See "ERISA
Considerations" in the Prospectus. Investments by Plans are also subject to
ERISA's general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions ("prohibited transactions") involving
a Plan and its assets unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA)
on parties in interest which engage in non-exempt prohibited transactions.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3-101) concerning the definition of what
constitutes the assets of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (the "Plan Asset Regulation"). The Plan Asset
Regulation describes the circumstances under which the assets of an entity in
which a Plan invests will be considered to be "plan assets" such that any person
who exercises control over such assets would be subject to ERISA's fiduciary
standards. Under the Plan Asset Regulation, generally when a Plan invests in
another entity, the Plan's assets do not include, solely by reason of such
investment, any of the underlying assets of the entity. However, the Plan Asset
Regulation provides that, if a Plan acquires an "equity interest" in any entity
that is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the Investment Company
Act of 1940, the assets of the entity will be treated as assets of the Plan
investor unless certain exceptions apply. If the Notes were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies, the
Issuer could be considered to hold plan assets by reason of a Plan's investment
in the Notes. Such plan assets would include an undivided interest in any assets
held by the Issuer. In such an event, the Servicer and other persons, in
providing services with respect to the Issuer's assets, may be parties in
interest with respect to such Plans, subject to fiduciary responsibility
provisions of Title I of ERISA, including the general fiduciary duties of
Section 404 of ERISA, the prohibited transaction provisions of Section 406 of
ERISA, and to Section 4975 of the Code with respect to transactions involving
the assets of the Trust Estate. Under the Plan Asset Regulation, the term
"equity interest" is defined as any interest in an entity other than an
instrument that is treated as indebtedness under "applicable local law" and
which has no "substantial equity features." Although the Plan Asset Regulation
is silent with respect to the question of which law constitutes "applicable
local law" for this purpose, the DOL has stated that these determinations should
be made under the state law governing interpretation of the instrument in
question. In the preamble to the Plan Asset Regulation, the DOL declined to
provide a precise definition of what features are equity features or the
circumstances under which such features would be considered "substantial,"
noting that the question of whether a plan's interest has substantial equity
features is an inherently factual one, but that in making a determination it
would be appropriate to take into account whether the equity features are such
that a Plan's investment would be a practical vehicle for the indirect provision
of investment management services.
Without regard to whether the Notes are treated as an equity interest
under the Plan Asset Regulation, the acquisition or holding of the Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if such acquisition or holding is deemed to be a prohibited loan to a party in
interest with respect to such Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of the Notes
by a Plan depending on the type and circumstances of the plan fiduciary making
the decision to acquire the Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
95-60, regarding certain transactions entered into by insurance company general
accounts; PTCE 96-23, regarding certain transactions effected by "in-house asset
managers"; PTCE 91-38, regarding certain transactions entered into by bank
collective investment funds; and PTCE 84-14, regarding certain transactions
effected by "qualified professional asset managers."
Any Plan fiduciary considering whether to purchase any Notes 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. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its
S-34
<PAGE>
own determination as to whether the Issuer, as obligor on the Notes, is a party
in interest with respect to the Plan, the availability of the exemptive relief
provided in the Plan Asset Regulations and the availability of any other
prohibited transaction exemptions. Investors should analyze whether the decision
may have an impact with respect to purchases of the Notes.
In addition to the matters described above, purchasers of the Notes
that are insurance companies should consult with their counsel with respect to
the United States Supreme Court case interpreting the fiduciary responsibility
rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and
Savings Bank, 114 S.Ct. 517 (1993). In John Hancock, the Supreme Court ruled
that assets held in an insurance company's general account may be deemed to be
"plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers using insurance company general account assets should determine
whether the decision affects their ability to make purchases of the Notes.
RATINGS
It is a condition of the original issuance of the Notes that they
receive ratings of AAA by Standard & Poor's and Aaa by Moody's. The ratings
assigned to the Notes will be based on the claims-paying ability of the Note
Insurer.
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. The security rating assigned to the Notes should
be evaluated independently of similar security ratings assigned to other kinds
of securities.
Explanations of the significance of such ratings may be obtained from
Moody's Investors Service, Inc., 99 Church Street, New York, New York, 10007 and
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.
25 Broadway, New York, New York 10004. Such ratings will be the views only of
such rating agencies. There is no assurance that any such ratings will continue
for any period of time or that such ratings will not be revised or withdrawn.
Any such revision or withdrawal of such ratings may have an adverse effect on
the market price of the Notes.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will [not] constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, many institutions with legal authority to invest in comparably
rated securities may not be legally authorized to invest in the Notes.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Notes, dated ________ _, 199_, the
Company has agreed to cause the Issuer to sell to each of the Underwriters named
below (the "Underwriters") and each of the Underwriters have severally agreed to
purchase the principal amount of the Notes set forth opposite its name below:
The Underwriters have advised the Company that they propose to offer
the Notes for sale from time to time in one or more negotiated transactions or
otherwise, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices. The Underwriters may effect such
transactions by selling such Notes to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters or purchasers of the Notes for whom they may
act as agent. Any dealers that participate with the Underwriters in the
distribution of the Notes purchased by the Underwriters may be deemed to be
underwriters, and any discounts or commissions received by them or the
Underwriters and any profit on the resale of Notes by them or the Underwriters
may be deemed to be underwriting discounts or commissions under the Securities
Act.
Proceeds to the Company, including accrued interest, are expected to be
approximately ______% aggregate principal balance of the Notes, before deducting
expenses payable by the Company in connection with the Notes, estimated to be
$_______. In connection with the purchase and sale of the Notes, the
Underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
S-35
<PAGE>
The Company has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in Notes and such market-making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
the Notes for the purpose of stabilizing its market price. In addition,
__________________________________, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the offering) for
the account of the other Underwriters, the selling concession with respect to
the Notes that is distributed in the offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Notes at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are undertaken, they may be discontinued at any time.
REPORT OF EXPERTS
[To be provided.]
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Notes will be passed upon for the Company and the Servicer by Arter & Hadden
LLP, Washington, D.C. Certain legal matters relating to insolvency issues and
certain federal income tax matters concerning the Notes will be passed upon for
the Company by Arter & Hadden LLP.
S-36
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First
Alliance Mortgage Loan Owner Trust 199_-_ Mortgage Loan Asset-Backed Notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lockup" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement
I-1
<PAGE>
has been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel Participant's or Euroclear Participant's account. The
securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase side of
the trade is reflected in their Cedel or Euroclear accounts) in accordance with
the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC Participant is at least one day
prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
I-2
<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
I-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that information herein or therein is correct as of any
time since the date of this Prospectus Supplement or the Prospectus.
----------------------
TABLE OF CONTENTS
Prospectus Supplement
Summary......................................................S-1
Risk Factors.................................................S-
The Portfolio of Mortgage Loans..............................S-
The Issuer...................................................S-
Use of Proceeds..............................................S-
The Mortgage Loan Pool.......................................S-
Prepayment and Yield Considerations..........................S-
Additional Information.......................................S-
Description of the Notes.....................................S-
The Company..................................................S-
The Note Insurance Policy and the Note Insurer...............S-
Certain Federal Income Tax Consequences......................S-
State Tax Consequences.......................................S-
ERISA Considerations.........................................S-
Ratings......................................................S-
Legal Investment Considerations..............................S-
Underwriting.................................................S-
Report of Experts............................................S-
Certain Legal Matters........................................S-
Global Clearance, Settlement and
Tax Documentation Procedures............................I-1
Index to Location of Principal Defined Terms.................A-1
Prospectus
Available Information........................................ 2
Reports to Owners............................................ 3
Incorporation of Certain Documents by Reference.............. 3
Prospectus Supplement........................................ 3
Summary of Prospectus........................................ 4
Risk Factors.................................................13
The Trusts...................................................18
The Mortgage Pools...........................................21
Mortgage Loan Program........................................23
Description of the Securities................................31
Subordination................................................44
Description of Credit Enhancement............................45
Hazard Insurance; Claims Thereunder..........................50
The Company..................................................50
The Servicer.................................................51
The Master Servicer..........................................51
The Pooling and Servicing Agreement..........................51
Yield Considerations.........................................55
Maturity and Prepayment Considerations.......................57
Certain Legal Aspects of Mortgage Loans and Related Matters..58
Certain Federal Income Tax Consequences......................63
ERISA Considerations........................................ 73
Legal Investment Matters.....................................76
Use of Proceeds .............................................77
Methods of Distribution......................................77
Legal Matters................................................78
Financial Information........................................78
Rating.......................................................78
Index to Location of Principal Defined Terms.................79
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the related Securities, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus
Supplement and the related 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.
================================================================================
================================================================================
First Alliance Mortgage Loan Owner Trust 199_-_
$___________ Adjustable Rate Mortgage Loan
Asset Backed Notes,
Series 199_-_
Due __________, 202_
[GRAPHIC OMITTED]
Company and Servicer
Adjustable Rate
Mortgage Loan
Asset Backed Notes
Series 199_-_
--------------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------------
[Date]
================================================================================
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
2/28 Loans................................................................S-3
3/27 Loans................................................................S-3
5/25 Loans................................................................S-3
Accrual Period............................................................S-4
Actuarial Loans..........................................................S-20
Advances.................................................................S-23
Agreements...............................................................S-22
Available Funds..........................................................S-25
Available Funds Cap.......................................................S-4
Beneficial Owners.........................................................S-9
Book-Entry Notes.........................................................S-26
Capitalized Interest Account..............................................S-8
Carry-Forward Amount......................................................S-6
CEDEL.....................................................................S-9
CEDEL Participants.......................................................S-28
Cede......................................................................S-9
Certificate Account......................................................S-23
Certificate Insurer.......................................................S-8
Chase.....................................................................S-9
Citibank..................................................................S-9
Closing Date..............................................................S-1
CLTV......................................................................S-3
Code.....................................................................S-10
Company...................................................................S-1
Compensating Interest.....................................................S-8
Cooperative..............................................................S-28
Current Interest..........................................................S-4
Cut-Off Date..............................................................S-1
Definitive Note..........................................................S-26
Delinquency Advances......................................................S-8
DOL......................................................................S-34
DTC.......................................................................S-9
DTC Participants.........................................................S-27
ERISA....................................................................S-33
Euroclear.................................................................S-9
Euroclear Operator.......................................................S-28
Euroclear Participants...................................................S-28
European Depositaries.....................................................S-9
Excess Subordinated Amount...............................................S-24
Fannie Mae................................................................S-2
Final Payment Date.......................................................S-21
Financial Intermediary...................................................S-26
Fiscal Agent.............................................................S-30
Funding Period............................................................S-7
Indenture.................................................................S-1
Indenture Trustee Fee....................................................S-1
Indenture Trustee.........................................................S-1
Initial Mortgage Loans....................................................S-1
Interest Determination Date..............................................S-26
Issuer....................................................................S-1
LIBOR.....................................................................S-4
Liquidated Mortgage Loan..................................................S-6
LTV.......................................................................S-3
Majority Residualholders..................................................S-9
Modeling Assumptions.....................................................S-21
Monthly Distribution Amount...............................................S-6
Moody's...................................................................S-9
Mortgaged Properties......................................................S-1
Mortgages.................................................................S-1
Mortgagor................................................................S-20
Note Insurance Policy.......................................................2
Note Rate.................................................................S-4
Notes.....................................................................S-1
Original Aggregate Loan Balance...........................................S-1
Original Pre-Funded Amount................................................S-1
Originator................................................................S-1
Owner Trust...............................................................S-1
Owner Trustee Fee........................................................S-26
Participants..............................................................S-4
Payment Date..............................................................S-4
Percentage Interest......................................................S-34
Plan Asset Regulation....................................................S-34
Plans....................................................................S-20
Prepayment................................................................S-7
Pre-Funded Amount.........................................................S-1
Pre-Funding Account.......................................................S-7
Pre-Funding Account Earnings..............................................S-5
Principal Distribution Amount............................................S-10
REMIC....................................................................S-24
Realized Loss.............................................................S-4
Record Date..............................................................S-32
Redemption Price.........................................................S-26
Reference Banks..........................................................S-26
Relevant Depositary......................................................S-23
Remittance Date..........................................................S-23
Remittance Period.........................................................S-2
Residual Interest........................................................S-12
Riegle Act...............................................................S-27
Rules.....................................................................S-2
Securities................................................................S-1
Servicer..................................................................S-9
Servicing Fee.............................................................S-3
Six-Month LIBOR Loans....................................................S-10
SMMEA....................................................................S-23
Specified Subordinated Amount.............................................S-9
Standard & Poor's........................................................S-23
Subordinated Amount.......................................................S-6
Subordination Deficit....................................................S-23
Subordination Increase Amount............................................S-24
Subordination Reduction Amount...........................................S-11
Subsequent Cut-Off Date...................................................S-1
Subsequent Mortgage Loans................................................S-11
Subsequent Transfer Agreement.............................................S-7
Subsequent Transfer Date.................................................S-26
Telerate Page 3750.......................................................S-28
Terms and Conditions.....................................................S-25
Total Available Funds....................................................S-23
Total Monthly Excess Spread...............................................S-1
Trust Agreement...........................................................S-1
Trust Estate.............................................................S-35
Underwriters.............................................................S-35
A-1
<PAGE>
SUBJECT TO COMPLETION - DATED JANUARY ____, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
Mortgage Loan Asset Backed Securities, Issuable in Series
First Alliance Mortgage Company
This Prospectus describes certain Mortgage Loan Asset Backed Securities
(the "Securities") that may be issued from time to time in series and certain
classes of which may be offered hereby from time to time as described in the
related Prospectus Supplement. Each series of Securities will be issued by a
separate trust (each, a "Trust") and will evidence either a beneficial ownership
interest in or the debt obligation of such Trust. The primary assets of each
Trust will consist of a segregated pool (a "Mortgage Pool") of conventional one-
to four-family residential mortgage loans or certificates of interest or
participation therein (the "Mortgage Loans"), to be acquired by such Trust from
First Alliance Mortgage Company (the "Company"). The Company will originate
and/or acquire the Mortgage Loans from one or more affiliated or unaffiliated
institutions (together with the Company, the "Originators"). See "The Mortgage
Pools."
The Mortgage Loans in each Mortgage Pool and certain other assets
described herein and in the related Prospectus Supplement (collectively with
respect to each Trust, the "Trust Estate") will be held by the related Trust for
the benefit of the holders of the related series of Securities (the
"Securityholders") to the extent and as more fully described herein and in the
related Prospectus Supplement. Each Mortgage Pool will consist of one or more of
the various types of Mortgage Loans described under "The Mortgage Pools."
Each series of Securities will include one or more classes. The
Securities of any particular class may represent beneficial ownership interests
in the related Mortgage Loans held by the related Trust, or may represent debt
secured by such Mortgage Loans, as described herein and in the related
Prospectus Supplement. A series may include one or more classes of Securities
entitled to principal distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no principal distributions. The rights of one or more classes of
Securities of any series may be senior or subordinate to the rights of one or
more of the other classes of Securities. A series may include two or more
classes of Securities which differ as to the timing, sequential order, priority
of payment, interest rate or amount of distributions of principal or interest or
both. Information regarding each class of Securities of a series, and certain
characteristics of the Mortgage Loans to be evidenced by such Securities, will
be set forth in the related Prospectus Supplement.
The Company's and the related Originators' only obligations with
respect to a series of Securities will be pursuant to the servicing requirements
relating thereto, and pursuant to certain representations and warranties made by
the Company or by such Originators, except as described in the related
Prospectus Supplement. The Prospectus Supplement for each series of Securities
will name the Company or some other entity or entities as Servicer (the
"Servicer") which will act, directly or through one or more sub-servicers (the
"Sub-Servicer(s)"). The principal obligations of the Servicer will be pursuant
to its contractual servicing obligations (which include its limited obligation
to make certain advances in the event of delinquencies in payments on the
Mortgage Loans and interest shortfalls due to prepayment of Mortgage Loans). See
"Description of the Securities."
If so specified in the related Prospectus Supplement, the Trust Estate
for a series of Securities may include any combination of a mortgage pool
insurance policy, letter of credit, financial guaranty insurance policy,
bankruptcy bond, special hazard insurance policy, reserve fund or other form of
credit enhancement. In addition to or in lieu of the foregoing, credit
enhancement with respect to certain classes of Securities of any series may be
provided by means of subordination, cross-support among Mortgage Assets as
defined herein or over-collateralization. See "Description of Credit
Enhancement."
See "Risk Factors" beginning on page herein and in the related
Prospectus Supplement for a discussion of significant matters affecting
investments in the Securities.
The rate of payment of principal of each class of Securities entitled
to principal payments will depend on the priority of payment of such class and
the rate of payment (including prepayments, defaults, liquidations and
repurchases of Mortgage Loans) of the related Mortgage Loans. A rate of
principal payment lower or higher than that anticipated may affect the yield on
each class of Securities in the manner described herein and in the related
Prospectus Supplement. The various types of Securities, the different classes of
such Securities and certain types of Mortgage Loans in a given Mortgage Pool may
have different prepayment risks and credit risks. The Prospectus Supplement for
a series of Securities will contain information as to (i) types, maturities and
certain statistical information relating to credit risks of the Mortgage Loans
in the related Mortgage Pool, (ii) projected prepayment and yields based upon
certain specified assumptions for a series of Securities and (iii) priority of
payment and maturity dates of the Securities. See "Yield Considerations." A
Trust may be subject to early termination under the circumstances described
herein and in the related Prospectus Supplement.
An investor should carefully review the information in the related
Prospectus Supplement concerning the different consequences of the risks
associated with the different types and classes of Securities.
THE ASSETS OF THE RELATED TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE
RELATED SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE COMPANY, THE SERVICER, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES, EXCEPT
AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE
SECURITIES NOR THE UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR INSURED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE SERVICER, THE
MASTER SERVICER, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH
IN THE RELATED PROSPECTUS SUPPLEMENT.
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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.
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Offers of the Securities may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Methods of Distribution" herein and "Underwriting" in the related Prospectus
Supplement. There will be no secondary market for any series of Securities prior
to the offering thereof. There can be no assurance that a secondary market for
any of the Securities will develop or, if it does develop, that it will offer
sufficient liquidity of investment or will continue.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
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The date of this Prospectus is _________________, 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there by any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
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If specified in a Prospectus Supplement for a series of Certificates,
one or more separate elections may be made to treat a Trust, or specified
portions thereof, as a real estate mortgage investment conduit ("REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for a
series of Securities will specify which class or classes of the related series
of Securities will be considered to be regular interests in a REMIC and which
classes of Securities or other interests will be designated as the residual
interest in a REMIC. Alternatively, a Trust may be treated as a grantor trust or
as a partnership for federal income tax purposes, or may be treated for federal
income tax purposes as a mere security device which constitutes a collateral
arrangement for the issuance of secured debt. See "Certain Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
TABLE OF CONTENTS
Caption Page
Available Information........................................... 2
Reports to Owners............................................... 3
Incorporation of Certain Documents by Reference................. 3
Prospectus Supplement........................................... 3
Summary of Prospectus........................................... 4
Risk Factors................................................... 13
The Trusts..................................................... 18
The Mortgage Pools............................................. 21
General...................................................... 21
The Mortgage Pools........................................... 22
Mortgage Loan Program.......................................... 23
Underwriting Guidelines...................................... 24
Qualifications of Originators................................ 27
Sub-Servicers................................................ 27
Representations by Originators............................... 28
Sub-Servicing by Originators................................. 29
Master Servicer ............................................. 31
Description of the Securities.................................. 31
General...................................................... 31
General Payment Terms of Securities.......................... 32
Form of Securities........................................... 33
Assignment of Mortgage Loans................................. 34
Forward Commitments; Pre-Funding............................. 35
Payments on Mortgage Loans; Deposits to
Distribution Account...................................... 36
Withdrawals from the Principal and Interest Account......... 38
Distributions................................................ 39
Principal and Interest on the Securities..................... 39
Advances..................................................... 40
Reports to Securityholders.................................. 41
Collection and Other Servicing Procedures.................... 42
Realization upon Defaulted Mortgage Loans.................... 43
Subordination.................................................. 44
Description of Credit Enhancement.............................. 45
Hazard Insurance; Claims Thereunder............................ 50
Hazard Insurance Policies.................................... 50
The Company.................................................... 50
The Servicer................................................... 51
The Master Servicer............................................ 51
The Pooling and Servicing Agreement............................ 51
Servicing and Other Compensation and Payment
of Expenses; Originator's Retained Yield................... 51
Evidence as to Compliance.................................... 51
Removal and Resignation of the Servicer...................... 52
Resignation of the Master Servicer........................... 52
Rights Upon Event of Default................................. 53
Amendment.................................................... 53
Termination; Retirement of Securities........................ 54
The Trustee.................................................. 54
Yield Considerations........................................... 55
Maturity and Prepayment Considerations......................... 57
Certain Legal Aspects of Mortgage Loans and
Related Matters................................................ 58
General...................................................... 58
Foreclosure.................................................. 58
Rights of Redemption......................................... 59
Anti-Deficiency Legislation and Other Limitations
on Lenders.............................................. 59
Environmental Legislation.................................... 60
Enforceability of Certain Provisions......................... 61
Certain Provisions of California Deeds of Trust.............. 61
Applicability of Usury Laws.................................. 62
Alternative Mortgage Instruments............................. 62
Soldiers' and Sailors' Civil Relief Act of 1940.............. 62
Certain Federal Income Tax Consequences........................ 63
General...................................................... 63
Grantor Trust Estates........................................ 63
REMIC Securities............................................. 64
Sales of REMIC Securities.................................... 68
Debt Securities.............................................. 69
Discount and Premium......................................... 70
Backup Withholding........................................... 72
Foreign Investors............................................ 73
ERISA Considerations........................................... 73
Plan Asset Regulations....................................... 74
Prohibited Transaction Class Exemption....................... 74
Tax Exempt Investors........................................ 75
Consultation with Counsel.................................... 76
Legal Investment Matters....................................... 76
Use of Proceeds................................................ 77
Methods of Distribution........................................ 77
Legal Matters.................................................. 78
Financial Information.......................................... 78
Rating......................................................... 78
Index of Principal Definitions................................. 79
AVAILABLE INFORMATION
The Company has filed a Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Securities. The Registration
Statement and amendments thereof and to the exhibits thereto, as well as such
reports and other information, are available for inspection without charge 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: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates
and electronically through the Commission's Electronic Data Gathering, Analysis
and Retrieval system at the Commission's Web site (http://www.sec.gov).
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No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any accompanying
Prospectus Supplement with respect hereto do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Securities
offered hereby and thereby nor an offer of the Securities 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.
REPORTS TO OWNERS
Periodic and annual reports concerning any Securities and the related
Trust will be provided to the Securityholders . See "Description of the
Securities - Reports to Securityholders." If specified in the related Prospectus
Supplement, a series of Securities may be issuable in book-entry form. In such
event, the related Securities will be registered in the name of DTC (as defined
herein) and, therefore, DTC will be the Securityholder for purposes hereof. All
reports will be provided to DTC, which in turn will provide such reports to its
Participants (as defined herein). Such Participants will then forward such
reports to the beneficial owners of Securities. See "Description of the
Securities - Form of Securities" herein. The Company will file or cause to be
filed with the Commission such periodic reports with respect to each Trust as
are required under the Exchange Act and the rules and regulations of the
Commission thereunder. It is the Company's intent to suspend filing such reports
as soon as such reports are no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by each respective trust pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities of
such trust offered hereby shall be deemed to be incorporated by reference into
this Prospectus when delivered with respect to such trust. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without
charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(other than the documents expressly incorporated therein by reference). Requests
should be directed to First Alliance Mortgage Company, 17305 Von Karman Avenue,
Irvine, California 92714 (telephone number 714-224-8600).
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Securities of each series to
be offered hereunder will, among other things, set forth with respect to such
Securities, as appropriate: (i) a description of the class or classes of
Securities and the interest rate or method of determining the rate or the amount
of interest, if any, to be paid to each such class; (ii) the aggregate principal
amount and Payment Dates relating to such series and, if applicable, the initial
and final scheduled Payment Dates for each class; (iii) information as to the
assets comprising the Trust, including the general characteristics of the Trust
Estate and, if applicable, the insurance policies, surety bonds, guarantees,
letters of credit, reserve funds, cash accounts, reinvestment income or other
instruments or agreements included in the Trust or otherwise, and the amount and
source of any reserve account or cash account; (iv) the circumstances, if any,
under which the Trust may be subject to early termination; (v) the methods used
to calculate the amount of principal to be distributed with respect to each
class of Securities; (vi) the order of application of distributions to each of
the classes within such series, whether sequential, pro rata, or otherwise;
(vii) additional information with respect to the method of distribution of such
Securities; (viii) whether one or more REMIC elections will be made and
designation of the regular interests and residual interests; (ix) the aggregate
original percentage ownership interest in the Trust to be evidenced by each
class of Securities; (x) information as to the Trustee or Indenture Trustee;
(xi) information as to the nature and extent of subordination with respect to
any class of Securities that is subordinate in right of payment to any other
class; and (xii) information as to the Master Servicer, if any.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligations of dealers to deliver a Prospectus Supplement and the Prospectus
when acting as underwriters of the Securities covered by such Prospectus
Supplement and with respect to their unsold allotments or subscriptions.
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Securities contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. Capitalized terms used
in this summary that are not otherwise defined shall have the meanings ascribed
thereto in this Prospectus. An index indicating where certain terms used herein
are defined appears at the end of this Prospectus.
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Securities Offered...................... Mortgage Loan Asset Backed Securities.
Company................................. First Alliance Mortgage Company. See "The Company."
Originators............................. The Company will originate and/or acquire the Mortgage Loans from
one or more institutions affiliated with the Company
("Affiliated Originators") or institutions unaffiliated with the
Company ("Unaffiliated Originators") (the Affiliated
Originators, the Unaffiliated Originators and the Company are
collectively referred to as the "Originators"). Unaffiliated
Originators that enter into agreements to sell Mortgage Loans
to the Company and that meet certain qualifications described
herein are referred to as "Participating Originators" or
"Designated Originators"; such designation is dependent upon
types of duties retained by an Originator (i.e., sub-servicing)
and satisfaction of the Company's requirements for such qualification.
Servicer................................ First Alliance Mortgage Company or any entity or entities named as
Servicer in the related Prospectus Supplement will act as servicer
with respect to the Mortgage Loans included in the related Trust.
An affiliate of the Company may act as the Servicer. See "The Servicer"
and "The Pooling and Servicing Agreement--Certain Matters Regarding the
Servicer and the Company."
Master Servicer......................... A Master Servicer may be specified in the related Prospectus
Supplement for the related series of Securities. See "Mortgage
Loan Program--Master Servicer" and "The Pooling and Servicing
Agreement--Certain Matters Regarding the Servicer and the
Company."
Sub-Servicers........................... Affiliated Originators may act as Sub-Servicers for Mortgage Loans
acquired by the Company from such Affiliated Originators unless
servicing is released to the Servicer or has been transferred to a
servicer approved by the Servicer. Unaffiliated Originators
(including Designated Originators, Participating Originators or
Originators of Bulk Acquisitions) may or may not act as
Sub-Servicers for Mortgage Loans acquired by the Company from
such Unaffiliated Originators. In addition, third-party unaffiliated
contract servicers may act as Sub-Servicers. See "Mortgage
Loan Program--Sub-Servicers."
Trustee................................. The trustee (the "Trustee") for each series of Certificates will be
specified in the related Prospectus Supplement. The owner
trustee (the "Owner Trustee") and the indenture trustee (the
"Indenture Trustee") for each series of Notes will be specified in
the related Prospectus Supplement. Unless otherwise noted, references to the
Trustee herein will mean either the Trustee with respect to a series of
Certificates or Indenture Trustee with respect to a series of Notes.
Issuer of Notes......................... With respect to each series of Notes, the issuer (the "Issuer") will be
an owner trust established by the Company for the purpose of
issuing such Series of Notes. Each such owner trust will be
created pursuant to a Trust Agreement between the Company
and the Owner Trustee. Each series of Notes will represent
indebtedness of the Issuer and will be issued pursuant to an Indenture
between the Issuer and the Trustee whereby the Issuer will pledge the
related Trust to secure the Notes under the lien of the Indenture. As to
each series of Notes where the
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Issuer is an owner trust, the ownership of the related Trust
will be evidenced by certificated or noncertificated interests
issued under the Trust Agreement, which, unless otherwise specified
in the Prospectus Supplement, are not offered hereby. The Notes will
represent nonrecourse obligations solely of the Issuer, and the
proceeds of the related Trust will be the sole source of payments on
the Notes, except as described herein under "Description of
Credit Enhancement" and in the related Prospectus Supplement.
The Securities.......................... Issuance of Securities. Each series of Securities will be issued at the
direction of the Company by a separate Trust (each, a "Trust"). The
primary assets of each Trust will consist of a segregated pool (each a
"Mortgage Pool") of conventional, one-to-four family residential
mortgage loans (the "Mortgage Loans") or certificates of interest or
participation therein, acquired by such Trust from the Company. The
Company will originate and/or acquire the Mortgage Loans from one or
more of the Originators. The Securities issued by any Trust may
represent beneficial ownership interests in the related Mortgage Loans
held by the related Trust, or may represent debt secured by such
Mortgage Loans, as described herein and in the related Prospectus
Supplement. Securities which represent beneficial ownership interests
in the related Trust will be referred to as "Certificates" in the related
Prospectus Supplement; Securities which represent debt issued by the
related Trust will be referred to as "Notes" in the related Prospectus
Supplement.
Each Trust will be established pursuant to an agreement (each, a "Trust
Agreement") by and between the Company and the Trustee or Owner Trustee, as
applicable, named therein. Each Trust Agreement will describe the related pool
of assets to be held in trust (each such asset pool, the "Trust Estate"), which
will include the related Mortgage Loans and, if so specified in the related
Prospectus Supplement, may include any combination of a mortgage pool insurance
policy, letter of credit, financial guaranty insurance policy, special
hazard policy, reserve fund or other form of credit enhancement.
The Mortgage Loans held by each Trust will be serviced by the Servicer
pursuant to a servicing agreement (each, a "Servicing Agreement") by and
between the Servicer and the related Trustee.
With respect to Securities that represent debt issued by the related Trust,
the related Trust will enter into an indenture (each, an "Indenture") by
and between such Trust and the trustee named on such Indenture (the
"Indenture Trustee"), as set forth in the related Prospectus Supplement.
Securities that represent beneficial ownership interests in the related
Trust will be issued pursuant to the related Trust Agreement.
In the case of any individual Trust, the contractual arrangements relating
to the establishment of the Trust, the servicing of the related Mortgage
Loans and the issuance of the related Securities may be contained in a
single agreement, or in several agreements which combine certain aspects
of the Trust Agreement, the Servicing Agreement and the Indenture
described above (for example, a pooling and servicing agreement, or a
servicing and collateral management agreement). For purposes of this
Prospectus, the term "Pooling and Servicing Agreement" as used with
respect to a Trust means, collectively, and except as otherwise specified,
any and all agreements relating to the
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establishment of the related Trust, the servicing of the related Mortgage
Loans and the issuance of the related Securities.
Securities Will Be Recourse to the Assets of the Related Trust Only.
The sole source of payment for any series of Securities will be the
assets of the related Trust (i.e., the related Trust Estate). The
Securities will not be obligations, either recourse or non-recourse
(except for certain non-recourse debt described under "Certain Federal
Income Tax Consequences"), of the Company, the Master Servicer, the Servicer,
any Originator or any Person other than the related Trust. In the case of
Securities that represent beneficial ownership interest in the related
Trust Estate, such Securities will represent the ownership of such Trust
Estate; with respect to Securities that represent debt issued by the
related Trust, such Securities will be secured by the related Trust
Estate. Notwithstanding the foregoing, and as to be described in the
related Prospectus Supplement, certain types of credit enhancement, such
as a financial guaranty insurance policy or a letter of credit, may
constitute a full recourse obligation of the issuer of such credit
enhancement.
General Nature of the Securities as Investments. The Securities will consist
of two basic types: (i) Securities of the fixed-income type ("Fixed-Income
Securities") and (ii) Securities of the equity participation type ("Equity
Securities"). No Class of Equity Securities will be offered pursuant to
this Prospectus or any Prospectus Supplement related hereto. Fixed-Income
Securities will generally be styled as debt instruments, having a
principal balance and a specified interest rate ("Interest Rate").
Fixed-Income Securities may be either beneficial ownership interests in
the related Mortgage Loans held by the related Trust, or may represent
debt secured by such Mortgage Loans. Each series or class of Fixed-Income
Securities may have a different Interest Rate, which may be a fixed or
adjustable Interest Rate. The related Prospectus Supplement will specify
the Interest Rate for each series or class of Fixed-Income Securities, or
the initial Interest Rate and the method for determining subsequent
changes to the Interest Rate.
A series may include one or more classes of Fixed-Income Securities ("Strip
Securities") entitled (i) to principal distributions, with
disproportionate, nominal or no interest distributions, or (ii) to
interest distributions, with disproportionate, nominal or no principal
distributions. In addition, a series may include two or more classes of
Fixed-Income Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distributions of principal
or interest or both, or as to which distributions of principal or interest
or both on any class may be made upon the occurrence of specified events,
in accordance with a schedule or formula, or on the basis of collections
from designated portions of the related Mortgage Pool, which series may
include one or more classes of Fixed-Income Securities ("Accrual
Securities"), as to which certain accrued interest will not be distributed
but rather will be added to the principal balance (or nominal principal
balance, in the case of Accrual Securities which are also strip
Securities) thereof on each Payment Date, as hereinafter defined and in
the manner described in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series of Securities
may include one or more other classes of Fixed-Income Securities
(collectively, the "Senior Securities") that are senior to one or more
other classes of Fixed-Income Securities (collectively, the "Subordinate
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Securities") in respect of certain distributions of principal and interest
and allocations of losses on Mortgage Loans. In addition, certain classes
of Senior (or Subordinate) Securities may be senior to other classes of
Senior (or Subordinate) Securities in respect of such distributions or
losses.
Equity Securities will represent the right to receive the proceeds of the
related Trust Estate after all required payments have been made to the
Securityholders of the related Fixed-Income Securities (both Senior
Securities and Subordinate Securities), and following any required
deposits to any reserve account which may be established for the benefit
of the Fixed-Income Securities. Equity Securities may constitute what are
commonly referred to as the "residual interest," "seller's interest" or
the "general partnership interest," depending upon the treatment of the
related Trust for federal income tax purposes. As distinguished from the
Fixed-Income Securities, the Equity Securities will not be styled as
having principal and interest components. Any losses suffered by the
related Trust will first be absorbed by the related class of Equity
Securities, as described herein and in the related Prospectus Supplement.
No Class of Equity Securities will be offered pursuant to this Prospectus or
any Prospectus Supplement related hereto. Equity Securities may be offered
on a private placement basis or pursuant to a separate Registration
Statement to be filed by the Company. In addition, the Company and its
affiliates may initially or permanently hold any Equity Securities issued
by any Trust.
General Payment Terms of Securities. As provided in the related Pooling and
Servicing Agreement and as described in the related Prospectus Supplement,
Securityholders will be entitled to receive payments on their Securities
on specified dates ("Payment Dates"). Payment Dates with respect to
Fixed-Income Securities will occur monthly, quarterly or semiannually, as
described in the related Prospectus Supplement; Payment Dates with respect
to Equity Securities will occur as described in the related Prospectus
Supplement.
The related Prospectus Supplement will describe a date (the "Record Date")
preceding each Payment Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the purpose of receiving
payments on the next succeeding Payment Date. Unless otherwise described
in the related Prospectus Supplement, the Payment Date will be the
twentieth day of each month (or, in the case of quarterly-pay Securities,
the twentieth day of every third month; and in the case of
semi-annually-pay Securities, the twentieth day of every sixth month) and
the Record Date will be the close of business as of the last day of the
calendar month that precedes the calendar month in which such Payment Date
occurs.
Each Pooling and Servicing Agreement will describe different periods (a
"Remittance Period" or "Due Period") antecedent to each Payment Date (for
example, in the case of monthly-pay Securities, the calendar month (or the
30-day period) preceding the month in which a Payment Date occurs or such
other specified period). Unless otherwise provided in the related
Prospectus Supplement, collections received on or with respect to the
related Mortgage Loans during a Remittance Period will be required to be
remitted by the Servicer to the related Trustee prior to the
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related Payment Date, and will be used to fund payments to Securityholders
on such Payment Date. As may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that
all or a portion of the principal collected on or with respect to the
related Mortgage Loans may be applied by the related Trustee to the
acquisition of additional Mortgage Loans during a specified period (rather
than be used to fund payments of principal to Securityholders during such
period) with the result that the related securities will possess an
interest-only period, also commonly referred to as a revolving period,
which will be followed by an amortization period. Any such interest-only
or revolving period may, upon the occurrence of certain events to be
described in the related Prospectus Supplement, terminate prior to the end
of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a
portion of such collected principal may be retained by the Trustee (and
held in certain temporary investments, including Mortgage Loans) for a
specified period prior to being used to fund payments of principal to
Securityholders.
The result of such retention and temporary investment by the Trustee of such
principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to
attempt to match the amortization rate of the related Securities to an
amortization schedule established at the time such Securities are issued.
Any such feature applicable to any Securities may terminate upon the
occurrence of events to be described in the related Prospectus Supplement,
resulting in the current distribution of principal payments to the
specified Securityholders and an acceleration of the amortization of such
Securities.
Unless otherwise specified in the related Prospectus Supplement, neither the
Securities nor the underlying Mortgage Loans will be guaranteed or insured
by any governmental agency or instrumentality or the Company, the
Servicer, the Master Servicer, any Sub-Servicer, any Originator or any of
their affiliates; however, certain distributions to the Securityholders
may be insured by a Financial Guaranty Insurer pursuant to a Financial
Guaranty Insurance Policy.
No Investment
Companies............................. Neither the Company nor any Trust will register as an "investment
company" under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
Cross-Collateralization................. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the
source of payment for Securities of each series will be the assets of the
related Trust Estate only. However, as may be described in the related
Prospectus Supplement, a Trust Estate may include the right to receive
moneys from a common pool of credit enhancement which may be
available for more than one series of Securities, such as a master reserve
account or a master insurance policy. Notwithstanding the foregoing,
no collections on any Mortgage Loans held by any Trust may be applied
to the payment of Securities issued by any other Trust (except to the
limited extent that certain collections in excess of amounts needed to
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pay the related Securities may be deposited in a common, master reserve
account that provides credit enhancement for more than one series of
Securities).
The Mortgage Pools...................... Each Trust Estate will consist primarily of Mortgage Loans secured by
liens on one- to four-family residential properties ("Mortgages"),
located in any one of the fifty states, the District of Columbia, Puerto
Rico, any other Territories of the United States or in the United Kingdom
(the "Mortgaged Properties"). All Mortgage Loans will have been acquired by the
related Trust from the Company. All Mortgage Loans will have been
originated either by (i) the Company; (ii) one or more Affiliated
Originators generally pursuant to standard underwriting guidelines
described herein, as modified from time to time ("Company's
Guidelines"); (iii) one or more Unaffiliated Originators, generally
pursuant to the Company's Guidelines; (iv) certain Unaffiliated
Originators, including Participating Originators or Designated
Originators, generally pursuant to such Unaffiliated Originators'
underwriting guidelines approved by the Company ("Approved
Guidelines"); and (v) the Originators of a portfolio of Mortgage Loans,
subsequently purchased in whole or in part by the Company as bulk
acquisitions ("Bulk Acquisitions"), generally pursuant to such
Originators' underwriting guidelines. See "Mortgage Loan Program."
For a description of the types of Mortgage Loans that may be included
in the Mortgage Pools, see "The Mortgage Pools--The Mortgage
Loans."
A Current Report on Form 8-K will be available to purchasers or underwriters
of the related series of Securities and will generally be filed, together
with the related Pooling and Servicing Agreement, with the Securities and
Exchange Commission within fifteen days after the initial issuance of such
series or in the case of a Forward Purchase Agreement, within fifteen days
of the end of the related Funding Period. See "Description of the
Securities - Forward Commitments; PreFunding."
Forward Commitments;
Pre-Funding........................... A Trust may enter into an agreement (each, a "Forward Purchase
Agreement") with the Company whereby the Company will agree to
transfer Subsequent Mortgage Loans (each, a "Subsequent Mortgage
Loan") to such Trust following the date on which such Trust is
established and the related Securities are issued. All Subsequent
Mortgage Loans transferred to the Trust pursuant to a Forward Purchase
Agreement will be originated by the Company or an Originator. Any
Forward Purchase Agreement will require that any Mortgage Loans so
transferred to a Trust conform to the requirements specified in such
Forward Purchase Agreement. If a Forward Purchase Agreement is to
be utilized the related Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of one or
more classes of Securities of the related series; subsequently, the
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Subsequent Mortgage Loans will be transferred to the related Trust in
exchange for money released to the Company from the related Pre-Funding
Account in one or more transfers. The maximum amount of money deposited in
the Pre-Funding Account to acquire Subsequent Mortgage Loans for transfer
to the Trust will not exceed 25% of the aggregate principal amount of the
Securities offered pursuant to the related Prospectus Supplement. Each
Forward Purchase Agreement will set a specified period (the "Funding
Period") during which any such transfers must occur, which such period
shall not exceed 90 days from the date such Trust is established. The
Forward Purchase Agreement or the related Pooling and Servicing Agreement
will require that, if all moneys originally deposited to such Pre-Funding
Account are not so used by the end of such specified period, then any
remaining moneys will be applied as a mandatory prepayment of the related
class or classes of Securities as specified in the related Prospectus
Supplement. See "Risk Factors" herein and in the related Prospectus
Supplement. All moneys on deposit in the Pre-Funding Account will be
invested in Permitted Investments with all earnings thereon available to
make interest payments on the Securities.
Credit Enhancement...................... If so specified in the Prospectus Supplement, the Trust Estate with respect
to any series of Securities may include any one or any combination of a
letter of credit, mortgage pool insurance policy, special hazard insurance
policy, bankruptcy bond, financial guaranty insurance policy, reserve fund
or other type of credit enhancement to provide full or partial coverage for
certain defaults and losses relating to the Mortgage Loans. Credit support
also may be provided in the form of the related class of Equity Securities,
and/or by subordination of one or more classes of Fixed-Income Securities
in a series under which losses in excess of those absorbed by any related
class of Equity Securities are first allocated to any Subordinate
Securities up to a specified limit, cross-support among groups of Mortgage
Assets or overcollateralization. Any mortgage pool insurance policy may
have certain exclusions from coverage thereunder, which will be described
in the related Prospectus Supplement, which may be accompanied by one or
more separate credit enhancements that may be obtained to cover certain of
such exclusions. To the extent not set forth herein, the amount and types
of coverage, the identification of any entity providing the coverage, the
terms of any subordination and related information will be set forth in the
Prospectus Supplement relating to a series of Securities. See "Description
of Credit Enhancement" and "Subordination."
Advances................................ The Servicer, directly or through Sub-Servicers, may be obligated to make
certain cash advances with respect to delinquent scheduled payments on
the Mortgage Loans, but only to the extent that the Servicer believes
that such amounts will be recoverable by it. Any such advance made by
the Servicer with respect to a Mortgage Loan is recoverable by it as
provided herein under "Description of the Securities--Advances" either
from recoveries on the specific Mortgage Loan or, with respect to any
advance subsequently determined to be nonrecoverable, out of funds
otherwise distributable to the holders of the related series of Securities,
which may include the holders of any Senior Securities of such series.
The Servicer may be required to advance Compensating Interest as
defined hereafter under "Description of the Securities--Advances."
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In addition, the Servicer will be required to pay all "out of pocket" costs
and expenses incurred in the performance of its servicing obligations, but
only to the extent that the Servicer reasonably believes that such amounts
will increase Net Liquidation Proceeds on the related Mortgage Loan. See
"Description of the Securities--Advances."
Optional Termination.................... The Servicer, the Company, or, if specified in the related Prospectus
Supplement, the holders of the related class of Equity Securities or the
credit enhancer may at their respective option effect early retirement of
a series of Securities through the purchase of the Mortgage Loans and
other assets in the related Trust Estate under the circumstances and in
the manner set forth herein under "The Pooling and Servicing
Agreement--Termination; Retirement of Securities" and in the related
Prospectus Supplement.
Mandatory Termination................... The Trustee, the Servicer or certain other entities specified in the related
Prospectus Supplement may be required to effect early retirement of a
series of Securities by soliciting competitive bids for the purchase of the
related Trust Estate or otherwise, under other circumstances and in the
manner specified in "The Pooling and Servicing Agreement--Termination;
Retirement of Securities" and in the related Prospectus Supplement.
Legal Investment........................ Not all of the Mortgage Loans in a particular Mortgage Pool may
represent first liens. Accordingly, as disclosed in the related Prospectus
Supplement, certain classes of Securities offered hereby and by the
related Prospectus Supplement may not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") and, if so, will not be legal
investments for certain types of institutional investors under SMMEA.
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to additional restrictions on investment in certain classes of
Securities. Any such institution should consult its own legal advisors in
determining whether and to what extent a class of Securities constitutes
legal investments for such investors. See "Legal Investment" herein.
ERISA Considerations.................... A fiduciary of an employee benefit plan and 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, annuities 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
such entity, a "Plan") should carefully review with its legal advisors
whether the purchase or holding of Securities could give rise to a
transaction that is prohibited or is not otherwise permissible either under
ERISA or Section 4975 of the Code. Investors are advised to consult
their counsel and to review "ERISA Considerations" herein and in the
related Prospectus Supplement. Certain classes of Securities may not
be transferred unless the Trustee is furnished with a letter of
representations or an opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited transaction provisions of
ERISA and the Code and will not subject the Trustee, the Company or
the Servicer to additional obligations.
Certain Federal Income Tax
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Consequences.......................... Securities of each series offered hereby will, for federal income tax
purposes, constitute either (i) interests ("Grantor Trust Securities") in a
Trust treated as a grantor trust under applicable provisions of the Code,
(ii) "regular interests" ("REMIC Regular Securities") or "residual
interests" ("REMIC Residual Securities") in a Trust treated as a REMIC
(or, in certain instances, containing one or more REMIC's) under
Sections 860A through 860G of the Code, (iii) debt issued by a Trust
("Debt Securities"), (iv) interests in a Trust which is treated as a
partnership ("Partnership Interests"), and (v) "regular interests"
("FASIT Regular Securities"), "high-yield interests" ("FASIT High-
Yield Securities") or an ownership interest in a Trust treated as a FASIT
(or, in certain circumstances containing one or more FASITs under
Sections 860H through 860L of the Code.
Unless otherwise specified in the related Prospectus Supplement, Securities
that are Notes will be treated as Debt Securities for federal income tax
purposes and the Securityholders, in accepting such Notes, will agree to
treat such Notes as indebtedness. See "Certain Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
Investors are advised to consult their tax advisors and to review "Certain
Federal Income Tax Consequences" herein and in the related Prospectus
Supplement.
Registration of Securities.............. Securities may be represented by global securities registered in the name
of Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC"), or another nominee. In such case, Securityholders will not be
entitled to receive definitive securities representing such holders'
interests, except in certain circumstances described in the related
Prospectus Supplement. See "Description of the Securities--Form of
Securities" herein.
Ratings................................. Each class of Fixed-Income Securities offered pursuant to the related
Prospectus Supplement will be rated in one of the four highest rating
categories by one or more "national statistical rating organizations," as
defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and commonly referred to as "Rating Agencies." Such
ratings will address, in the opinion of such Rating Agencies, the
likelihood that the related Trust will be able to make timely payment of
all amounts due on the related Fixed-Income Securities in accordance
with the terms thereof. Such ratings will neither address any
prepayment or yield considerations applicable to any Securities nor
constitute a recommendation to buy, sell or hold any Securities.
The ratings expected to be received with respect to any Securities will be
set forth in the related Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
Limited Liquidity. Prior to their issuance, there will have been no
market for the Securities of any Series. There can be no assurance that a
secondary market for the Securities of any series or class will develop or, if
it does develop, that it will provide Securityholders with liquidity of
investment or that it will continue for the life of the Securities of any
series. The Prospectus Supplement for any series of Securities may indicate that
an underwriter specified therein intends to establish a secondary market in such
Securities; however, no underwriter will be obligated to do so. The Securities
will not be listed on any securities exchange. Accordingly, there can be no
assurance that sufficient liquidity will exist at any particular time for any
series or class of Securities. Consequently, Securityholders may not be able to
dispose of their investment in the event of an emergency or for any other reason
and must be prepared to bear the economic risk of an investment in the
Securities for an indefinite period. Such factors may also adversely affect the
price that a Securityholder may be able to obtain for the Securities that such
investor is able to sell.
Limited Obligations. The Securities will not represent an interest in
or obligation, either recourse or non-recourse (except for certain non-recourse
debt described under "Certain Federal Income Tax Consequences"), of the Company,
the Master Servicer, the Servicer, any Originator (as defined herein) or any
person other than the related Trust. Notwithstanding the foregoing, and as to be
described in the related Prospectus Supplement, certain types of credit
enhancement, such as a financial guaranty insurance policy or a letter of
credit, may constitute a full recourse obligation of the issuer of such credit
enhancement. The only obligations of the foregoing entities with respect to the
Securities or the Mortgage Loans will be the obligations (if any) of the
Company, the related Originators and the Servicer pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Servicer's servicing obligations and the Master Servicer's secondary servicing
obligations under the related Pooling and Servicing Agreement (including their
respective limited obligation to make certain advances in the event of
delinquencies on the Mortgage Loans, but only to the extent deemed recoverable)
and, if and to the extent expressly described in the related Prospectus
Supplement, certain limited obligations of the Company, Servicer, applicable
Sub-Servicer, or another party in connection with a purchase obligation
("Purchase Obligation"). Except as described in the related Prospectus
Supplement, neither the Securities nor the underlying Mortgage Loans will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Company, the Master Servicer, the Servicer, any Sub-Servicer or any of their
affiliates. Proceeds of the assets included in the related Trust Estate for each
series of Securities (including the Mortgage Loans and any form of credit
enhancement) will be the sole source of payments on the Securities, and there
will be no recourse to the Company or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Securities. Accordingly, investors in Securities could experience
delays in payment or losses to the extent such sources of payment are
insufficient to make required distributions on any series or class of
Securities.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each series of Securities, credit enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit enhancement will be provided in one or more of the forms referred
to herein, including, but not limited to: a letter of credit; a mortgage pool
insurance policy; a special hazard insurance policy; a bankruptcy bond; a
reserve fund; a financial guaranty insurance policy or other type of credit
enhancement to provide partial coverage for certain defaults and losses relating
to the Mortgage Loans. Credit enhancement also may be provided in the form of
the related class of Equity Securities, subordination of one or more classes of
Fixed-Income Securities in a series under which losses in excess of those
absorbed by any related class of Equity Securities are first allocated to any
Subordinate Securities up to a specified limit, cross-support among Mortgage
Assets and/or overcollateralization. See "Subordination" and "Description of
Credit Enhancement" herein. Regardless of the form of credit enhancement
provided, the coverage will be limited in amount and in most cases will be
subject to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit enhancements may provide only very limited coverage as
to certain types of losses, and may provide no coverage as to certain other
types of losses. Generally, credit enhancements do not directly or indirectly
guarantee to the investors any specified rate of prepayments. The Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Securities, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. To the extent not set forth herein, the amount and types of coverage,
the identification of any entity providing the coverage, the terms of any
subordination and related information will be set forth in the Prospectus
Supplement relating to a series of Securities. See "Description of Credit
Enhancement" and "Subordination."
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Risks Related to the Mortgage Loans
Risk of the Losses Associated with Junior Liens. Certain of the
Mortgage Loans will be secured by junior liens subordinate to the rights of the
mortgagee or beneficiary under each related senior mortgage or deed of trust. As
a result, the proceeds from any liquidation, insurance or condemnation
proceedings will be available to satisfy the principal balance of a mortgage
loan only to the extent that the claims, if any, of each such senior mortgagee
or beneficiary are satisfied in full, including any related foreclosure costs.
In addition, a mortgagee secured by a junior lien may not foreclose on the
related mortgaged property unless it forecloses subject to the related senior
mortgage or mortgages, in which case it must either pay the entire amount of
each senior mortgage to the applicable mortgagee at or prior to the foreclosure
sale or undertake the obligation to make payments on each senior mortgage in the
event of default thereunder. In servicing junior lien loans in its portfolio, it
has been the practice of the Company when acting as the Servicer to satisfy each
such senior mortgage at or prior to the foreclosure sale only to the extent that
it determines any amounts so paid will be recoverable from future payments and
collections on such junior lien loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of Mortgage Loans and Related
Matters--Foreclosure."
Risk of Losses Associated with Declining Real Estate Values. An
investment in securities such as the Securities that generally represent
beneficial ownership interests in the Mortgage Loans or debt secured by such
Mortgage Loans may be affected by, among other things, a decline in real estate
values and changes in the borrowers' financial condition. No assurance can be
given that values of the Mortgaged Properties have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of any senior liens, the Mortgage
Loans and any secondary financing on the Mortgaged Properties in a particular
Mortgage Pool become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the nonconforming credit mortgage
lending industry. Such a decline could extinguish the interest of the related
Trust in the Mortgaged Properties before having any effect on the interest of
the related senior mortgagee. In addition, in the case of Mortgage Loans that
are subject to negative amortization, due to the addition to principal balance
of deferred interest ("Deferred Interest"), the principal balances of such
Mortgage Loans could be increased to an amount equal to or in excess of the
value of the underlying Mortgaged Properties, thereby increasing the likelihood
of default. To the extent that such losses are not covered by the applicable
credit enhancement, holders of Securities of the series evidencing interests in
the related Mortgage Pool will bear all risk of loss resulting from default by
Mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest on the
defaulted Mortgage Loans.
Risk of Losses Associated with Certain Non-Conforming and
Non-Traditional Loans. The Company's underwriting standards consider, among
other things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the value of the property; however, the
Company's Mortgage Loan program generally provides for the origination of
Mortgage Loans relating to non-conforming credits. For purposes hereof,
"non-conforming credit" means a mortgage loan which, based upon standard
underwriting guidelines, is ineligible for purchase by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") due to credit characteristics that do not meet FNMA or FHLMC
guidelines, respectively. Certain of the types of loans that may be included in
the Mortgage Pools may involve additional uncertainties not present in
traditional types of loans. For example, certain of the Mortgage Loans may
provide for escalating or variable payments by the borrower under the Mortgage
Loan (the "Mortgagor"), as to which the Mortgagor is generally qualified on the
basis of the initial payment amount. In some instances the Mortgagors' income
may not be sufficient to enable them to continue to make their loan payments as
such payments increase and thus the likelihood of default will increase. For a
more detailed discussion, see "Mortgage Loan Program."
Risk of Losses Associated with Balloon Loans. Certain of the Mortgage
Loans may constitute "Balloon Loans." Balloon Loans are originated with a stated
maturity of less than the period of time of the corresponding amortization
schedule. Consequently, upon the maturity of a Balloon Loan, the Mortgagor will
be required to make a "balloon" payment that will be significantly larger than
such Mortgagor's previous monthly payments. The ability of such a Mortgagor to
repay a Balloon Loan at maturity frequently will depend on such borrower's
ability to refinance the Mortgage Loan. The ability of a Mortgagor to refinance
such a Mortgage Loan will be affected by a number of factors, including the
level of available mortgage rates at the time, the value of the related
Mortgaged Property, the Mortgagor's equity in the related Mortgaged Property,
the financial condition of the Mortgagor, the tax laws and general economic
conditions at the time.
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Although a low interest rate environment may facilitate the refinancing
of a balloon payment, the receipt and reinvestment by Securityholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. None of the Company,
the Originators, the Master Servicer, the Servicer, any Sub-Servicer or the
Trustee will be obligated to provide funds to refinance any Mortgage Loan,
including Balloon Loans.
Risk of Losses Associated with Bankruptcy of Mortgagors. General
economic conditions have an impact on the ability of borrowers to repay Mortgage
Loans. Loss of earnings, illness and other similar factors also may lead to an
increase in delinquencies and bankruptcy filings by borrowers. In the event of
personal bankruptcy of a Mortgagor, it is possible that a Trust could experience
a loss with respect to such Mortgagor's Mortgage Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan thereby either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to a Trust, any remaining balance on
such Mortgage Loan may not be recoverable.
Risk of Losses Associated with Foreclosure of Mortgaged Properties.
Even assuming that the Mortgaged Properties provide adequate security for the
Mortgage Loans, substantial delays could be encountered in connection with the
liquidation of defaulted Mortgage Loans and corresponding delays in the receipt
of related proceeds by the Securityholders could occur. An action to foreclose
on a Mortgaged Property securing a Mortgage Loan is regulated by state statutes,
rules and judicial decisions and is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. Furthermore, in some states an action to
obtain a deficiency judgment is not permitted following a nonjudicial sale of a
Mortgaged Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Servicer to
foreclose on or sell the Mortgaged Property or to obtain liquidation proceeds
(net of expenses) ("Liquidation Proceeds") sufficient to repay all amounts due
on the related Mortgage Loan. The Servicer will be entitled to deduct from
Liquidation Proceeds all expenses reasonably incurred in attempting to recover
amounts due on the related liquidated Mortgage Loan ("Liquidated Mortgage Loan")
and not yet repaid, including payments to prior lienholders, accrued servicing
fees, legal fees and costs of legal action, real estate taxes, and maintenance
and preservation expenses. In the event that any Mortgaged Properties fail to
provide adequate security for the related Mortgage Loans and insufficient funds
are available from any applicable credit enhancement, Securityholders could
experience a loss on their investment.
Many liquidation expenses with respect to defaulted mortgage loans do
not vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer takes the same steps in
realizing upon a defaulted mortgage loan having a small remaining principal
balance as it would in the case of a defaulted mortgage loan having a larger
principal balance, the amount realized after expenses of liquidation would be
less as a percentage of the outstanding principal balance of the smaller
principal balance mortgage loan than would be the case with a larger principal
balance loan.
Under environmental legislation and judicial decisions applicable in
various states, a secured party who takes a deed in lieu of foreclosure, or
acquires at a foreclosure sale a mortgaged property and who, prior to
foreclosure, has been involved in decisions or actions which may lead to
contamination of a property, may be liable for the costs of cleaning up the
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a mortgage note (such as a Trust)
which, under the terms of the Pooling and Servicing Agreement, is not required
to take an active role in operating the Mortgaged Properties. See "Certain Legal
Aspects of Mortgage Loans and Related Matters--Environmental Legislation."
Certain of the Mortgaged Properties relating to Mortgage Loans may not
be owner occupied. It is possible that the rate of delinquencies, foreclosures
and losses on Mortgage Loans secured by non-owner occupied properties could be
higher than for loans secured by the primary residence of the borrower.
Litigation. Any material litigation relating to the Company will be
specified in the related Prospectus Supplement.
Geographic Concentration of Mortgaged Properties. Certain geographic
regions from time to time will experience weaker regional economic conditions
and housing markets than will other regions, and, consequently, will experience
higher rates of loss and delinquency on mortgage loans generally. The Mortgage
Loans underlying certain series of Securities may be concentrated in such
regions, and such concentrations may present risk considerations in addition to
those generally present for similar mortgage loan asset backed securities
without such concentrations.
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Information with respect to geographic concentration of Mortgaged Properties
will be specified in the related Prospectus Supplement or Current Report on
Form 8-K filed by the Trust.
The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible Mortgage Loans available during the Funding Period
and sold by the Company to the Trust is less than 100% of the aggregate
principal amount, the Company will have insufficient Mortgage Loans to sell to
the Trust, thereby resulting in a prepayment of principal to Owners of the
Securities as described herein. See "Social, Economic and Other Factors" below.
In addition, any conveyance of Subsequent Mortgage Loans is subject to the
following conditions, among others (i) each such Subsequent Mortgage Loan must
satisfy the representations and warranties specified in the agreement pursuant
to which such Subsequent Mortgage Loans are transferred to the Trust (each a
"Subsequent Transfer Agreement") and in the Pooling and Servicing Agreement;
(ii) the Company will not select such Subsequent Mortgage Loans in a manner that
it believes is adverse to the interest of the Owners of the Securities; (iii)
the Depositor will deliver certain opinions of counsel with respect to the
validity of the conveyance of such Subsequent Mortgage Loans; and (iv) as of
each cut-off date (each, a "Subsequent Cut-Off Date") applicable thereto, the
Subsequent Mortgage Loans to be conveyed by the Company as of such Subsequent
Cut-Off Date, will satisfy the criteria set forth in the Pooling and Servicing
Agreement.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
by the end of the Funding Period, the Owners of the Securities then entitled to
receive payments of principal will receive a prepayment of principal in an
amount equal to the amount remaining in the Pre-Funding Account on the first
Payment Date following the end of the Funding Period. Although no assurances can
be given, the Company intends that the principal amount of Subsequent Mortgage
Loans sold to the Trust will require the application of substantially all amount
on deposit in the Pre-Funding Account and that there will be no material
principal prepayment to the Owners of the Securities.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may be originated or purchased by the Company using credit criteria
different from those which were applied to the initial Mortgage Loans and may be
of a different credit quality. Therefore, following the transfer of Subsequent
Mortgage Loans, the aggregate characteristics of the pool of Mortgage Loans may
vary from those of the initial Mortgage Loans.
Social, Economic and Other Factors. The ability of the Trust to invest
in Subsequent Mortgage Loans is largely dependent upon the ability of the
Company to originate or purchase additional mortgage loans. The ability of the
Company to originate or purchase additional mortgage loans may be affected as a
result of a variety of social and economic factors. Economic factors include
interest rates, unemployment levels, the rate of inflation and consumer
perception of economic conditions generally. However, the Company is unable to
determine and has no basis to predict whether or to what extent economic or
social factors will affect the Company's origination ability and the
availability of Subsequent Mortgage Loans.
Applicability of State and Federal Lending Laws. Applicable state laws
generally regulate interest rates and other charges, require certain
disclosures, and require licensing of the Originators, the Servicer and
Sub-Servicers. In addition, most states have other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices that may apply to the origination, servicing
and collection of the Mortgage Loans. In California, for example, a mortgage
lender is subject to the California Fair Debt Collection Practices Act which
regulates practices used to effect collection on consumer loans. See "Certain
Legal Aspects of Mortgage Loans and Related Matters."
The Mortgage Loans may also be subject to federal laws, including: (i)
the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and the
Real Estate Settlement Procedures Act and Regulation X promulgated thereunder,
which require certain disclosures to the borrowers regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the borrower's credit
experience and (iv) the Home Ownership and Equity Protection Act of 1994, which
imposes additional disclosure and other requirements on creditors with respect
to nonpurchase money home equity loans with interest rates or high upfront fees
and charges. Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and general
principles of equity may limit the ability of the Servicer to collect all or
part of the principal of or interest on the Mortgage Loans, may entitle the
borrower to rescind the loan or to a refund of amounts previously paid and, in
addition, could subject the Servicer to damages and administrative sanctions. If
the Servicer is unable to collect all or part of the
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principal or interest on the Mortgage Loans because of a violation of the
aforementioned laws, public policies or generalprinciples of equity then the
Trust may be delayed or unable to repay all amounts owed to Securityholders.
Furthermore, depending upon whether damages and sanctions are assessed against
the Servicer or an Originator, such violations may materially impact the
financial ability of the Company to continue to act as Servicer or the ability
of an Originator to repurchase or replace Mortgage Loans if such violations
breach a representation or warranty contained in a Pooling and Servicing
Agreement.
Yield and Prepayment Considerations. The yield to maturity of the
Securities of each series will depend on the rate of payment of principal
(including prepayments, liquidations due to defaults, and repurchases due to
conversion of adjustable-rate mortgage loans ("ARM Loans") to fixed-rate loans
or breaches of representations and warranties) on the Mortgage Loans and the
price paid by Securityholders. Such yield may be adversely affected by a higher
or lower than anticipated rate of prepayments on the related Mortgage Loans. The
yield to maturity on Strip Securities or Securities purchased at premiums to or
discounts from par will be extremely sensitive to the rate of prepayments on the
related Mortgage Loans. In addition, the yield to maturity on certain other
types of classes of Securities, including Accrual Securities or certain other
classes in a series including more than one class of Securities, may be
relatively more sensitive to the rate of prepayment on the related Mortgage
Loans than other classes of Securities.
The Mortgage Loans may be prepaid in full or in part at any time;
however, a prepayment penalty or premium may be imposed in connection therewith.
Such penalties may not become the property of the related Trust. The rate of
prepayments of the Mortgage Loans cannot be predicted and is influenced by a
wide variety of economic, social, and other factors, including prevailing
mortgage market interest rates, the availability of alternative financing, local
and regional economic conditions and homeowner mobility. Therefore, no assurance
can be given as to the level of prepayments that a Trust will experience.
Prepayments may result from mandatory prepayments relating to unused
moneys held in Pre-Funding Accounts, if any, voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior Mortgage Loan or Loans), sales of Mortgaged Properties subject to
"due-on-sale" provisions and liquidations due to default, as well as the receipt
of proceeds from physical damage, credit life and disability insurance policies.
In addition, repurchases or purchases from a Trust of Mortgage Loans or
substitution adjustments required to be made under the Pooling and Servicing
Agreement will have the same effect on the Securityholders as a prepayment of
such Mortgage Loans. The Mortgage Loans may contain "due-on-sale" provisions,
and the Servicer will be required to enforce such provisions unless (i) such
enforcement would materially increase the risk of default or delinquency on, or
materially decrease the security for, such Mortgage Loan or (ii) such
enforcement is not permitted by applicable law, in which case the Servicer is
authorized to permit the purchaser of the related Mortgaged Property to assume
the Mortgage Loan. See "The Pooling and Servicing Agreement" in the related
Prospectus Supplement.
Collections on the Mortgage Loans may vary due to the level of
incidence of delinquent payments and of prepayments. Collections on the Mortgage
Loans may also vary due to seasonal purchasing and payment habits of borrowers.
Book-entry Registration. Issuance of the Securities in book-entry form
may reduce the liquidity of such Securities in the secondary trading market
since investors may be unwilling to purchase Securities for which they cannot
obtain definitive physical securities representing such Securityholders'
interests, except in certain circumstances described in the related Prospectus
Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct or Indirect Participants") and certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities--Form of Securities."
The Status of the Mortgage Loans in the Event of Bankruptcy of the
Company or an Originator. In the event of the bankruptcy of the Company or an
Originator at a time when it or any affiliate thereof holds an Equity Security,
a trustee in bankruptcy of the Company, an Originator or its creditors could
attempt to recharacterize the sale
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of the Mortgage Loans to the related Trust as a borrowing by the Company, the
Originator or such affiliate with the result, if such recharacterization is
upheld, that the Securityholders would be deemed creditors of the Company, the
Originator or such affiliate, secured by a pledge of the Mortgage Loans. If such
an attempt were successful, it could prevent timely payments of amounts due to
the Trust.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, a Mortgagor who enters military
service after the origination of the related Mortgage Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest (including fees and charges) above an annual rate of
6% during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that such action
could have an effect, for an indeterminate period of time, on the ability of the
Servicer to collect full amounts of interest on certain of the Mortgage Loans.
In addition, the Relief Act imposes limitations that would impair the ability of
the Servicer to foreclose on an affected Mortgage Loan during the Mortgagor's
period of active duty status. Thus, in the event that such a Mortgage Loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the Mortgaged Property in a timely fashion.
Security Rating. The rating of Securities credit enhanced through
external credit enhancement such as a letter of credit, financial guaranty
insurance policy or mortgage pool insurance will depend primarily on the
creditworthiness of the issuer of such external credit enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer below the rating initially given to the
related Securities would likely result in a reduction in the rating of the
Securities. The rating of Securities credit enhanced through subordination or
reserve amounts will depend on the actual performance of the related Mortgage
Pool, and a reduction in such rating could occur if defaults and losses on the
related Mortgage Loans exceed the rate assumed in determining the original level
of credit enhancement. Reduction of a rating would adversely affect the market
value and possibly the liquidity of the related Securities. See "Rating" in the
Prospectus Supplement.
THE TRUSTS
A Trust for any series of Securities will include the primary mortgage
assets ("Mortgage Assets") consisting of (A) a Mortgage Pool comprised of (i)
Single Family Loans or (ii) other loans (each hereinafter defined) or (B)
certificates of interest or participation in the items described in clause (A)
or in pools of such items, in each case, as specified in the related Prospectus
Supplement, together with payments in respect of such primary Mortgage Assets
and certain other accounts, obligations or agreements, in each case as specified
in the related Prospectus Supplement.
The Securities will be entitled to payment only from the assets of the
related Trust (i.e., the related Trust Estate) and will not be entitled to
payments in respect of the assets of any other related Trust Estate established
by the Company, the Originators or any of their affiliates. If specified in the
related Prospectus Supplement, certain Securities will evidence the entire
fractional undivided ownership interest in the related Mortgage Loans held by
the related Trust or may represent debt secured by the related Mortgage Loans.
The following is a brief description of the Mortgage Assets expected to
be included in the related Trusts. If specific information respecting the
primary Mortgage Assets is not known at the time the related series of
Securities initially is offered, information of the nature described below will
be provided in the Prospectus Supplement, and specific information (the
"Detailed Description") will be set forth in a report on Form 8-K to be filed
with the Commission within fifteen days after the initial issuance of such
Securities, or, in the case of a series including a Forward Purchase Agreement,
within fifteen days of the related Funding Period. See "Description of the
Securities Forward Commitments; Pre-Funding" herein. A copy of the Pooling and
Servicing Agreement with respect to each Series of Securities will be attached
to the Form 8-K and will be available for inspection at the corporate trust
office of the Trustee specified in the related Prospectus Supplement. A schedule
of the Mortgage Assets relating to such Series (the "Mortgage Asset Schedule")
will be attached to the Pooling and Servicing Agreement delivered to the Trustee
upon delivery of the Securities.
The Mortgage Loans--General
The real properties which secure repayment of the Mortgage Loans (the
"Mortgaged Properties") may be located in any one of the fifty states, the
District of Columbia, Puerto Rico, any other Territories of the United States or
in the United Kingdom. The Mortgage Loans will generally be "Conventional Loans"
(i.e., loans that are not insured or guaranteed by any governmental agency). If
specified in the related Prospectus Supplement, Mortgage Loans with
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certain loan-to-value ratios and/or certain principal balances may be covered
wholly or partially by primary mortgage insurance policies. The Mortgage Loans
will be generally covered by standard hazard insurance policies (which may be in
the form of a blanket or forced placed hazard insurance policy). The existence,
extent and duration of any such coverage will be described in the applicable
Prospectus Supplement. The Mortgage Loans will not be guaranteed or insured by
any government agency or other insurer; however, certain distributions to
Securityholders may be guaranteed by a Financial Guaranty Insurer.
All of the Mortgage Loans in a Mortgage Pool will provide for payments
to be made monthly ("monthly pay") or bi-weekly. The payment terms of the
Mortgage Loans to be included in a Trust will be described in the related
Prospectus Supplement and may include any of the following features or
combination thereof or other features described in the related Prospectus
Supplement:
(a) Interest may be payable at a Fixed Rate, or an Adjustable
Rate (i.e., a rate that is adjustable from time to time in relation to
an index, a rate that is fixed for period of time and under certain
circumstances is followed by an adjustable rate, a rate that otherwise
varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate). The specified rate of interest on a
Mortgage Loan is its "Mortgage Rate." Changes to an Adjustable Rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and
added to the principal of a Mortgage Loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. If provided for in the Prospectus Supplement, certain
Mortgage Loans may be subject to temporary buydown plans ("Buydown
Mortgage Loans") pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan (the "Buydown
Period") will be less than the scheduled monthly payments on the
Mortgage Loan, and the amount of any difference may be contributed from
(i) an amount (such amount, exclusive of investment earnings thereon,
being hereinafter referred to as "Buydown Funds") funded by the
originator of the Mortgage Loan or another source (including the
Servicer or the related Originator and the builder of the Mortgaged
Property) and placed in a custodial account (the "Buydown Account") and
(ii) if the Buydown Funds are contributed on a present value basis,
investment earnings on such Buydown Funds.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest rate that
is different from the Mortgage Rate, or may not be amortized during all
or a portion of the original term. Payment of all or a substantial
portion of the principal may be due on maturity ("balloon" payments).
Principal may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time ("graduated payments") or may change from period to period.
Mortgage Loans may include limits on periodic increases or decreases in
the amount of monthly payments and may include maximum or minimum
amounts of monthly payments. Mortgage Loans having graduated payment
provisions may provide for deferred payment of a portion of the
interest due monthly during a specified period, and recoup the deferred
interest through negative amortization during such period whereby the
difference between the interest paid during such period and the
interest accrued during such period is added monthly to the outstanding
principal balance. Other Mortgage Loans sometimes referred to as
"growing equity" mortgage loans may provide for periodic scheduled
payment increases for a specified period with the full amount of such
increases being applied to principal.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for a period of time or may decline over time,
and may be prohibited for the life of the Mortgage Loan or for certain
periods ("lockout periods"). Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection therewith. Other
Mortgage Loans may permit prepayments without payment of a fee unless
the prepayment occurs during specified time periods. The Mortgage Loans
may include due-on-sale clauses which permit the mortgagee to demand
payment of the entire Mortgage Loan in connection with the sale or
certain transfers of the related Mortgaged Property.
(e) Other Mortgage Loans may be assumable by persons meeting
the then applicable Underwriting Guidelines of the Company.
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The Prospectus Supplement for each series of Securities or the Current
Report on Form 8-K will contain certain information with respect to the Mortgage
Loans (or a sample thereof) contained in the related Mortgage Pool; such
information, insofar as it may relate to statistical information relating to
such Mortgage Loans will be presented as of a date certain (the "Statistic
Calculation Date") which may also be the related cut-off date (the "Cut-Off
Date"). Such information will include to the extent applicable to the particular
Mortgage Pool (in all cases as of the Statistic Calculation Date) (i) the
aggregate outstanding principal balance and the average outstanding principal
balance of the Mortgage Loans, (ii) the largest principal balance and the
smallest principal balance of any of the Mortgage Loans, (iii) the types of
Mortgaged Property securing the Mortgage Loans (e.g., one-to-four-family houses,
vacation and second homes or other real property), (iv) the original terms to
stated maturity of the Mortgage Loans, (v) the weighted average remaining term
to maturity of the Mortgage Loans and the range of the remaining terms to
maturity; (vi) the earliest origination date and latest maturity date of any of
the Mortgage Loans, (vii) the weighted average Combined Loan-to-Value Ratio and
the range of Combined Loan-to-Value Ratios of the Mortgage Loans at origination,
(viii) the weighted average Mortgage Rate or annual percentage rate (as
determined under Regulation Z) (the "APR") and ranges of Mortgage Rates or APRs
borne by the Mortgage Loans, (ix) in the case of Mortgage Loans having
adjustable rates, the weighted average of the adjustable rates and indexes, if
any; (x) the aggregate outstanding principal balance, if any, of Buy-Down Loans
and Mortgage Loans having graduated payment provisions; (xi) the amount of any
mortgage pool insurance policy, special hazard insurance policy or bankruptcy
bond to be maintained with respect to such Mortgage Pool; (xii) the amount of
any standard hazard insurance required to be maintained with respect to each
Mortgage Loan; (xiii) the amount, if any, and terms of any credit enhancement to
be provided with respect to all or any Mortgage Loans or the Mortgage Pool; and
(xiv) the geographical distribution of the Mortgage Loans on a state-by-state
basis. In addition, preliminary or more general information of the nature
described above may be provided in the Prospectus Supplement, and specific or
final information may be set forth in a Current Report on Form 8-K, together
with the related Pooling and Servicing Agreement, which will be filed with the
Securities and Exchange Commission and will be made available to holders of the
related series of Securities within fifteen days after the initial issuance of
such Securities, or, in the case of a series of Securities including a Forward
Purchase Agreement, within fifteen days of the end of the related Funding
Period.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time
is the ratio, expressed as a percentage, determined by dividing (x) the sum of
the original principal balance of such Mortgage Loan plus the then current
principal balance of all mortgage loans secured by liens on the related
Mortgaged Property having priorities senior to that of the lien which secures
such Mortgage Loan, if any, by (y) the value of the related Mortgaged Property,
based upon the appraisal or valuation made at the time of origination of the
Mortgage Loan or, in the case where there is no senior lien to the Mortgage Loan
and such Mortgage represents a purchase money instrument, the lesser of (a) the
appraisal or valuation, or (b) the purchase price. If the Mortgagor will use the
proceeds of the Mortgage Loan to refinance an existing Mortgage Loan which is
being serviced directly or indirectly by the Servicer, the requirement of an
appraisal or other valuation at the time the new Mortgage Loan is made may be
waived.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans (plus any additional financing by other lenders
on the same Mortgaged Properties) in a particular Mortgage Pool become equal to
or greater than the value of such Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the nonconforming credit mortgage lending industry. An overall
decline in the market value of residential real estate, the general condition of
a Mortgaged Property, or other factors, could adversely affect the values of the
Mortgaged Properties such that the outstanding balances of the Mortgage Loans,
together with any additional liens on the Mortgaged Properties, equal or exceed
the value of the Mortgaged Properties. Under such circumstances, the actual
rates of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the nonconforming credit mortgage lending industry.
Certain Mortgage Loans may be secured by junior liens ("Junior Lien
Loans") subordinate to the rights of the mortgagee under each related senior
mortgage(s). The proceeds from any liquidation, insurance or condemnation of
Mortgaged Properties relating to Junior Lien Loans in a Mortgage Pool will be
available to satisfy the principal balance of such Junior Lien Loans only to the
extent that the claims, if any, of all related senior mortgagees, including any
related foreclosure costs, are satisfied in full. In addition, the Servicer may
not foreclose on a Mortgaged Property relating to a Junior Lien Loan unless it
forecloses subject to the related senior mortgage or mortgages, in which case it
must either pay the entire amount of each senior mortgage to the applicable
mortgagee at or prior to the foreclosure sale or undertake the obligation to
make payments on each senior mortgage in the event of default thereunder.
Generally, in servicing Junior Lien Loans in its loan portfolios, it has been
the Company's practice when acting as Servicer to satisfy each senior mortgage
at or prior to a foreclosure sale only to the extent that it determines any
amounts so paid will be recoverable
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from future payments and collections on the Mortgage Loans or otherwise. The
Trusts will not have any source of funds to satisfy any such senior mortgage or
make payments due to any senior mortgagee. See "Certain Legal Aspects of
Mortgage Loans and Related Matters--Foreclosure."
Other factors affecting mortgagors' ability to repay Mortgage Loans
include excessive building resulting in an oversupply of housing stock or a
decrease in employment reducing the demand for units in an area; federal, state
or local regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that losses
on the Mortgage Loans are not covered by credit enhancements, such losses will
be borne, at least in part, by the Securityholders of the related series.
The Company will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the holders of the Securities of the related series. The Servicer
will service the Mortgage Loans, either directly or through Sub-Servicers,
pursuant to the Pooling and Servicing Agreement and will receive a fee for such
services. A Master Servicer, if required by a Prospectus Supplement, will have
the primary function of reviewing the Servicer's monthly servicing reports for
any material inconsistencies, and secondarily, the Master Servicer will assume
the Servicer's obligations in the event of a default by the Servicer. The
Servicer or the Trust will be liable for fees and expenses of the Master
Servicer. See "Mortgage Loan Program" and "The Pooling and Servicing Agreement."
With respect to Mortgage Loans serviced through a Sub-Servicer, the Servicer
will remain liable for its servicing obligations under the related Pooling and
Servicing Agreement as if the Servicer alone were servicing such Mortgage Loans.
The only obligations of the Company and the Originators with respect to
a series of Securities will be related to servicing and/or providing (or, where
the Company or an Originator acquired a Mortgage Loan from another originator,
obtaining from such originator) certain representations and warranties
concerning the Mortgage Loans and to assign to the Trustee for such series of
Securities the Company's or Originator's rights with respect to such
representations and warranties. See "The Pooling and Servicing Agreement." The
obligations of the Servicer with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the related Pooling
and Servicing Agreement (including its obligation to enforce the obligations of
the Sub-Servicers or Originators as more fully described herein under "Mortgage
Loan Program--Qualifications of Originators" and "The Pooling and Servicing
Agreement") and its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans in the
amounts described herein under "Description of the Securities--Advances." The
obligations of a Servicer to make advances may be subject to limitations, to the
extent provided herein and in the related Prospectus Supplement. The Master
Servicer's contractual obligations for servicing the Mortgage Loans and making
advances will consist primarily of acting as a back-up Servicer in the event of
the removal of the Servicer in accordance with the terms of the Pooling and
Servicing Agreement.
Single Family Loans
Single family loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first or junior
liens on one- to four-family residential properties ("Single Family Loans"). The
Mortgaged Properties relating to Single Family Loans will consist of detached or
semi-detached one-family dwelling units, two-to four-family dwelling units,
townhouses, rowhouses, individual condominium units in condominium developments,
individual units in planned unit developments, and certain mixed use and other
dwelling units. Such Mortgage Properties may include owner-occupied (which
includes vacation and second homes) and non-owner occupied investment
properties.
If so specified, the Single Family Loans may include loans or
participations therein secured by mortgages or deeds of trust on condominium
units in low-or high-rise condominium developments together with such
condominium units' appurtenant interests in the common elements of such
condominium developments.
THE MORTGAGE POOLS
General
Each Mortgage Pool will consist primarily of (i) conventional Mortgage
Loans, minus any stripped portion of the interest payments due under the related
Mortgage Note that may have been retained by any Originator ("Originator's
Retained Yield"), or any other interest retained by the Company or any affiliate
of the Company, evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust or other similar security instruments creating a
lien on single-family (i.e., one- to four-family) residential properties, or
(ii) certificates of interest or participations in such Mortgage Notes. The
Mortgaged Properties will consist primarily of owner-occupied attached
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or detached one-family dwelling units, two- to four-family dwelling units,
condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other dwelling units, and the fee, leasehold or other
interests in the underlying real property. The Mortgaged Properties may include
manufactured housing. The Mortgaged Properties may include vacation, second and
non-owner occupied homes.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among mortgage loans originated by the Company, one or more
institutions affiliated with the Company, (such affiliated institutions, the
"Affiliated Originators") or from banks, savings and loan associations, mortgage
bankers, mortgage brokers, investment banking firms, the RTC and the FDIC (as
defined herein) and other mortgage loan originators or sellers not affiliated
with the Company (such unaffiliated institutions, the "Unaffiliated Originators"
and, collectively with the Affiliated Originators and the Company, the
"Originators"), all as described below under "Mortgage Loan Program." The
characteristics of the Mortgage Loans will be described in the related
Prospectus Supplement. Other mortgage loans available for acquisition by a Trust
may have characteristics that would make them eligible for inclusion in a
Mortgage Pool but may not be selected by the Company for inclusion in such
Mortgage Pool.
Each series of Securities will evidence interests in one or more
Mortgage Pool(s) containing Mortgage Loans having an aggregate principal balance
of not less than approximately $5,000,000 as of, unless otherwise specified in
the applicable Prospectus Supplement, the related Cut-Off Date. Each Security
will evidence an interest in only the related Mortgage Pool and corresponding
Trust Estate, and not in any other Mortgage Pool or any other Trust Estate
(except in those limited situations whereby certain collections on any Mortgage
Loans in a related Mortgage Pool in excess of amounts needed to pay the related
Securities may be deposited in a master reserve account or otherwise applied in
a manner that provides credit enhancement for more than one series of
Securities).
The Mortgage Pools
Unless otherwise specified below, all of the Mortgage Loans in a
Mortgage Pool will (i) have payments that are due monthly or bi-weekly, (ii) be
secured by Mortgaged Properties located in any of the fifty states, the District
of Columbia, Puerto Rico, any other Territories of the United States or in the
United Kingdom and (iii) consist of one or more of the following types of
mortgage loans:
(a) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of generally not
more than 30 years;
(b) ARM Loans having original or modified terms to maturity of
generally not more than 30 years with a related Mortgage Rate that
adjusts periodically, at the intervals described in the related
Prospectus Supplement (which may have adjustments in the amount of
monthly payments at periodic intervals) over the term of the mortgage
loan to equal the sum of a fixed percentage set forth in the related
Mortgage Note (the "Note Margin") and an index (the "Index") to be
specified in the related Prospectus Supplement, such as, by way of
example: (i) U.S. Treasury securities of a specified constant maturity,
(ii) weekly auction average investment yield of U.S. Treasury bills of
specified maturities, (iii) the daily Bank Prime Loan rate made
available by the Federal Reserve Board or as quoted by one or more
specified lending institutions, (iv) the cost of funds of member
institutions for the Federal Home Loan Bank of San Francisco, or (v)
the interbank offered rates for U.S. dollar deposits in the London
Markets, each calculated as of a date prior to each scheduled interest
rate adjustment date that will be specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the
relevant Index and the related Prospectus Supplement or the related
Current Report on Form 8-K will indicate the highest, lowest and
weighted-average Note Margin with respect to the ARM Loans in the
related Mortgage Pool. If specified in the related Prospectus
Supplement, an ARM Loan may include a provision that allows the
Mortgagor to convert the adjustable Mortgage Rate to a fixed rate at
some point during the term of such ARM Loan subsequent to the initial
payment date;
(c) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of generally not more than 30
years with monthly payments during the first year calculated on the
basis of an assumed interest rate that will be lower than the Mortgage
Rate applicable to such mortgage loan in subsequent years. Deferred
Interest, if any, will be added to the principal balance of such
mortgage loans;
(d) Balloon mortgage loans ("Balloon Loans"), which are
fixed-rate mortgage loans having original or modified terms to maturity
of generally 5 to 15 years as described in the related Prospectus
Supplement and that may have level monthly payments of principal and
interest based generally on a 10 to 30-year amortization
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schedule. The amount of the monthly payment may remain constant until
the maturity date, upon which date the full outstanding principal
balance on such Balloon Loan will be due and payable (such amount, the
"Balloon Amount");
(e) Modified mortgage loans ("Modified Loans"), which are
fixed or adjustable-rate mortgage loans providing for terms at the time
of modification of generally not more than 30 years. Modified Loans may
be mortgage loans which have been consolidated and/or have had various
terms changed, mortgage loans which have been converted from adjustable
rate mortgage loans to fixed rate mortgage loans, or construction loans
which have been converted to permanent mortgage loans; or
(f) Another type of mortgage loan described in the related
Prospectus Supplement.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be Buydown Mortgage Loans pursuant to which the monthly
payments made by the Mortgagor during the Buydown Period will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) Buydown Funds funded by the Originator of the Mortgaged
Property or another source (including the Servicer or the related Originator)
and placed in the Buydown Account and (ii) if the Buydown Funds are contributed
on a present value basis, investment earnings on such Buydown Funds. See
"Description of the Securities--Payments on Mortgage Loans; Deposits to
Distribution Account." The terms of the Buydown Mortgage Loans, if such loans
are included in a Trust, will be as set forth in the related Prospectus
Supplement.
The Company and/or certain Originators may make certain representations
and warranties regarding the Mortgage Loans, but the Company's assignment of the
Mortgage Loans to the Trustee will be without recourse. See "Description of the
Securities--Assignment of Mortgage Loans." The Servicer's obligations with
respect to the Mortgage Loans will consist principally of its contractual
servicing obligations under the related Pooling and Servicing Agreement
(including its obligation to enforce certain purchase and other obligations of
Sub-Servicers and of Originators, as more fully described herein under "Mortgage
Loan Program--Representations by Originators," "--Sub-Servicing by Originators"
and "Description of the Securities--Assignment of Mortgage Loans," and its
obligation to make certain cash advances in the event of delinquencies in
payments on or with respect to the Mortgage Loans and interest shortfalls due to
prepayment of Mortgage Loans, in amounts described herein under "Description of
the Securities--Advances"). The obligation of the Servicer to make delinquency
advances will be limited to amounts which the Servicer believes ultimately will
be reimbursable out of the proceeds of liquidation of the Mortgage Loans. The
Master Servicer's obligations consist primarily of acting as a back-up Servicer
in the event of the removal of the Servicer in accordance with the terms and
conditions of the Pooling and Servicing Agreement. See "Mortgage Loan
Program--Master Servicer." In the event that the Master Servicer assumes the
role of Servicer, the Master Servicer will assume all of the obligations of the
Servicer except for obligations to repurchase or substitute for Mortgage Loans
which breach representations and warranties under the Pooling and Servicing
Agreement. See "Description of the Securities--Advances."
MORTGAGE LOAN PROGRAM
As a general matter, the Company's Mortgage Loan program will consist
of the origination and packaging of Mortgage Loans relating to non-conforming
credits. For purposes hereof, "non-conforming credit" means a mortgage loan
which, based upon standard underwriting guidelines, is ineligible for purchase
by FNMA due to credit characteristics that do not meet FNMA guidelines. However,
certain of the Mortgage Loans will relate to FNMA conforming credits.
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The Mortgagors generally will have taken out the related Mortgage Loans
for one of four reasons: (i) to purchase the related Mortgaged Property, (ii) to
refinance an existing mortgage loan on more favorable terms, (iii) to
consolidate debt, or (iv) to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property. The Mortgage Loans
described in (i) are commonly referred to as purchase money loans and the
Mortgage Loans described in (ii), (iii) and (iv) on the whole are commonly
referred to as home equity loans.
Underwriting Guidelines
As more fully described below under "Qualifications of Originators" and
as may also be described in greater detail in the related Prospectus Supplement,
there are various types of Originators that may participate in the Company's
Mortgage Loan Program. Under the Company's Mortgage Loan Program, the Company
purchases and originates Mortgage Loans pursuant to three types of underwriting
guidelines: (1) standard underwriting guidelines according to the Company's
Originator Guide, as modified from time to time, used by Affiliated Originators
and Unaffiliated Originators ("Company's Guidelines"), (2) underwriting
guidelines utilized by Participating Originators or Designated Originators and
approved by the Company ("Approved Guidelines"), and (3) underwriting guidelines
("Bulk Guidelines") used by Unaffiliated Originators of a portfolio of Mortgage
Loans subsequently purchased in whole or part by the Company as a bulk
acquisition ("Bulk Acquisition"). The respective underwriting guidelines are
described below.
Company's Guidelines. The Company's Guidelines are set forth in the
Company's Guides. The Company's Guides are revised continuously based on
opportunities and prevailing conditions in the nonconforming credit residential
mortgage market, as well as the expected market for the resulting Securities.
Substantially all loans originated or purchased by the Company are
subjected to the Company's Guidelines. The underwriting process is intended to
assess both the prospective borrower's ability to repay and equally, if not more
important, the adequacy of the real property security. The fixed-rate and
adjustable-rate loans are generally fully amortized over a ten, fifteen or
thirty year schedule. To a limited extent, the Company will originate balloon
loans which generally are based on a 30-year amortization schedule with a single
payment of the remaining balance of the balloon loan generally 15 years after
origination. Loan amounts range from a minimum of $12,000 to a maximum of
$350,000, unless a higher amount is approved by the Company's loan committee.
The properties securing the loans are primarily single family detached, owner
occupied residences. Occasionally, loans are originated or acquired on oneto
four-family residential properties, condominiums or townhouses. No mobile home,
co-operative or land loans are currently originated or acquired.
The decision of the Company to approve a loan is based upon a number of
factors, including the appraised value of the property, the applicant's
creditworthiness and the Company's perception of the applicant's ability to
repay the loan. With respect to the value of the collateral, generally, loans
secured by first mortgages are limited to a maximum of 75% combined
loan-to-value ratio; however, the Company will originate loans with a combined
loan-to-value ratio of up to 90%. Loans secured by second mortgages are limited
to a maximum of 80% combined loan-to-value ratio. With respect to
creditworthiness, the Company has established classifications with respect to
the credit profiles of loans and subject properties based on certain of the
applicant's characteristics. Each loan application is placed into one of the
Company's four ratings ("A" through "D," with subratings within those
categories), depending upon the following three primary factors: (i) an
applicant's FICO score (a "FICO" score is a predictive performance measure
developed by Fair, Isaac and Co., which the Company believes is an important
quantitive tool for evaluating the creditworthiness of borrowers), (ii) combined
loan-to-value ratios and (iii) debt-toincome ratios. Terms of loans made by the
Company vary depending upon the classification of the application. Applications
with lower classifications generally are subject to higher interest rates due to
the increased risk inherent in the loan. A loan application must obtain the
following thresholds with respect to each of the three primary factors to be
included in the particular ratings shown below:
"A" "B" "C" "D"
--- --- --- ---
Minimum FICO Score 659 585 511 0
Maximum of Loan-to-Value 75% 73% 72% 65%
Maximum of Debt-to-Income Ratio 40% 49% 59% 65%
While the Company primarily analyzes the three factors noted above, the
Company also reviews other factors to determine whether an application will be
subject to a higher interest rate than the interest rate applicable to the
rating under which such application has initially been placed. These include
factors such as an unsubstantiated employment
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history, a recent foreclosure proceeding, a number of recent delinquent payments
on an existing mortgage, a recent bankruptcy filing, a non-owner occupied
property or the presence of a senior mortgage or zoning restrictions on the
subject property.
Each loan applicant is required to provide personal financial
information on a loan application and a statement of obligations. A credit
report is obtained for each borrower at the time of application which confirms
and reconciles amounts disclosed in the statement of obligations and which
discloses the applicant's payment and credit history. Generally, the borrower is
required to have an acceptable credit history given the amount of equity
available, the strength of the employment history and income stability. Income,
employment, and deed of trust status is verified for each applicant by telephone
and/or written inquiry, examination of tax returns, pay check stubs, court
supported documents or bank statements. Self-employed applicants provide
personal and business financial statements. The Company rates a borrower's
credit score, property value and debt ratio and then determines the interest
rate to be charged.
In general, with respect to Company originated Mortgage Loans, the
value of each property proposed as security for a mortgage loan is required to
be determined by a full appraisal conducted by a Company employee or, in the
case of loans relating to Mortgaged Properties in the United Kingdom, by a
certified appraiser or independent appraiser. After evaluation of a minimum of
three neighborhood comparables, a Company appraiser will complete his appraisal
with an inspection of the subject property and a meeting with the prospective
borrower. The Company hires certified appraisers in those states which require
such designation. Appraisers at the Company's headquarters, not third party fee
appraisers, perform a review of the property appraisal on the following loan
applications: (i) all properties with a market value above $150,000, (ii) all
loans with a combined loan-to-value ratio of equal to or greater than 55% (62%
in California), (iii) all loan applications prepared by a new retail branch
office for the first 90 days of its existence, (iv) all income properties, and
(v) all properties with a value less than $100,000 and (v) approximately 10% of
the loan applications not otherwise reviewed.
In connection with prior securitizations of the Company's loans,
independent appraisers have conducted appraisals of a sample of the subject
properties that are the collateral for the securitized loans. The appraisals
performed by the Company's appraisers have been within less than 2% of the
aggregate appraisal values on securitized loans to date as calculated by the
independent appraisers.
Certain laws protect loan applicants by offering them a timeframe after
loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law. The Company discourages waiving the rescission period but does
permit such waivers with proper documentation.
The Company's Guidelines generally require title insurance coverage
issued by an approved American Land Title Association title insurance company
(as defined below) on each loan the Company originates or purchases. The
Company, the related Originator and their assignees are generally named as the
insured. Title insurance policies indicate the lien position of the mortgage
loan and protect the insured against loss if the title or lien position is not
as indicated.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of the
outstanding first mortgage, if any, and the related loan exceeds replacement
value, insurance equal to replacement value may be accepted. The Company or its
designee is required to ensure that its name and address is properly added to
the "Mortgagee Clause" of the insurance policy. In the event the Company or the
related Originator's name is added to a "Loss Payee Clause" and the policy does
not provide for written notice of policy changes of cancellation, an endorsement
adding such provision is required.
Approved Guidelines. The Company may cause a Trust to acquire Mortgage
Loans underwritten pursuant to underwriting guidelines that may differ from the
Company's Guidelines. Certain of the Mortgage Loans will be acquired in
negotiated transactions, and such negotiated transactions may be governed by
agreements ("Master Commitments") relating to ongoing acquisitions of Mortgage
Loans by the Company from Originators who will represent that the Mortgage Loans
have been originated in accordance with underwriting guidelines agreed to by the
Company; the Company will generally review or cause to be reviewed only a
portion of the Mortgage Loans in any delivery of Mortgage Loans from the related
Originator for conformity with the Approved Guidelines.
The underwriting standards utilized in negotiated transactions and
Master Commitments may vary substantially from the Company's Guidelines. The
Approved Guidelines are designed to provide an underwriter with information to
evaluate either the security for the related Mortgage Loan, which security
consists primarily of the borrower's repayment ability, or the adequacy of the
Mortgaged Property as collateral, or a combination of both. Due to the variety
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of Approved Guidelines and review procedures that may be applicable to the
Mortgage Loans included in any Mortgage Pool, the related Prospectus Supplement
will not distinguish among the various Approved Guidelines applicable to the
Mortgage Loans nor describe any review for compliance with applicable Approved
Guidelines performed by the Company. Moreover, there can be no assurance that
every Mortgage Loan was originated in conformity with the applicable Approved
Guidelines in all material respects, or that the quality or performance of
Mortgage Loans underwritten pursuant to varying guidelines as described above
will be equivalent under all circumstances. Notwithstanding the foregoing, in
the case of a Designated Originator transaction or a Participating Originator
transaction, the applicable underwriting guidelines may not be those
pre-approved by the Company, as in the case of Approved Guidelines, but may be
those of the related Designated Originator or Participating Originator, and will
be described in the related Prospectus Supplement.
Bulk Guidelines. Bulk portfolios of Mortgage Loans may be originated by
a variety of Originators under several different underwriting guidelines.
Because bulk portfolios are generally seasoned for a period of time, the
Company's underwriting review of bulk portfolios of Mortgage Loans focuses
primarily on payment histories and estimated current values based on estimated
property appreciation or depreciation and loan amortization. As a result,
Mortgage Loans that conform to the related Bulk Guidelines may not conform to
the requirements of the Company's Guidelines or any Approved Guidelines. For
example, the Company may purchase Mortgage Loans in bulk acquisitions with
Loan-to-Value Ratios in excess of 80%, without title insurance, or with
nonconforming appraisal methods such as tax assessments. Bulk Acquisition
portfolios may be purchased servicing released or retained. If servicing is
retained, the Originator must meet certain minimum requirements, as modified
from time to time, by the Company. The Company generally will cause the Mortgage
Loans acquired in a Bulk Acquisition to be reviewed for the purpose of
determining whether such Mortgage Loans were originated in accordance with the
applicable Bulk Guidelines. Such underwriting may consist of a review of all
such Mortgage Loans or may be performed on a sample basis. In addition, such
reunderwriting may be performed by the Company or by a third party acting at the
direction of the Company.
Quality Control. The Company maintains a quality control department.
All files originated by the Company are reviewed for the accuracy of certain
data fields as well as for legal compliance of documentation prior to approval
by the underwriting department. In addition each file originated by the Company
is reviewed again by the quality control department prior to disbursement of
loan funds. The Company performs a quality control review on all loans acquired
from other Originators.
The Company generally will cause Mortgage Loans acquired from
Unaffiliated Originators to be reunderwritten for the purpose of determining
whether such Mortgage Loans were originated in accordance with the loan
submission underwriting guidelines. Such reunderwriting may consist of a review
of all such Mortgage Loans or may be performed on a sample basis. Such
reunderwriting may be performed by the Company or a third party acting at the
direction of the Company.
Qualifications of Originators
Each Originator from which a Mortgage Loan is acquired will have been
accepted by the Company for participation in the Company's mortgage loan
program. Unaffiliated Originators that enter into agreements to sell mortgage
loans to the Company ("Master Commitments") and which meet the following
qualifications are hereinafter referred to as "Participating Originators." As of
the date of approval, each Participating Originator is generally required to
have a specified minimum level of experience in originating conventional
non-conforming mortgage loans. Furthermore, an Originator that will retain the
servicing of the related Mortgage Loans will be required to have a Mortgage Loan
servicing portfolio of a required amount and to have a specified minimal level
of experience servicing comparable mortgage loans. An Unaffiliated Originator
that would qualify as a "Participating Originator" is a "Designated Originator"
if it meets certain additional requirements. Notwithstanding these requirements,
however, there can be no assurance that any Originator presently meets such
qualifications or will continue to meet such qualifications at the time of
inclusion of mortgage loans sold by it in the Trust Estate for a series of
Securities, or thereafter.
The Company may waive or modify in an appropriate case any of the
foregoing requirements for Participating Originators and Designated Originators.
Unless otherwise
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described in the related Prospectus Supplement, the Company will make directly,
or will guarantee compliance with, any representations and warranties made by
any Unaffiliated Originator, other than a Designated Originator, with respect to
the Mortgage Loans originated by it and acquired by a Trust; provided, however,
that the Company will not directly make or guarantee compliance with such
representations and warranties made by a Designated Originator. In the event of
a breach of any such representation or warranty made by a Designated Originator
the only remedies will lie against such Designated Originator.
All Unaffiliated Originators are required to originate mortgage loans
in accordance with the applicable underwriting standards. However, with respect
to any Originator, some of the generally applicable underwriting standards
described herein and in the Company's Guidelines may be modified or waived with
respect to certain Mortgage Loans originated by such Originators.
The Federal Deposit Insurance Corporation (the "FDIC") (either in its
corporate capacity or as receiver or conservator for a depository institution)
may also be an Originator of the Mortgage Loans. The FDIC is an independent
executive agency originally established by the Banking Act of 1933 to insure the
deposits of all banks entitled to federal deposit insurance under the Federal
Reserve Act and Federal Deposit Insurance Act. The FDIC administers the system
of nationwide deposit insurance (mutual guaranty of deposits) for United States
Banks and together with the United States Comptroller of the Currency regulates
in areas related to the maintenance of reserves for certain types of deposits,
the maintenance of certain financial ratios, transactions with affiliates and a
broad range of other banking practices.
The Company monitors the Originators and the Sub-Servicers under the
control of the FDIC, as well as those Originators and Sub-Servicers that are
insolvent or in receivership or conservatorship or otherwise financially
distressed. Such Originators may not be able or permitted to repurchase Mortgage
Loans for which there has been a breach of representation and warranty.
Moreover, any such Originator may make no representations and warranties with
respect to Mortgage Loans sold by it. The FDIC (either in its corporate capacity
or as receiver for a depository institution) may also originate Mortgage Loans,
in which event neither the FDIC nor the depository institution for which the
FDIC is acting as receiver may make representations and warranties with respect
to the Mortgage Loans that the FDIC sells, or the FDIC may make only limited
representations and warranties (for example, that the related legal documents
are enforceable). The FDIC may have no obligation to repurchase any Mortgage
Loan for a breach of a representation and warranty. If, as a result of a breach
of representation and warranty, an Originator is required to repurchase a
Mortgage Loan but is not permitted or otherwise fails to do so or if
representations and warranties are not made by an Originator, to the extent that
neither the Company nor any other entity has assumed the representations and
warranties or made representations and warranties, neither the Company nor that
entity will be required to repurchase such Mortgage Loan and, consequently such
Mortgage Loan will remain in the related Mortgage Pool and any related losses
will be borne by the Securityholders or by the related credit enhancement, if
any. In addition, loans which are purchased either directly or indirectly from
the FDIC may be subject to a contract right of the FDIC to repurchase such loans
under certain limited circumstances.
To the extent the Originator in a Designated Originator transaction
fails to or is unable to repurchase any Mortgage Loan due to a breach of
representation and warranty, neither the Company nor any other entity has
assumed the representations and warranties and any related losses will be borne
by the Securityholders or by the credit enhancement, if any.
Sub-Servicers
Each Originator of a Mortgage Loan will act as Sub-Servicer for such
Mortgage Loan pursuant to an agreement between the Servicer and the Sub-Servicer
(a "Sub-Servicing Agreement") unless the servicing obligations are released to
the Servicer or transferred to a servicer approved by the Servicer. An
Affiliated Originator of a Mortgage Loan may act as the Sub-Servicer for such
Mortgage Loan unless the other related servicing obligations are released or
transferred.
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The Servicer may employ Sub-Servicers that neither originate mortgage loans nor
originated the Mortgage Loans, such Sub-Servicers shall be referred to as
"Contract Sub-Servicers."
Unaffiliated Originators (except for Designated Originators and
Participating Originators) will be required to release such servicing
obligations to the Servicer. Designated Originators and Participating
Originators may act as Sub-Servicers for such Mortgage Loans pursuant to a
Sub-Servicing Agreement or may release such servicing obligations to the
Servicer. An Unaffiliated Originator acting as a Sub-Servicer for the Mortgage
Loans will be required to meet certain standards specified in the Prospectus
Supplement with respect to its conventional Mortgage Loan servicing portfolio,
GAAP tangible net worth, cash/warehouse line availability, mortgage servicing
licensing status and other specified qualifications. Contract Sub-Servicers
shall be required to satisfy standards similar to those for Unaffiliated
Originators; however, the Servicer will be directly responsible to the Trusts
for Servicing Mortgage Loans in compliance with the standards set forth in the
Pooling and Servicing Agreement. The Servicer will be responsible for the
compensation of any Contract Sub-Servicer and such compensation shall be
inclusive in the Servicer's fees.
Representations by Originators
Each Originator will generally make representations and warranties in
respect of the Mortgage Loans sold by such Originator and evidenced by a series
of Securities. Such representations and warranties generally include, among
other things, that at the time of the sale by the Originator to the Company of
each Mortgage Loan: (i) the information with respect to each Mortgage Loan set
forth in the Schedules of Mortgage Loans is true and correct as of the related
Cut-Off Date; (ii) each Mortgage Loan being transferred to the Trust which is a
REMIC is a qualified mortgage under the REMIC provisions of the Code and is a
Mortgage; (iii) each Mortgaged Property is improved by a single (one-to-four)
family residential dwelling, which may include condominiums and townhouses; (iv)
each Mortgage Loan had, at the time of origination, either an attorney's
certification of title or a title search or title policy; (v) as of the related
Cut-Off Date each Mortgage Loan is secured by a valid and subsisting lien of
record on the Mortgaged Property having the priority indicated on the related
Schedule of Mortgage Loans subject in all cases to exceptions to title set forth
in the title insurance policy, if any, with respect to the related Mortgage
Loan; (vi) each Originator held good and indefeasible title to, and was the sole
owner of, each Mortgage Loan conveyed by such Originator; and (vii) each
Mortgage Loan was originated in accordance with law and is the valid, legal and
binding obligation of the related Mortgagor.
Unless otherwise described in the related Prospectus Supplement all of
the representations and warranties of an Originator in respect of a Mortgage
Loan will be made as of the date on which such Originator sells the Mortgage
Loan to the Company; the date as of which such representations and warranties
are made thus may be a date prior to the date of the issuance of the related
series of Securities. A substantial period of time may elapse between the date
as of which the representations and warranties are made and the later date of
issuance of the related series of Securities. Accordingly, the Originator's
purchase obligation (or, if specified in the related Prospectus Supplement,
limited replacement option) will not arise if, during the period commencing on
the date of sale of a Mortgage Loan by the Originator to the Company, an event
occurs that would give rise to such an obligation if the event had occurred
prior to sale of the affected Mortgage Loan.
The Company will assign to the Trustee for the benefit of the holders
of the related series of Securities all of its right, title and interest in each
agreement by which it acquires a Mortgage Loan from an Originator insofar as
such agreement relates to the representations and warranties made by an
Originator in respect of such Mortgage Loan and any remedies provided for breach
of such representations and warranties. If an Originator cannot cure a breach of
any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Securityholders in such
Mortgage Loan within a time period specified in the related Pooling and
Servicing Agreement, such Originator and/or the Company will be obligated to
purchase from the related Trust such Mortgage Loan at a price (the "Loan
Purchase Price") set forth in the related Pooling and Servicing Agreement which
Loan Purchase Price will be equal to the principal balance thereof as of the
date of purchase plus one month's interest at the Mortgage Rate less the amount,
expressed as a percentage per annum, payable in respect of master servicing
compensation or sub-servicing compensation, as applicable, and the Originator's
Retained Yield, if any, and certain miscellaneous administrative amounts,
together with, without duplication, the aggregate amount of all delinquent
interest, if any.
As to any such Mortgage Loan required to be purchased by an Originator
and/or the Company, as provided above, rather than repurchase the Mortgage Loan,
the Servicer may, at its sole option, remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the related Trust and cause the Company to substitute in
its place another Mortgage Loan of like kind (a "Qualified Replacement Mortgage"
as such term is defined in the related Pooling and Servicing
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Agreement); however, such substitution must be effected within 90 days of the
date of the initial issuance of the Securities with respect to a Trust for which
no REMIC election is to be made. With respect to a Trust for which a REMIC
election is to be made, except as otherwise provided in the Prospectus
Supplement relating to a series of Securities, such substitution of a defective
Mortgage Loan must be effected within two years of the date of the initial
issuance of the Securities, and may not be made if such substitution would cause
the Trust to not qualify as a REMIC or result in a prohibited transaction tax
under the Code. Except as otherwise provided in the related Prospectus
Supplement, any Qualified Replacement Mortgage generally will, on the date of
substitution, (i) have an outstanding principal balance, after deduction of all
scheduled payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Mortgage Loan (the amount of any
shortfall to be paid to the related Trust in the month of substitution for
distribution to the Securityholders), (ii) have a Mortgage Rate neither one
percentage point less than nor one percentage point more than the Mortgage Rate
of the Deleted Mortgage Loan as of the date of substitution, (iii) have a
remaining term to maturity neither one year less than nor one year more than
that of the Deleted Mortgage Loan, and (iv) comply with all of the
representations and warranties set forth in the related Pooling and Servicing
Agreement as of the date of substitution. The related Pooling and Servicing
Agreement may include additional requirements relating to ARM Loans or other
specific types of Mortgage Loans or additional provisions relating to meeting
the foregoing requirements on an aggregate basis where a number of substitutions
occur contemporaneously. Unless otherwise specified in the related Prospectus
Supplement or Pooling and Servicing Agreement, an Originator will also have the
option to substitute a replacement Mortgage Loan for a Mortgage Loan that it is
obligated to repurchase in connection with a breach of a representation and
warranty.
The Servicer will be required under the applicable Pooling and
Servicing Agreement to enforce such purchase or substitution obligations for the
benefit of the Trustee and the Securityholders, following the practices it would
employ in its good faith business judgment if it were the owner of such Mortgage
Loan; provided, however, that this purchase or substitution obligation will in
no event become an obligation of the Servicer in the event the Originator fails
to honor such obligation. If the Originator fails to repurchase or substitute a
loan and no breach of the Company's representations has occurred, the
Originator's purchase or substitution obligation will in no event become an
obligation of the Company. In the case of a Designated Originator transaction
where the Originator fails to repurchase or substitute a Mortgage Loan and
neither the Company, nor any other entity has assumed the representations and
warranties, such repurchase or substitute obligation of the Originator will in
no event become an obligation of the Company. The foregoing will constitute the
sole remedy available to Securityholders or the Trustee for a breach of
representation by an Originator in its capacity as a seller of Mortgage Loans to
the Company.
Unless otherwise described in the related Prospectus Supplement, the
Company will make directly, or will guarantee compliance with, any
representations and warranties made by any Unaffiliated Originator with respect
to the Mortgage Loans originated or purchased by it and acquired by a Trust;
provided, however, that the Company will not directly make or guarantee
compliance with such representations and warranties made by a Designated
Originator. In the event of a breach of any such representation or warranty made
by a Designated Originator the only remedies will lie against such Designated
Originator.
Notwithstanding the foregoing with respect to any Originator that
requests the Servicer's consent to the transfer of sub-servicing rights relating
to any Mortgage Loans to a successor servicer, the Servicer may release such
Originator from liability, under its representations and warranties described
above, upon the assumption by such successor servicer of the Originator's
liability for such representations and warranties as of the date they were made.
In that event, the Servicer's rights under the instrument by which such
successor servicer assumes the Originator's liability will be assigned to the
Trustee, and such successor servicer shall be deemed to be the "Originator" for
purposes of the foregoing provisions.
Sub-Servicing by Originators
Each Originator of a Mortgage Loan will act as the Sub-Servicer for
such Mortgage Loan pursuant to a Sub-Servicing Agreement unless servicing is
released to the Servicer or has been transferred to a servicer approved by the
Servicer. The Servicer may, in turn, assign such subservicing to designated
Sub-Servicers that will be qualified Originators and may include affiliates of
the Company. While such a Sub-Servicing Agreement will be a contract solely
between the Servicer and the Sub-Servicer, the Pooling and Servicing Agreement
pursuant to which a series of Securities is issued will provide that, the
Trustee, the Servicer or any Master Servicer must recognize the Sub-Servicer's
rights and obligations under such Sub-Servicing Agreement.
With the approval of the Servicer, a Sub-Servicer generally may
delegate its servicing obligations to third-party servicers, but such
Sub-Servicer will remain obligated under the related Sub-Servicing Agreement.
Each Sub-Servicer
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will be required to perform the customary functions of a servicer, including
collection of payments from Mortgagors and remittance of such collections to the
Servicer; maintenance of hazard insurance and filing and settlement of claims
thereunder, subject in certain cases to the right of the Servicer to approve in
advance any such settlement; maintenance of escrow or impound accounts of
Mortgagors for payment of taxes, insurance and other items required to be paid
by the Mortgagor pursuant to the Mortgage Loan; processing of assumptions or
substitutions; attempting to cure delinquencies; supervising foreclosures;
inspecting and managing of Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the Mortgage Loans. A Sub-Servicer
also may be obligated to make advances to the Servicer in respect of delinquent
installments of principal and/or interest (net of any sub-servicing or other
compensation) on Mortgage Loans, as described more fully under "Description of
the Securities--Advances," and in respect of certain taxes and insurance
premiums not paid on a timely basis by Mortgagors. A Sub-Servicer may also be
obligated to pay to the Servicer any Compensating Interest with respect to the
related Mortgage Loans. No assurance can be given that the Sub-Servicers will
carry out their advance or payment obligations, if any, with respect to the
Mortgage Loans. A Sub-Servicer may transfer its servicing obligations to another
entity that has been approved for participation in the Company's loan purchase
programs, but only with the approval of the Servicer.
As compensation for its servicing duties, the Sub-Servicer may be
entitled to a monthly servicing fee in a minimum amount set forth in the related
Prospectus Supplement. The Sub-Servicer may also be entitled to collect and
retain, as part of its servicing compensation, any late charges or prepayment
penalties provided in the Mortgage Note or related instruments. The Sub-Servicer
will be reimbursed by the Servicer for certain expenditures that it makes,
generally to the same extent that the Servicer would be reimbursed under the
applicable Pooling and Servicing Agreement from the loan proceeds. Unless
specified in the related Prospectus Supplement and Pooling and Servicing
Agreement, compensation for the services of the Sub-Servicer shall be paid by
the Servicer as a general corporate obligation of the Servicer. See "The Pooling
and Servicing Agreement--Servicing and Other Compensation and Payment of
Expenses; Originator's Retained Yield."
Each Sub-Servicer will be required to agree to indemnify the Servicer
for any liability or obligation sustained by the Servicer in connection with any
act or failure to act by the Sub-Servicer in its servicing capacity. Each
Sub-Servicer will be required to maintain a fidelity bond and an errors and
omission policy with respect to its officers, employees and other persons acting
on its behalf or on behalf of the Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan
pursuant to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is terminated earlier by the
Servicer or the Sub-Servicer or unless servicing is released to the Servicer.
The Servicer generally may terminate a Sub-Servicing Agreement immediately upon
the giving of notice upon certain stated events, including the violation of such
Sub-Servicing Agreement by the Sub-Servicer, or upon thirty days' notice to the
Sub-Servicer without cause upon payment of an amount equal to a specified
termination fee calculated as a specified percentage of the aggregate
outstanding principal balance of all mortgage loans, including the Mortgage
Loans serviced by such Sub-Servicer pursuant to a Sub-Servicing Agreement and
certain transfer fees.
The Servicer may agree with a Sub-Servicer to amend a Sub-Servicing
Agreement. Upon termination of a Sub-Servicing Agreement, the Servicer may act
as servicer of the related Mortgage Loans or enter into one or more new
Sub-Servicing Agreements. If the Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Sub-Servicer that it
replaces. If the Servicer enters into a new Sub-Servicing Agreement, each new
Sub-Servicer either must be an Originator, meet the standards for becoming an
Originator or have such servicing experience that is otherwise satisfactory to
the Servicer. The Servicer may make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no assurance can be given that such an assumption
will occur and, in any event, if the new Sub-Servicer is an affiliate of the
Servicer, the liability for such representations and warranties will not be
assumed by such new Sub-Servicer. In the event of such an assumption, the
Servicer may in the exercise of its business judgment release the terminated
Sub-Servicer from liability in respect of such representations and warranties.
Any amendments to a Sub-Servicing Agreement or to a new Sub-Servicing Agreement
may contain provisions different from those described above that are in effect
in the original Sub-Servicing Agreements. However, the Pooling and Servicing
Agreement for each Trust Estate will provide that any such amendment or new
agreement may not be inconsistent with such Pooling and Servicing Agreement to
the extent that it would materially and adversely affect the interests of the
Securityholders.
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Master Servicer
A Master Servicer may be specified in the related Prospectus Supplement
for the related series of Securities. Customary servicing functions with respect
to Mortgage Loans constituting the Mortgage Pool in the Trust Estate will be
provided by the Servicer directly or through one or more Sub-Servicers subject
to supervision by the Master Servicer. If the Master Servicer is not directly
servicing the Mortgage Loans, then the Master Servicer will (i) administer and
supervise the performance by the Servicer of its servicing responsibilities
under the Pooling and Servicing Agreement with the Master Servicer, (ii)
maintain a current data base with the payment histories of each Mortgagor, (iii)
review monthly servicing reports and data relating to the Mortgage Pool for
discrepancies and errors, and (iv) act as back-up Servicer during the term of
the transaction unless the Servicer is terminated or resigns in such case the
Master Servicer shall assume the obligations of the Servicer.
The Master Servicer will be a party to the Pooling and Servicing
Agreement for any Series for which Mortgage Loans comprise the Trust Estate. The
Master Servicer generally will be required to be a FNMA- or FHLMC-approved
seller/servicer and, in the case of FHA Loans, approved by HUD as an FHA
mortgagee. The Master Servicer will be compensated for the performance of its
services and duties under each Pooling and Servicing Agreement as specified in
the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities (or,
in certain instances, two or more series of Securities) will be issued pursuant
to a Pooling and Servicing Agreement. The following summaries (together with
additional summaries under "The Pooling and Servicing Agreement" below) describe
all material terms and provisions relating to the Securities common to each
Pooling and Servicing Agreement. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement for the related Trust and to
the related Prospectus Supplement.
The Securities will consist of two basic types: (i) Securities of the
fixed-income type ("Fixed-Income Securities") and (ii) Securities of the equity
participation type ("Equity Securities"). No Class of Equity Securities will be
offered pursuant to this Prospectus or any Prospectus Supplement related hereto.
Fixed-Income Securities generally will be styled as Debt Instruments, having a
principal balance and a specified interest rate ("Interest Rate"). Fixed-Income
Securities may be either beneficial ownership interests in the related Mortgage
Loans held by the related Trust, or may represent debt secured by such Mortgage
Loans. Each series or class of Fixed-Income Securities may have a different
Interest Rate, which may be a fixed, variable or adjustable Interest Rate. The
related Prospectus Supplement will specify the Interest Rate for each series or
class of Fixed-Income Securities, or the initial Interest Rate and the method
for determining subsequent changes to the Interest Rate.
A series may include one or more classes of Fixed-Income Securities
("Strip Securities") entitled to (i) principal distributions, with
disproportionate, nominal or no interest distributions, or (ii) interest
distributions, with disproportionate, nominal or no principal distributions. In
addition, a series may include two or more classes of Fixed-Income Securities
that differ as to timing, sequential order, priority of payment, Interest Rate
or amount of distributions of principal or interest or both, or as to which
distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated portions of the related Mortgage Pool,
which series may include one or more classes of Fixed-Income Securities
("Accrual Securities"), as to which certain accrued interest will not be
distributed but rather will be added to the principal balance (or nominal
principal balance in the case of Accrual Securities which are also Strip
Securities) thereof on each Payment Date, as hereinafter defined and in the
manner described in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series of
Securities may include one or more classes of Fixed-Income Securities
(collectively, the "Senior Securities") that are senior to one or more classes
of Fixed-Income Securities (collectively, the "Subordinate Securities") in
respect of certain distributions of principal and interest and allocations of
losses on Mortgage Loans. In addition, certain classes of Senior (or
Subordinate) Securities may be senior to other classes of Senior (or
Subordinate) Securities in respect of such distributions or losses.
Equity Securities will represent the right to receive the proceeds of
the related Trust Estate after all required payments have been made to the
Securityholders of the related Fixed-Income Securities (both Senior Securities
and Subordinate Securities), and following any required deposits to any reserve
account that may be established for the benefit of the Fixed-Income Securities.
Equity Securities may constitute what are commonly referred to as the "residual
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interest," "seller's interest" or the "general partnership interest," depending
upon the treatment of the related Trust for federal income tax purposes. As
distinguished from the Fixed-Income Securities, the Equity Securities will not
be styled as having principal and interest components. Any losses suffered by
the related Trust first will be absorbed by the related class of Equity
Securities, as described herein and in the related Prospectus Supplement.
No Class of Equity Securities will be offered pursuant to this
Prospectus or any Prospectus Supplement related hereto. Equity Securities may be
offered on a private placement basis or pursuant to a separate Registration
Statement to be filed by the Company. In addition, the Company and its
affiliates may initially or permanently hold any Equity Securities issued by
any Trust.
General Payment Terms of Securities
As provided in the related Pooling and Servicing Agreement and as
described in the related Prospectus Supplement, Securityholders will be entitled
to receive payments on their Securities on specified dates ("Payment Dates").
Payment Dates with respect to Fixed-Income Securities will occur monthly,
quarterly or semi-annually, as described in the related Prospectus Supplement.
The related Prospectus Supplement will describe a date (the "Record
Date") preceding such Payment Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the purpose of receiving
payments on the next succeeding Payment Date. Unless otherwise described in the
related Prospectus Supplement, the Payment Date will be the twentieth day of
each month (or, in the case of quarterly-pay Securities, the twentieth day of
every third month; and in the case of semi-annually-pay Securities, the
twentieth day of every sixth month) and the Record Date will be the close of
business as of the last day of the calendar month which precedes such Payment
Date.
The related Prospectus Supplement and Pooling and Servicing Agreement
will describe the periods (each, a "Remittance Period" or "Due Period")
antecedent to each Payment Date (for example, in the case of monthly-pay
Securities, the calendar month (or the 30 days) preceding the month in which a
Payment Date occurs or such other specified period). Unless otherwise provided
in the related Prospectus Supplement, collections received on or with respect to
the related Mortgage Loans during a Remittance Period will be required to be
remitted by the Servicer to the related Trustee prior to the related Payment
Date, and will be used to distribute payments to Securityholders on such Payment
Date. As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of additional Mortgage Loans
during a specified period (rather than used to distribute payments of principal
to Securityholders during such period) with the result that the related
securities possess an interest-only period, also commonly referred to as a
revolving period, which will be followed by an amortization period. Any such
interest-only or revolving period may, upon the occurrence of certain events to
be described in the related Prospectus Supplement, terminate prior to the end of
the specified period and result in the earlier than expected amortization of the
related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that all or
a portion of such collected principal may be retained by the Trustee (and held
in certain temporary investments, including Mortgage Loans) for a specified
period prior to being used to distribute payments of principal to
Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in the current funding
of principal payments to the related Securityholders and an acceleration of the
amortization of such Securities.
Neither the Securities nor the underlying Mortgage Loans will be
guaranteed or insured by any governmental agency or instrumentality or the
Company, the Servicer, any Sub-Servicer, any Master Servicer, any Originator or
any of their affiliates; provided, however, that certain distributions to
Securityholders may be guaranteed by a Financial Guaranty Insurer.
Unless otherwise specified in the Prospectus Supplement with respect to
a series, Securities of each series covered by a particular Pooling and
Servicing Agreement will evidence specified beneficial ownership interest in a
separate Trust Estate created pursuant to such Pooling and Servicing Agreement.
A Trust Estate will consist of, to the extent provided in the Pooling and
Servicing Agreement: (i) a pool of Mortgage Loans (and the related mortgage
documents) or certificates of interest or participations therein underlying a
particular series of Securities as from time
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to time are subject to the Pooling and Servicing Agreement, exclusive of, if
specified in the related Prospectus Supplement, any Originator's Retained Yield
or other interest retained by the related Originator, the Company or any of its
affiliates with respect to each such Mortgage Loan; (ii) certain other assets
including, without limitation, all payments due on the Mortgage Loans after the
related Cut-Off Date, as from time to time are identified as deposited in
respect thereof in the Principal and Interest Account and in the related
Distribution Account; (iii) property acquired by foreclosure of the Mortgage
Loans or deed in lieu of foreclosure; (iv) hazard insurance policies and primary
insurance policies, if any, and certain proceeds thereof; and (v) any
combination, as specified in the related Prospectus Supplement, of a letter of
credit, financial guaranty insurance policy, purchase obligation, mortgage pool
insurance policy, special hazard insurance policy, bankruptcy bond, reserve fund
or other type of credit enhancement as described under "Description of Credit
Enhancement." To the extent that any Trust Estate includes certificates of
interest or participations in Mortgage Loans, the related Prospectus Supplement
will describe the material terms and conditions of such certificates or
participations.
Form of Securities
If so specified in the related Prospectus Supplement, the Securities of
each series will be issued as physical certificates ("Physical Certificates") in
fully registered form only in the denominations specified in the related
Prospectus Supplement, and will be transferable and exchangeable at the
corporate trust office of the registrar of the Securities (the "Security
Registrar") named in the related Prospectus Supplement. No service charge will
be made for any registration of exchange or transfer of Securities, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede, the
nominee of DTC. DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as brokers, dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participant").
Under a book-entry format, Securityholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Securities registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Securityholders will receive all distributions of principal of and interest on
the Securities from the Trustee through DTC and its Participants. Under a
book-entry format, Securityholders will receive payments after the related
Payment Date because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward such payments to
Indirect Participants or Securityholders. Unless and until Physical Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Pooling and Servicing
Agreement. The beneficial holders of such Securities will only be permitted to
exercise the rights of Securityholders under the Pooling and Servicing Agreement
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Securityholders
have accounts with respect to their Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Securityholders. Accordingly, although Securityholders will not
possess Securities, the rules provide a mechanism by which Securityholders will
receive distributions and will be able to transfer their interests.
Unless and until Physical Certificates are issued, Securityholders who
are not Participants may transfer ownership of Securities only through
Participants by instructing such Participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and
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credited. Similarly, the respective Participants will make debits or credits,
as the case may be, on their records on behalf of the selling and purchasing
Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a Physical Certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under a Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account with DTC the related
Securities are credited. Additionally, DTC in general advises that it will take
such actions with respect to specified percentages of the Securityholders only
at the direction of and on behalf of Participants whose holdings include current
principal amounts of outstanding Securities that satisfy such specified
percentages. DTC may take conflicting actions with respect to other current
principal amounts of outstanding Securities to the extent that such actions are
taken on behalf of Participants whose holdings include such current principal
amounts of outstanding Securities.
Any Securities initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered, certificated form to Securityholders or
their nominees ("Physical Securities"), rather than to DTC or its nominee only
under the events specified in the related Pooling and Servicing Agreement and
described in the related Prospectus Supplement. Upon the occurrence of any of
the events specified in the related Pooling and Servicing Agreement and the
Prospectus Supplement, DTC will be required to notify all Participants of the
availability through DTC of Physical Certificates. Upon surrender by DTC of the
securities representing the Securities and instruction for reregistration, the
Trustee will issue the Securities in the form of Physical Certificates, and
thereafter the Trustee will recognize the holders of such Physical Certificates
as Securityholders. Thereafter, payments of principal of and interest on the
Securities will be made by the Trustee directly to Securityholders in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement.
The final distribution of any Security (whether Physical Certificates or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to
Securityholders.
Assignment of Mortgage Loans
At the time of issuance of a series of Securities, the Company will
cause the Mortgage Loans being included in the related Trust Estate to be
assigned to the Trustee together with all principal and interest due on or after
the Cut-Off Date with respect to such Mortgage Loan, other than principal and
interest due before the Cut-Off Date. If specified in the related Prospectus
Supplement, the Company or any of its affiliates may retain the Originator's
Retained Yield, if any, for itself or transfer the same to others. The Trustee
will, concurrently with such assignment, deliver a series of Securities to the
Company in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include, among other things, information
as to the principal balance of each Mortgage Loan as of the Cut-Off Date, as
well as information regarding the Mortgage Rate, the currently scheduled monthly
payment of principal and interest and the maturity of the Mortgage Note.
In connection with the transfer of the Mortgage Loans to the Trustee,
the Originators will be required to deliver to the Company, who in turn will
deliver to the Trustee, a file consisting of (i) the original Notes or certified
copies thereof, endorsed by the Originator thereof in blank or to the order of
the holder, (ii) originals of all intervening assignments, showing a complete
chain of title from origination to the applicable Originators, if any, including
warehousing assignments, with evidence of recording thereon, (iii) originals of
all assumption and modification agreements, if any, and, unless such Mortgage
Loan is covered by a counsel's opinion as described in the next paragraph, (iv)
either: (a) the original Mortgage, with evidence of recording thereon, (b) a
true and accurate copy of the Mortgage where the original has been transmitted
for recording, until such time as the original is returned by the public
recording office or (c) a copy of the Mortgage certified by the public recording
office in those instances where the original recorded Mortgage has been lost.
The Trustee will agree, for the benefit of the Securityholders, to review each
such file within 90 days after the execution and delivery of the applicable
Pooling and Servicing Agreement to ascertain that all required documents (or
certified copies of documents) have been executed and received.
The Originators are additionally required to cause to be prepared and
submitted for recording, within 75 business days of the execution and delivery
of the applicable Pooling and Servicing Agreement (or, if original recording
information is unavailable, within such later period as is permitted by the
Pooling and Servicing Agreement) assignments of the Mortgages from the
Originators to the Trustee, in the appropriate jurisdictions in which such
recordation is necessary to perfect the lien thereof as against creditors of or
purchasers from the Originators, to the
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Trustee; provided, however, that if the Originators furnish to the Trustee an
opinion of counsel to the effect that no such recording is necessary to perfect
the Trustee's interests in the Mortgages with respect to one or more
jurisdictions, then such recording will not be required with respect to such
jurisdictions.
If the Sub-Servicer or Originator does not cure an omission or defect
in a required document within 60 days after notice is given to the Servicer, the
Sub-Servicer or Originator, as the case may be, will be obligated to purchase on
the next succeeding Remittance Date the related Mortgage Loan from the Trustee
at its Loan Purchase Price (or, if specified in the related Prospectus
Supplement, will be permitted to substitute for such Mortgage Loan under the
conditions specified in the related Prospectus Supplement). The Servicer will be
obligated to enforce this obligation of the Sub-Servicer or Originator, as the
case may be, to the extent described above under "Mortgage Loan
Program--Representations by Originators." Neither the Servicer, the Master
Servicer nor the Company will, however, be obligated to purchase or substitute
for such Mortgage Loan if the Sub-Servicer or Originator, as the case may be,
defaults on its obligation to do so, and there can be no assurance that a
Sub-Servicer or Originator, as the case may be, will carry out any such
obligation. Such purchase obligation constitutes the sole remedy available to
the Securityholders or the Trustee for omission of, or a material defect in, a
constituent document.
The Trustee will be authorized at any time to appoint a custodian
pursuant to a custodial agreement to maintain possession of and, if applicable,
to review the documents relating to the Mortgage Loans as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Securities will be set forth in the related Prospectus
Supplement.
Pursuant to each Pooling and Servicing Agreement, the Servicer, either
directly or through Sub-Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
Forward Commitments; Pre-Funding
A Trust may enter into a Forward Purchase Agreement with the Company
whereby the Company will agree to transfer Subsequent Mortgage Loans to such
Trust following the date on which such Trust is established and the related
Securities are issued. All Subsequent Mortgage Loans transferred to the Trust
pursuant to a Forward Purchase Agreement will be originated by the Company or an
Originator. The Trust may enter into Forward Purchase Agreements to permit the
acquisition of Subsequent Mortgage Loans that could not be delivered by the
Company or have not formally completed the origination process, in each case
prior to the date on which the Securities are delivered to the Securityholders
(the "Closing Date"). Any Forward Purchase Agreement will require that any
Subsequent Mortgage Loans so transferred to a Trust conform to the requirements
specified in such Forward Purchase Agreement. If a Forward Purchase Agreement is
to be utilized the related Trustee will be required to deposit in the
Pre-Funding Account all or a portion of the proceeds received by the Trustee in
connection with the sale of one or more classes of Securities of the related
series; the Subsequent Mortgage Loans will be transferred to the related Trust
in exchange for money released to the Company from the related Pre-Funding
Account in one or more transfers. The maximum amount of money deposited in the
Pre-Funding Account to acquire Subsequent Mortgage Loans for transfer to the
Trust will not exceed 25% of the aggregate principal amount of the Securities
offered pursuant to the related Prospectus Supplement. Each Forward Purchase
Agreement will set a specified period during which any such transfers must
occur, which such period shall not exceed 90 days from the date such Trust was
established. The Forward Purchase Agreement or the related Pooling and Servicing
Agreement will require that, if all moneys originally deposited to such
Pre-Funding Account are not so used by the end of such specified period, then
any remaining moneys will be applied as a mandatory prepayment of the related
class or classes of Securities as specified in the related Prospectus
Supplement. See "Risk Factors" herein and in the related Prospectus Supplement.
All moneys on deposit in the Pre-Funding Account will be invested in one or more
Permitted Investments with all earnings thereon available to make interest
payments on the Securities.
Each additional Mortgage Loan will be of a type specified herein, will
be originated or underwritten in accordance with the Company's guidelines
discussed under "Mortgage Loan Program--Underwriting Guidelines" and will
satisfy any additional eligibility criteria specified in the related Prospectus
Supplement. Such eligibility criteria will be determined in consultation with
each Rating Agency (and/or any credit enhancement provider for the related
series) prior to the issuance of such series to ensure that such additional
Mortgage Loans will not cause the aggregate characteristics of the related
Mortgage Pool to vary materially from those of the initial Mortgage Pool, or
that any such variation is within parameters that were taken into account at the
time the initial ratings were assigned to the Securities of the related series.
The Company will be required to certify that all conditions precedent to the
transfer of such additional Mortgage Loans, including the satisfaction of
specific eligibility criteria, have been satisfied. It will be a condition to
the transfer of any additional Mortgage Loans by the Company for inclusion in
the related Mortgage Pool that each Rating Agency, after receiving prior notice
of any such proposed transfer, shall not have advised the Company or the Trustee
or any credit enhancement provider for the series that the conveyance of such
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additional Mortgage Loans will result in a qualification, modification or
withdrawal of its then current rating of the related Securities. The inclusion
of additional Mortgage Loans in a Mortgage Pool for a series of Securities may
affect, in some instances adversely, the performance of the related Securities,
even if the aggregate characteristics of such Mortgage Pool do not vary as a
result of the inclusion of such additional Mortgage Loans. The Company will
provide a schedule of such additional Mortgage Loans or tabular information on
such additional Mortgage Loans similar to that included in the related
Prospectus Supplement in the Detailed Description filed under cover of a Current
Report on Form 8-K within 15 days of the end of the Funding Period.
The ability of any Trust to invest in additional Mortgage Loans during
the related Funding Period and, in the case of a series of Securities, any
revolving period, will be dependent upon the ability of the Company to acquire
Mortgage Loans that satisfy the prerequisites to transfer for inclusion in the
related Mortgage Pool specified in the related Prospectus Supplement. The
ability of the Company to acquire such Mortgage Loans will be affected by a
variety of social and economic factors, including the prevailing level of market
interest rates, unemployment levels and consumer perceptions of general economic
conditions.
Payments on Mortgage Loans; Deposits to Distribution Account
Each Sub-Servicer servicing a Mortgage Loan pursuant to a Sub-Servicing
Agreement will establish and maintain an account (the "Sub-Servicing Account")
which generally meets the requirements set forth in the Company's Guidelines
from time to time, and is otherwise acceptable to the Servicer. A Sub-Servicing
Account will generally be a lock box account established with a Federal Home
Loan Bank or with a depository institution (including the Sub-Servicer itself)
whose accounts are insured by the National Credit Union Share Insurance Fund or
the FDIC, provided that any such depository institution must meet certain
minimum rating criteria set forth in the Company's Guidelines. Except as
otherwise permitted by the applicable Rating Agencies, a Sub-Servicing Account
must be segregated and may not be established as a general ledger account.
A Sub-Servicer is required to deposit into its Sub-Servicing Account
within one day of receipt all amounts described above under "Mortgage Loan
Program--Sub-Servicing by Originators" that are received by it in respect of the
Mortgage Loans, less its servicing fee or other compensation. On a daily basis
or on or before the date specified in the Sub-Servicing Agreement (which date
may be no later than the business day prior to the Determination Date referred
to below or, if such day is not a business day, the preceding business day), the
Sub-Servicer must remit or cause to be remitted to the Servicer or the Trustee
all funds held in the Sub-Servicing Account with respect to Mortgage Loans that
are required to be so remitted. A Sub-Servicer may also be required to make
Servicing Advances, and Delinquency Advances and to pay Compensating Interest as
set forth in the related Sub-Servicing Agreement.
The Servicer will deposit or will cause to be deposited into the
Principal and Interest Account on a daily basis certain payments and collections
received by it subsequent to the Cut-Off Date (other than payments due on or
before the Cut-Off Date), as specifically set forth in the related Pooling and
Servicing Agreement, which generally will include the following except as
otherwise provided therein:
(i) all payments on account of principal, including principal
payments received in advance of the date on which the related monthly
payment is due (the "Due Date") ("Principal Prepayments"), on the
Mortgage Loans comprising a Trust Estate;
(ii) all payments on account of interest on the Mortgage Loans
comprising such Trust Estate, net of the portion of each payment
thereof retained by the Servicer and the Sub-Servicer, if any, as their
servicing fee or other compensation;
(iii) all amounts (net of unreimbursed liquidation expenses
and insured expenses incurred, and unreimbursed advances made, by the
Servicer or the related Sub-Servicer) received and retained, if any, in
connection with the liquidation of any defaulted Mortgage Loan, by
foreclosure, deed in lieu of foreclosure or otherwise ("Liquidation
Proceeds"), including all proceeds of any special hazard insurance
policy, bankruptcy bond, mortgage pool insurance policy, financial
guaranty insurance policy and any title, hazard or other insurance
policy covering any Mortgage Loan in such Mortgage Pool (together with
any payments under any letter of credit, "Insurance Proceeds") or
proceeds from any alternative arrangements established in lieu of any
such insurance and described in the applicable Prospectus Supplement,
other than proceeds to be applied to the restoration of the related
property or released to the Mortgagor in accordance with the Servicer's
normal servicing procedures (such amounts, net of related unreimbursed
expenses and advances of the Servicer, "Net Liquidation Proceeds");
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(iv) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Securityholders, as described
below;
(v) all proceeds of any Mortgage Loan in such Trust Estate
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Servicer, the Company, the
Master Servicer, any Sub-Servicer or Originator or any other person
pursuant to the terms of the Pooling and Servicing Agreement. See
"Mortgage Loan Program--Representations by Originators," "--Assignment
of Mortgage Loans" above; and
(vi) any amounts required to be transferred from the
Distribution Account (as defined below) to the Principal and Interest
Account.
In addition to the Principal and Interest Account, the Servicer shall
cause to be established and the Trustee will maintain, at the corporate trust
office of the Trustee, in the name of the Trust for the benefit of the holders
of each series of Securities, an account for the disbursement of payments on the
Mortgage Loans evidenced by each series of Securities (the "Distribution
Account"). Both the Principal and Interest Account and the Distribution Account
must be (x) maintained with a depository institution whose debt obligations at
the time of any deposit therein meet certain rating criteria, and (y) (i) an
account or accounts the deposits in which are fully insured to the limits
established by the FDIC, (ii) an account maintained at a federal savings and
loan or state banking institution, (iii) an account maintained at a principal
subsidiary of a bank holding company, (iv) an account maintained at a national
banking association, or (v) such other account or accounts acceptable to the
Rating Agency or Agencies that rated one or more classes of Securities of such
series (an "Eligible Account"). The collateral that is eligible to secure
amounts in an Eligible Account is limited to certain permitted investments
("Permitted Investments"). Permitted Investments include direct general
obligations of the United States or the obligations of any agency or
instrumentality of the United States that are fully guaranteed, Federal Funds,
certificates of deposit, time and demand deposits of any bank meeting certain
short term rating requirements described in a Pooling and Servicing Agreement,
certain investment agreements approved by the Financial Guaranty Insurer, and
commercial paper and no load mutual funds meeting certain rating requirements
described in a Pooling and Servicing Agreement. A Distribution Account may be
maintained as an interest-bearing or a non-interest-bearing account, or funds
therein may be invested in Permitted Investments as described below. The
Principal and Interest Account may contain funds relating to more than one
series of Securities as well as payments received on other mortgage loans
serviced or master serviced by the Servicer that have been deposited into the
Principal and Interest Account. The Servicer will be entitled to any interest or
other income or gain realized with respect to the funds on deposit in the
Principal and Interest Accounts.
Unless otherwise specified in the related Prospectus Supplement and
Pooling and Servicing Agreement, not later than the third day preceding each
Payment Date (the "Remittance Date"), the Servicer will withdraw from the
Principal and Interest Account and remit to the Trustee for deposit into the
applicable Distribution Account, in immediately available funds, the amount to
be distributed therefrom to Securityholders on such Payment Date. The Servicer
will remit to the Trustee for deposit into the Distribution Account the amount
of any advances made by the Servicer as described herein under "Advances," any
amounts required to be paid by the Servicer out of its own funds due to the
operation of a deductible clause in any blanket policy maintained by the
Servicer to cover hazard losses on the Mortgage Loans as described under "Hazard
Insurance; Claims Thereunder" below and any other amounts as specifically set
forth in the related Pooling and Servicing Agreement. The Trustee will cause all
payments under any credit enhancement such as a financial guaranty insurance
policy or a letter of credit to be deposited in the Distribution Account prior
to the close of business on the business day next preceding each Payment Date.
The portion of any payment received by the Servicer in respect of a
Mortgage Loan that is allocable to the Originator's Retained Yield generally
will be deposited into the Principal and Interest Account but will not be
deposited in the Distribution Account for the related series of Securities.
Funds on deposit in the Principal and Interest Account attributable to
Mortgage Loans underlying a series of Securities may be invested in Permitted
Investments maturing in general not later than the business day preceding the
next Payment Date. All income and gain realized from any such investment will
generally be for the account of the Servicer. Funds on deposit in the related
Distribution Account may be invested in Permitted Investments maturing, in
general, no later than the Payment Date.
With respect to each Buydown Mortgage Loan, the Sub-Servicer will
deposit the related Buydown Funds provided to it in a Buydown Account that will
comply with the requirements set forth herein with respect to a Sub-Servicing
Account. The terms of all Buydown Mortgage Loans provide for the contribution of
Buydown Funds in an amount equal to or exceeding either (i) the total payments
to be made from such funds pursuant to the related
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buydown plan or (ii) if such Buydown Funds are to be deposited on a discounted
basis, that amount of Buydown Funds which, together with investment earnings
thereon at a rate as set forth in the Company's Guidelines from time to time,
will support the scheduled level of payments due under the Buydown Mortgage
Loan. Neither the Servicer nor the Company will be obligated to add to any such
discounted Buydown Funds any of its own funds should investment earnings prove
insufficient to maintain the scheduled level of payments. To the extent that any
such insufficiency is not recoverable from the Mortgagor or, in an appropriate
case, from the related Originator or the related Sub-Servicer, distributions to
Securityholders may be affected. With respect to each Buydown Mortgage Loan, the
Sub-Servicer will withdraw from the Buydown Account and remit to the Servicer on
or before the date specified in the Sub-Servicing Agreement described above the
amount, if any, of the Buydown Funds (and, if applicable, investment earnings
thereon) for each Buydown Mortgage Loan that, when added to the amount due from
the Mortgagor on such Buydown Mortgage Loan, equals the full monthly payment
which would be due on the Buydown Mortgage Loan if it were not subject to the
buydown plan.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Sub-Servicer will withdraw from
the Buydown Account and remit to the Mortgagor or such other designated party in
accordance with the related buydown plan any Buydown Funds remaining in the
Buydown Account. If a prepayment by a Mortgagor during the Buydown Period
together with Buydown Funds will result in full prepayment of a Buydown Mortgage
Loan, the Sub-Servicer will generally be required to withdraw from the Buydown
Account and remit to the Servicer the Buydown Funds and investment earnings
thereon, if any, which together with such prepayment will result in a prepayment
in full; provided that Buydown Funds may not be available to cover a prepayment
under certain Mortgage Loan programs. Any Buydown Funds so remitted to the
Servicer in connection with a prepayment described in the preceding sentence
will be deemed to reduce the amount that would be required to be paid by the
Mortgagor to repay fully the related Mortgage Loan if the Mortgage Loan were not
subject to the buydown plan. Any investment earnings remaining in the Buydown
Account after prepayment or after termination of the Buydown Period will be
remitted to the related Mortgagor or such other designated party pursuant to the
agreement relating to each Buydown Mortgage Loan (the "Buydown Agreement"). If
the Mortgagor defaults during the Buydown Period with respect to a Buydown
Mortgage Loan and the property securing such Buydown Mortgage Loan is sold in
liquidation (either by the Servicer, the Primary Insurer, the insurer under the
mortgage pool insurance policy (the "Pool Insurer") or any other insurer), the
Sub-Servicer will be required to withdraw from the Buydown Account the Buydown
Funds and all investment earnings thereon, if any, and remit the same to the
Servicer or, if instructed by the Servicer, pay the same to the Primary Insurer
or the Pool Insurer, as the case may be, if the Mortgaged Property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default.
Withdrawals from the Principal and Interest Account
The Servicer may, from time to time, make withdrawals from the
Principal and Interest Account for certain purposes, as specifically set forth
in the related Pooling and Servicing Agreement, which generally will include the
following except as otherwise provided therein:
(i) to effect the timely remittance to the Trustee for deposit
to the Distribution Account in the amounts and in the manner provided
in the Pooling and Servicing Agreement and described in "--Payments on
Mortgage Loans; Deposits to Distribution Account" above;
(ii) to reimburse itself or any Sub-Servicer for Delinquency
Advances or Servicing Advances as to any Mortgaged Property, out of
late payments or collections on the related Mortgage Loan with respect
to which such Delinquency Advances or Servicing Advances were made;
(iii) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(iv) to pay the Company or its assignee all amounts allocable
to the Originator's Retained Yield out of collections or payments which
represent interest on each Mortgage Loan (including any Mortgage Loan
as to which title to the underlying Mortgaged Property was acquired);
(v) to withdraw amounts that have been deposited in the
Principal and Interest Account in error; and
(vi) to clear and terminate the Principal and Interest Account
in connection with the termination of the Trust Estate pursuant to the
Pooling and Servicing Agreement, as described in "The Pooling and
Servicing Agreement--Termination, Retirement of Securities."
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Distributions
Beginning on the Payment Date in the month following the month (or, in
the case of quarterly-pay Securities, the third month following such month and
each third month thereafter or, in the case of semi-annually-pay Securities, the
sixth month following such month and each sixth month thereafter) in which the
Cut-Off Date occurs (or such other date as may be set forth in the related
Prospectus Supplement) for a series of Securities, distributions of principal
and interest (or, where applicable, of principal only or interest only) on each
class of Securities entitled thereto will be made either by the Trustee or a
paying agent appointed by the Trustee (the "Paying Agent"), to the persons who
are registered as the Securityholders of such Securities at the close of
business as of the last day of the preceding month (the "Record Date") in
proportion to their respective Percentage Interests. Interest that accrues and
is not payable on a class of Securities will generally be added to the principal
balance of each Security of such class in proportion to its Percentage Interest.
The undivided percentage interest (the "Percentage Interest") represented by a
Security of a particular class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Security by
the aggregate initial amount or notional balance of all the Securities of such
class. Distributions will be made in immediately available funds (by wire
transfer or otherwise) to the account of a Securityholder at a bank or other
entity having appropriate facilities therefor, if such Securityholder has so
notified the Trustee or the Paying Agent, as the case may be, and the applicable
Pooling and Servicing Agreement provides for such form of payment, or by check
mailed to the address of the person entitled thereto as it appears on the
Security Register; provided, however, that the final distribution in retirement
of the Securities (other than any Book-Entry Securities) will be made only upon
presentation and surrender of the Securities at the office or agency of the
Trustee specified in the notice to Securityholders of such final distribution.
Principal and Interest on the Securities
The method of determining, and the amount of, distributions of
principal and interest (or, where applicable, of principal only or interest
only) on a particular series of Securities will be described in the related
Prospectus Supplement. Each class of Securities (other than certain classes of
Strip Securities) may bear interest at a different interest rate (the
"Pass-Through Rate"), which may be a fixed or adjustable Pass-Through Rate. The
related Prospectus Supplement will specify the Pass-Through Rate for each class,
or in the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate
and the method for determining the Pass-Through Rate. Interest on the Securities
generally will be calculated either on the basis of a 360-day year consisting of
twelve 30-day months or, in the case of certain Securities bearing an adjustable
Pass-Through Rate, on the basis of the actual number of days elapsed in the
period for which interest is being paid, divided by 360.
On each Payment Date for a series of Securities, the Trustee will
distribute or cause the Paying Agent to distribute, as the case may be, to each
holder of record on the Record Date of a class of Securities, an amount equal to
the Percentage Interest represented by the Security held by such holder
multiplied by such class' Distribution Amount. The Distribution Amount for a
class of Securities for any Payment Date will be the portion, if any, of the
Principal Distribution Amount (as defined in the related Prospectus Supplement)
allocable to such class for such Payment Date, as described in the related
Prospectus Supplement, plus, if such class is entitled to payments of interest
on such Payment Date, the interest accrued at the applicable Pass-Through Rate
on the principal balance or notional amount of such class, as specified in the
applicable Prospectus Supplement, less the amount of any Deferred Interest added
to the principal balance of the Mortgage Loans and/or the outstanding balance of
one or more classes of Securities on the related Due Date, allocable to
Securityholders which are not covered by advances or the applicable credit
enhancement, in each case in such amount that is allocated to such class on the
basis set forth in the Prospectus Supplement.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of additional Mortgage Loans
during a specified period (rather than used to fund payments of principal to
Securityholders during such period) with the result that the related securities
will possess an interest-only period, also commonly referred to as a revolving
period, which will be followed by an amortization period. Any such interest-only
or revolving period may, upon the occurrence of certain events to be described
in the related Prospectus Supplement, terminate prior to the end of the
specified period and result in the earlier than expected amortization of the
related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that all or
a portion of such collected principal may be retained by the Trustee (and held
in certain temporary investments, including Mortgage Loans) for a specified
period prior to being used to fund payments of principal to Securityholders.
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In the case of a series of Securities that includes two or more classes
of Securities, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Securities or Subordinate Securities) of each
such class shall be as provided in the related Prospectus Supplement.
Distributions in respect of principal of any class of Securities will be made on
a pro rata basis among all of the Securities of such class.
Except as otherwise provided in the related Pooling and Servicing
Agreement, on or prior to the 15th day (or if such day is not a business day,
the next succeeding business day or such other date specified in the Pooling and
Servicing Agreement) of the month of distribution (the "Determination Date"),
the Servicer will provide the Trustee, (and the Master Servicer and Credit
Enhancer, if any) with a monthly servicing report. Except as otherwise provided
in the related Pooling and Servicing Agreement, on or prior to one business day
after the related Remittance Date (or such earlier or later day as shall be
agreed by a Financial Guaranty Insurer, if applicable, and Trustee) of the month
of distribution, the Trustee will use the monthly servicing report to determine
the amounts of principal and interest which will be passed through to
Securityholders on the immediately succeeding Payment Date. If the amount in the
Principal and Interest Account is insufficient to cover the amount to be passed
through to Securityholders, no later than 12:00 noon New York City time on the
second business day preceding a Payment Date, the Trustee will notify a
Financial Guaranty Insurer or any other person required to be notified pursuant
to the related Pooling and Servicing Agreement.
Advances
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required, not later than each Remittance Date, to deposit into the
Principal and Interest Account an amount equal to the sum of the scheduled
interest and principal payments (net of the Servicing Fees and certain
administrative amounts) due, but not collected, with respect to delinquent
Mortgage Loans during the prior Remittance Period, but only if, in its good
faith business judgment, the Servicer believes that such amount will ultimately
be recovered from the related Mortgage Loan. Such amounts are "Delinquency
Advances." The Servicer will be permitted to fund its payment of Delinquency
Advances on any Remittance Date from collections on any Mortgage Loan deposited
to the Principal and Interest Account subsequent to the related Remittance
Period and will be required to deposit into the Principal and Interest Account
with respect thereto (i) collections from the Mortgagor whose delinquency gave
rise to the shortfall which resulted in such Delinquency Advance and (ii) Net
Liquidation Proceeds recovered on account of the related Mortgage Loan to the
extent of the amount of aggregate Delinquency Advances related thereto.
A Mortgage Loan is "delinquent" if any payment due thereon is not made
by the close of business on the day such payment is scheduled to be due.
Generally, on or prior to each Remittance Date, the Servicer will be
required to deposit in the Principal and Interest Account with respect to any
full prepayment received on a Mortgage Loan during the related Remittance Period
out of its own funds without any right of reimbursement therefor, an amount
equal to the difference between (x) 30 days' interest at the Mortgage Loan's
Mortgage Rate (less the Servicing Fee and certain miscellaneous administrative
amounts) on the loan balance of such Mortgage Loan as of the first day of the
related Remittance Period and (y) to the extent not previously advanced, the
interest (less the Servicing Fee and certain miscellaneous administrative
amounts) paid by the Mortgagor with respect to the Mortgage Loan during such
Remittance Period (any such amount paid by the Servicer, "Compensating
Interest"). The Servicer shall in no event be required to pay Compensating
Interest with respect to any Remittance Period in an amount in excess of the
aggregate Servicing Fee received by the Servicer with respect to all Mortgage
Loans for such Remittance Period.
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, but only to
the extent that the Servicer reasonably believes that such amounts will increase
Net Liquidation Proceeds on the related Mortgage Loan. Each such amount so paid
will constitute a "Servicing Advance." The Servicer may recover Servicing
Advances to the extent permitted by the Mortgage Loans or, if not theretofore
recovered from the Mortgagor on whose behalf such Servicing Advance was made,
from liquidation proceeds realized upon the liquidation of the related Mortgage
Loan. In no case may the Servicer recover Servicing Advances from the principal
and interest payments on any Mortgage Loan or from any amounts relating to any
other Mortgage Loan.
Notwithstanding the foregoing, if the Servicer exercises its option, if
any, to purchase the assets of a Trust Estate as described under "The Pooling
and Servicing Agreement--Termination; Retirement of Securities" below, the
Servicer will be deemed to have been reimbursed for all related advances
previously made by it and not theretofore reimbursed to it. The Servicer's
obligation to make advances may be supported by credit enhancement as described
in the related Pooling and Servicing Agreement. In the event that the provider
of such support is downgraded by a Rating Agency rating the related Securities
or if the collateral supporting such obligation is not performing or is removed
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pursuant to the terms of any agreement described in the related Prospectus
Supplement, the Securities may also be downgraded.
Reports to Securityholders
With each distribution to Securityholders of a particular class the
Trustee will forward or cause to be forwarded to each holder of record of such
class of Securities a statement or statements with respect to the related Trust
setting forth the information specifically described in the related Pooling and
Servicing Agreement, which generally will include the following as applicable
except as otherwise provided therein:
(i) the amount of the distribution with respect to each class
of Securities;
(ii) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any prepayments or other
recoveries of principal included therein;
(iii) the amount of such distribution allocable to interest;
(iv) the aggregate unpaid Principal Balance of the Mortgage
Loans after giving effect to the distribution of principal on such
Payment Date;
(v) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Payment Date;
(vi) the amount of coverage under any letter of credit,
mortgage pool insurance policy or other form of credit enhancement
covering default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(vii) information furnished by the Company pursuant to section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist Securityholders in computing their market discount;
(viii) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution; and
(ix) a number with respect to each class (the "Pool Factor")
computed by dividing the principal balance of all certificates in such
class (after giving effect to any distribution of principal to be made
on such Payment Date) by the original principal balance of certificates
of such class on the Closing Date.
Items (i) through (iii) above shall, with respect to each class of
Securities, be presented on the basis of a certificate having a $1,000
denomination. In addition, by January 31 of each calendar year following any
year during which Securities are outstanding, the Trustee shall furnish a report
to each Securityholder of record at any time during each calendar year as to the
aggregate amounts reported pursuant to (i), (ii) and (iii) with respect to the
Securities for such calendar year. If a class of Securities are in book-entry
form, DTC will supply such reports to the Securityholders in accordance with its
procedures.
In addition, on each Payment Date the Trustee will forward or cause to
be forwarded additional information, as of the close of business on the last day
of the prior calendar month, as more specifically described in the related
Pooling and Servicing Agreement, which generally will include the following as
applicable except as otherwise provided therein:
(i) the total number of Mortgage Loans and the aggregate
principal balances thereof, together with the number, percentage and
aggregate principal balances of Mortgage Loans (a) 30-59 days
delinquent, (b) 60-89 days delinquent and (c) 90 or more days
delinquent;
(ii) the number, percentage, aggregate Mortgage Loan balances
and status of all Mortgage Loans in foreclosure proceedings (and
whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i));
(iii) the number, percentage and aggregate Mortgage Loan
balances of all Mortgage Loans relating to Mortgagors in bankruptcy
proceedings (and whether any such Mortgage Loans are also included in
any of the statistics described in the foregoing clause (i));
(iv) the number, percentage and aggregate Mortgage Loan
balances of all Mortgage Loans relating to the status of any Mortgaged
Properties as to which title has been taken in the name of, or on
behalf of the
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Trustee (and whether any such Mortgage Loans are also included in any
of the statistics described in the foregoing clause (i)); and
(v) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure.
Each Pooling and Servicing Agreement shall provide that the
Securityholders will have the right to request a Securityholder list. Any
Securityholder in a Trust may apply in writing to the related Trustee, and such
application shall state that the Securityholder desires to communicate with
other Securityholders with respect to their rights under the related Pooling and
Servicing Agreement. Such written request shall be accompanied by a copy of the
communication which such Securityholder proposes to transmit to other
Securityholders. The Trustee shall furnish such Securityholder list to such
requesting Securityholder within ten business days after receipt of the
application.
Collection and Other Servicing Procedures
Acting directly or through one or more Sub-Servicers as provided in the
related Pooling and Servicing Agreement, the Servicer, is required to service
and administer the Mortgage Loans in accordance with the Pooling and Servicing
Agreement and with reasonable care, and using that degree of skill and attention
that the Servicer exercises with respect to comparable mortgage loans that it
services for itself or others.
The duties of the Servicer include collecting and posting of all
payments, responding to inquiries of Mortgagors or by federal, state or local
government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices and accounting for collections and furnishing monthly and
annual statements to the Trustee with respect to distributions and making
Delinquency Advances and Servicing Advances. The Servicer is required to follow
its customary standards, policies and procedures in performing its duties as
Servicer.
The Servicer (i) is authorized and empowered to execute and deliver, on
behalf of itself, the Securityholders and the Trustee or any of them, any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the related Mortgaged Properties; (ii) may consent to
any modification of the terms of any Note not expressly prohibited by the
Pooling and Servicing Agreement if the effect of any such modification (x) will
not materially and adversely affect the security afforded by the related
Mortgaged Property (other than as permitted by the related Pooling and Servicing
Agreement) or the timing of receipt of any payments required thereunder; and (y)
will not cause a Trust which is a REMIC to fail to qualify as a REMIC.
The related Pooling and Servicing Agreement will require the Servicer
to follow such collection procedures as it follows from time to time with
respect to mortgage loans in its servicing portfolio that are comparable to the
Mortgage Loans; provided that the Servicer is required always at least to follow
collection procedures that are consistent with or better than standard industry
practices. The Servicer may in its discretion (i) waive any assumption fees,
late payment charges, charges for checks returned for insufficient funds,
prepayment fees, if any, or the fees which may be collected in the ordinary
course of servicing the Mortgage Loans, (ii) if a Mortgagor is in default or
about to be in default because of a Mortgagor's financial condition, arrange
with the Mortgagor a schedule for the payment of delinquent payments due on the
related Mortgage Loan; provided, however, the Servicer shall not reschedule the
payment of delinquent payments more than one time in any twelve consecutive
months with respect to any Mortgagor or (iii) modify payments of monthly
principal and interest on any Mortgage Loan becoming subject to the terms of the
Relief Act in accordance with the Servicer's general policies for comparable
mortgage loans subject to the Relief Act.
The Servicer will be required to foreclose upon or otherwise comparably
effect the ownership on behalf of the Trust of Mortgaged Properties relating to
defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of delinquent payments. The related Pooling and Servicing
Agreement will require the Servicer to take into account the existence of any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Response Conservation and Recovery Act of 1976, or other federal, state
or local environmental legislation, in determining whether to foreclose upon a
Mortgaged Property, or otherwise comparably effect the ownership of such
Mortgaged Property on behalf of the Trust.
When a Mortgaged Property (other than Mortgaged Property subject to an
ARM Loan) has been or is about to be conveyed by the Mortgagor, the Servicer
will be required, to the extent it has knowledge of such conveyance or
prospective conveyance, to exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Servicer will not be required
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to exercise any such right if (i) the "due-on-sale" clause, in the reasonable
belief of the Servicer, is not enforceable under applicable law or (ii) the
Servicer reasonably believes that to permit an assumption of the Mortgage Loan
would not materially and adversely affect the interests of Securityholders or
the Financial Guaranty Insurer, if any, or jeopardize coverage under any primary
insurance policy or applicable credit enhancement arrangements. In such event,
the Servicer will be required to enter into an assumption and modification
agreement with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the Mortgage
Note and, unless prohibited by applicable law or the related documents, the
Mortgagor remains liable thereon. If the foregoing is not permitted under
applicable law, the Servicer will be authorized to enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note. The assumed loan must conform in all
respects to the requirements, representations and warranties of the Pooling and
Servicing Agreement.
An ARM Loan may be assumed if such ARM Loan is by its terms assumable
and if, in the reasonable judgment of the Servicer or the Sub-Servicer, the
proposed transferee of the related Mortgaged Property establishes its ability to
repay the loan and the security for such ARM Loan would not be impaired by the
assumption. If a Mortgagor transfers the Mortgaged Property subject to an ARM
Loan without consent, such ARM Loan may be declared due and payable. Any fee
collected by the Servicer or Sub-Servicer for entering into an assumption or
substitution of liability agreement will be retained by the Servicer or
Sub-Servicer as additional servicing compensation unless otherwise set forth in
the related Prospectus Supplement. See "Certain Legal Aspects of Mortgage Loans
and Related Matters--Enforceability of Certain Provisions" herein.
The Servicer will have the right under the Pooling and Servicing
Agreement to approve applications of Mortgagors seeking consent for (i) partial
releases of Mortgages, (ii) alterations and (iii) removal, demolition or
division of Mortgaged Properties. No application for consent may be approved by
the Servicer unless: (i) the provisions of the related Mortgage Note and
Mortgage have been complied with; (ii) the loan-to-value ratio and
debt-to-income ratio after any release are consistent with the Company's
Guidelines then applicable to such Mortgage Loan; and (iii) the lien priority of
the related Mortgage is not affected.
Realization upon Defaulted Mortgage Loans
The Servicer shall foreclose upon or otherwise comparably effect the
ownership on behalf of the Trust of Mortgaged Properties relating to defaulted
Mortgage Loans as to which no satisfactory arrangements can be made for
collection of delinquent payments and which the Servicer has not purchased
pursuant to the related Pooling and Servicing Agreement (such Mortgage Loans,
"REO Property"). In connection with such foreclosure or other conversion, the
Servicer shall exercise such of the rights and powers vested in it under the
related Pooling and Servicing Agreement, and use the same degree of care and
skill in their exercise or use, as prudent mortgage lenders would exercise or
use under the circumstances in the conduct of their own affairs, including, but
not limited to, advancing funds for the payment of taxes, amounts due with
respect to Senior Liens and insurance premiums. Any amounts so advanced shall
constitute "Servicing Advances." Unless otherwise provided in the related
Prospectus Supplement, the Servicer shall sell any REO Property within 23 months
of its acquisition by the Trust, unless the Servicer obtains for the Trustee an
opinion of counsel experienced in federal income tax matters, addressed to the
Trustee, a Financial Guaranty Insurer, if applicable, and the Servicer, to the
effect that the holding by the Trust of such REO Property for any greater period
will not result in the imposition of taxes on "Prohibited Transactions" of the
Trust as defined in Section 860F of the Code or, if a REMIC election has been
made, cause the Trust to fail to qualify as a REMIC under the REMIC Provisions
at any time that any Securities are outstanding, in which case the Servicer
shall sell any REO Property by the end of any extended period specified in any
such opinion.
Notwithstanding the generality of the foregoing provisions, the
Servicer shall manage, conserve, protect and operate each REO Property for the
Securityholders solely for the purpose of its prompt disposition and sale in a
manner which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or result in the
receipt by the Trust of any "income from non-permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the Servicer shall either itself or
through an agent selected by the Servicer protect and conserve such REO Property
in the same manner and to such extent as is customary in the locality where such
REO Property is located and may, incident to its conservation and protection of
the interests of the Securityholders, rent the same, or any part thereof, as the
Servicer deems to be in the best interest of the Securityholders for the period
prior to the sale of such REO Property. The Servicer shall take into account the
existence of any hazardous substances, hazardous wastes or solid wastes, as such
terms are defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery
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Act of 1976, or other federal, state or local environmental legislation, on a
Mortgaged Property in determining whether to foreclose upon or otherwise
comparably convert the ownership of such Mortgaged Property. The Servicer shall
determine, with respect to each defaulted Mortgage Loan, when it has recovered,
whether through trustee's sale, foreclosure sale or otherwise, all amounts it
expects to recover from or on account of such defaulted Mortgage Loan, whereupon
such Mortgage Loan shall become a Liquidated Mortgage Loan.
If a defaulted Mortgage Loan or REO Property is not so removed from the
Trust Estate, then, upon the final liquidation thereof, if a loss is realized
that is not covered by any applicable form of credit enhancement or other
insurance, the Securityholders will bear such loss. However, if a gain results
from the final liquidation of an REO Property that is not required by law to be
remitted to the related Mortgagor, the Servicer will be entitled to retain such
gain as additional servicing compensation unless the related Prospectus
Supplement provides otherwise. For a description of the Servicer's obligations
to maintain and make claims under applicable forms of credit enhancement and
insurance relating to the Mortgage Loans, see "Description of Credit
Enhancement" and "Hazard Insurance Claims Thereunder--Hazard Insurance
Policies."
SUBORDINATION
A Senior/Subordinate Series of Securities will consist of one or more
classes of Senior Securities and one or more classes of Subordinate Securities,
as specified in the related Prospectus Supplement. Subordination of the
Subordinate Securities of any Senior/Subordinate Series of Securities will be
effected by the following method, unless an alternative method is specified in
the related Prospectus Supplement. In addition, certain classes of Senior (or
Subordinate) Securities may be senior to other classes of Senior (or
Subordinate) Securities, as specified in the related Prospectus Supplement, in
which case the following discussion is qualified in its entirety by reference to
the related Prospectus Supplement with respect to the various priorities and
other rights as among the various classes of Senior Securities or Subordinate
Securities, as the case may be.
With respect to any Senior/Subordinate Series of Securities, the total
amount available for distribution on each Payment Date, as well as the method
for allocating such amount among the various classes of Securities included in
such series, will be as set forth in the related Prospectus Supplement.
Generally, the amount available for distribution will be allocated first to
interest on the Senior Securities of such series, and then to principal of the
Senior Securities up to the amounts determined as specified in the related
Prospectus Supplement, prior to allocation to the Subordinate Securities of such
series.
In the event of any Realized Losses (as defined below) on Mortgage
Loans not in excess of the limitations described below, other than Extraordinary
Losses, the rights of the Subordinate Securityholders to receive distributions
with respect to the Mortgage Loans will be subordinate to the rights of the
Senior Securityholders. With respect to any defaulted Mortgage Loan that becomes
a Liquidated Mortgage Loan, the amount of loss realized, if any (as more fully
described in the related Pooling and Servicing Agreement, a "Realized Loss"),
will equal the portion of the stated principal balance remaining, after
application of all amounts recovered (net of amounts reimbursable to the
Servicer for related advances and expenses) towards interest and principal owing
on the Mortgage Loan. With respect to a Mortgage Loan the principal balance of
which has been reduced in connection with bankruptcy proceedings, the amount of
such reduction will be treated as a Realized Loss.
Except as noted below, all Realized Losses will be allocated to the
Subordinate Securities of the related series, until the Principal Balance (as
defined in the related Prospectus Supplement) of such Subordinate Securities
thereof has been reduced to zero. Any additional Realized Losses will be
allocated to the Senior Securities (or, if such series includes more than one
class of Senior Securities, either on a pro-rata basis among all of the Senior
Securities in proportion to their respective outstanding Principal Balances or
as otherwise provided in the related Prospectus Supplement).
With respect to certain Realized Losses resulting from physical damage
to Mortgaged Properties that are generally of the same type as are covered under
a special hazard insurance policy, the amount thereof that may be allocated to
the Subordinate Securities of the related series may be limited to an amount
(the "Special Hazard Amount") specified in the related Prospectus Supplement.
See "Description of Credit Enhancement--Special Hazard Insurance Policies." If
so, any Special Hazard Losses in excess of the Special Hazard Amount will be
allocated among all outstanding classes of Securities of the related series,
either on a pro-rata basis in proportion to their outstanding Security Principal
Balances, regardless of whether any Subordinate Securities remain outstanding,
or as otherwise provided in the related Prospectus Supplement. The respective
amounts of other specified types of losses (including Fraud Losses and
Bankruptcy Losses) that may be borne solely by the Subordinate Securities may be
similarly limited to an amount (with respect to Fraud Losses, the "Fraud Loss
Amount" and with respect to Bankruptcy Losses, the
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"Bankruptcy Loss Amount"), and the Subordinate Securities may provide no
coverage with respect to certain other specified types of losses, as described
in the related Prospectus Supplement, in which case such losses would be
allocated on a pro-rata basis among all outstanding classes of Securities.
Any allocation of a Realized Loss (including a Special Hazard Loss) to
a Security in a Senior/Subordinate Series will be made by reducing the Principal
Balance thereof as of the Payment Date following the calendar month in which
such Realized Loss was incurred.
In lieu of the foregoing provisions, subordination may be effected in
the following manner, or in any other manner described in the related Prospectus
Supplement. The rights of the holders of Subordinate Securities to receive
any or a specified portion of distributions with respect to the Mortgage Loans
may be subordinated to the extent of the amount set forth in the related
Prospectus Supplement (the "Subordinate Amount"). As specified in the related
Prospectus Supplement, the Subordinate Amount may be subject to reduction based
upon the amount of losses borne by the holders of the Subordinate Securities as
a result of such subordination, a specified schedule or such other method of
reduction as such Prospectus Supplement may specify. If so specified in the
related Prospectus Supplement, additional credit support for this form of
subordination may be provided by the establishment of a reserve fund for the
benefit of the holders of the Senior Securities (which may, if such Prospectus
Supplement so provides, initially be funded by a cash deposit by the Company or
the related Originator) into which certain distributions otherwise allocable to
the holders of the Subordinate Securities may be placed; such funds would
thereafter be available to cure shortfalls in distributions to holders of the
Senior Securities.
DESCRIPTION OF CREDIT ENHANCEMENT
Unless otherwise expressly provided and described in the applicable
Prospectus Supplement, each Series of Securities shall have credit support
comprised of one or more of the following components. Each component will have a
monetary limit and will provide coverage with respect to Realized Losses that
are (i) attributable to the Mortgagor's failure to make any payment of principal
or interest as required under the Mortgage Note, but not including Special
Hazard Losses, Extraordinary Losses or other losses resulting from damage to a
Mortgaged Property, Bankruptcy Losses or Fraud Losses (any such loss, a
"Defaulted Mortgage Loss"); (ii) of a type generally covered by a special hazard
insurance policy (as defined below) (any such loss, a "Special Hazard Loss");
(iii) attributable to certain actions which may be taken by a bankruptcy court
in connection with a Mortgage Loan, including a reduction by a bankruptcy court
of the principal balance of or the Mortgage Rate on a Mortgage Loan or an
extension of its maturity (any such loss, a "Bankruptcy Loss"); and (iv)
incurred on defaulted Mortgage Loans as to which there was fraud in the
origination of such Mortgage Loans (any such loss, a "Fraud Loss"). Losses
occasioned by war, civil insurrection, certain governmental actions, nuclear
reaction and certain other risks ("Extraordinary Losses") will not be covered
unless specified herein. To the extent that the credit enhancement for any
series of Securities is exhausted, the Securityholders will bear all further
risks of loss not otherwise insured against.
As set forth below and in the applicable Prospectus Supplement, credit
enhancement may be provided with respect to one or more classes of a series of
Securities or with respect to the Mortgage Assets in the related Trust. Credit
enhancement may be in the form of (i) the subordination of one or more classes
of Subordinate Securities to provide credit support to one or more classes of
Senior Securities as described under "Subordination," (ii) the use of a mortgage
pool insurance policy, special hazard insurance policy, bankruptcy bond, reserve
fund, letter of credit, financial guaranty insurance policy, other third party
guarantees, another method of credit enhancement described in the related
Prospectus Supplement, or the use of a cross-support feature or
overcollateralization, or (iii) any combination of the foregoing. Any credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the Securities and
interest thereon. If losses occur that exceed the amount covered by credit
enhancement or are not covered by the credit enhancement, holders of one or more
classes of Securities will bear their allocable share of deficiencies. If a form
of credit enhancement applies to several classes of Securities, and if principal
payments equal to the aggregate principal balances of certain classes will be
distributed prior to such distributions to other classes, the classes that
receive such distributions at a later time are more likely to bear any losses
that exceed the amount covered by credit enhancement.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to each series of Securities will
be set forth in the related Prospectus Supplement. To the extent provided in the
applicable Prospectus Supplement and the Pooling and Servicing Agreement, the
credit enhancement arrangements may be periodically modified, reduced and
substituted for based on the aggregate outstanding principal balance of the
Mortgage Loans covered thereby. See "Reduction or Substitution of Credit
Enhancement." If specified in the applicable Prospectus Supplement, credit
enhancement for a series of Securities may cover one or more other series of
Securities.
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The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
Letter of Credit
If any component of credit enhancement as to any series of Securities
is to be provided by a letter of credit (the "Letter of Credit"), a bank (the
"Letter of Credit Bank") will deliver to the Trustee an irrevocable Letter of
Credit. The Letter of Credit may provide direct coverage with respect to the
related Securities or, if specified in the related Prospectus Supplement,
support the Company's or any other person's obligation pursuant to a Purchase
Obligation to make certain payments to the Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
credit enhancement, will be specified in the applicable Prospectus Supplement
and in the related Form 8-K. The Letter of Credit will expire on the expiration
date set forth in the related Prospectus Supplement, unless earlier terminated
or extended in accordance with its terms. On or before each Payment Date, either
the Letter of Credit Bank or the Company (or other obligor under a Purchase
Obligation) will be required to make the payments specified in the related
Prospectus Supplement after notification from the Trustee, to be deposited in
the related Distribution Account, if and to the extent covered, under the
applicable Letter of Credit.
Mortgage Pool Insurance Policies
Any mortgage pool insurance policy ("Mortgage Pool Insurance Policy")
obtained by the Company for each related Trust Estate will be issued by the Pool
Insurer named in the related Prospectus Supplement. Each Mortgage Pool Insurance
Policy will, subject to limitations specified in the related Prospectus
Supplement described below, cover Defaulted Mortgage Losses in an amount equal
to a percentage specified in the related Prospectus Supplement (or in a Current
Report on Form 8-K) of the aggregate principal balance of the Mortgage Loans on
the Cut-Off Date. As set forth under "Maintenance of Credit Enhancement," the
Servicer will use reasonable efforts to maintain the Mortgage Pool Insurance
Policy and to present claims thereunder to the Pool Insurer on behalf of itself,
the Trustee and the Securityholders. The Mortgage Pool Insurance Policies,
however, are not blanket policies against loss (typically, such policies do not
cover Special Hazard Losses, Fraud Losses and Bankruptcy Losses), since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described below due to a
failure to pay irrespective of the reason therefor.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust will be issued by the
insurer named in the related Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described in the related
Prospectus Supplement, protect holders of the related series of Securities from
(i) losses due to direct physical damage to a Mortgaged Property other than any
loss of a type covered by a hazard insurance policy or a flood insurance policy,
if applicable, and (ii) losses from partial damage caused by reason of the
application of the co-insurance clauses contained in hazard insurance policies.
See "Hazard Insurance; Claims Thereunder." A Special Hazard Insurance Policy
will not cover Extraordinary Losses. Aggregate claims under a Special Hazard
Insurance Policy will be limited to a maximum amount of coverage, as set forth
in the related Prospectus Supplement or in a Current Report on Form 8-K. A
Special Hazard Insurance Policy will provide that no claim may be paid unless
hazard and, if applicable, flood insurance on the Mortgaged Property securing
the Mortgage Loan has been kept in force and other protection and preservation
expenses have been paid by the Servicer.
Subject to the foregoing limitations, in general a Special Hazard
Insurance Policy will provide that, where there has been damage to property
securing a foreclosed Mortgage Loan (title to which has been acquired by the
insured) and to the extent such damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained by the Mortgagor or the
Servicer or the Sub-Servicer, the insurer will pay the lesser of (i) the cost of
repair or replacement of such property or (ii) upon transfer of the property to
the insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest at the Mortgage Rate to the date of claim settlement and
certain expenses incurred by the Servicer or the Sub-Servicer with respect to
such property. If the property is transferred to a third party in a sale
approved by the issuer of the Special Hazard Insurance Policy (the "Special
Hazard Insurer"), the amount that the Special Hazard Insurer will pay will be
the amount under (ii) above reduced by the net proceeds of the sale of the
property.
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Bankruptcy Bonds
In the event of a personal bankruptcy of a Mortgagor, it is possible
that the bankruptcy court may establish the value of the Mortgaged Property of
such Mortgagor at an amount less than the then outstanding, principal balance of
the Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt then could be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the value
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including a reduction in the amount of the monthly payment on the
related Mortgage Loan or a reduction in the mortgage interest rate. See "Certain
Legal Aspects of Mortgage Loans and Related Matters--Anti-Deficiency Legislation
and Other Limitations on Lenders." Any bankruptcy bond ("Bankruptcy Bond")
to provide coverage for Bankruptcy Losses for proceedings under the federal
Bankruptcy Code obtained by the Company for a Trust Estate will be issued by an
insurer named in the related Prospectus Supplement. The level of coverage under
each Bankruptcy Bond will be set forth in the applicable Prospectus Supplement
or in a Current Report on Form 8-K.
Reserve Funds
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, amounts otherwise distributable to
Subordinate Securityholders or the owners of any Originator's Retained Yield, or
any other instrument satisfactory to the Rating Agency or Agencies, which will
be applied and maintained in the manner and under the conditions specified in
such Prospectus Supplement. In the alternate or in addition to such deposit to
the extent described in the related Prospectus Supplement, a Reserve Fund may be
funded through application of all or a portion of amounts otherwise payable on
any related Subordinate Securities from the Originator's Retained Yield or
otherwise. In addition, with respect to any series of Securities as to which
credit enhancement includes a Letter of Credit, if so specified in the related
Prospectus Supplement, under certain circumstances the remaining amount of the
Letter of Credit may be drawn by the Trustee and deposited in a Reserve Fund.
Amounts in a Reserve Fund may be distributed to Securityholders, or applied to
reimburse the Servicer for outstanding advances or may be used for other
purposes, in the manner and to the extent specified in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement, any
such Reserve Fund will not be deemed to be part of the related Trust Estate.
Financial Guaranty Insurance Policies
If so specified in the related Prospectus Supplement, a financial
guaranty insurance policy or surety bond ("Financial Guaranty Insurance Policy")
may be obtained and maintained for each class or series of Securities. The
issuer of any Financial Guaranty Insurance Policy (a "Financial Guaranty
Insurer") will be described in the related Prospectus Supplement.
A Financial Guaranty Insurance Policy will unconditionally and
irrevocably guarantee to Securityholders that an amount equal to each full and
complete insured payment will ultimately be received by an agent of the Trustee
(an "Insurance Paying Agent") on behalf of Securityholders, for distribution by
the Trustee to each Securityholder. The "insured payment" will be defined in the
related Prospectus Supplement, and will generally equal the full amount of the
distributions of principal and interest to which Securityholders of one or more
classes are entitled under the related Pooling and Servicing Agreement plus any
other amounts specified therein or in the related Prospectus Supplement (the
"Insured Payment").
The specific terms of any Financial Guaranty Insurance Policy will be
as set forth in the related Prospectus Supplement. Financial Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the obligations of the Originators to
repurchase or substitute for any Mortgage Loans. Financial Guaranty Insurance
Policies generally will not guarantee any specified rate of prepayments or
provide funds to redeem Securities on any specified date.
Subject to the terms of the related Pooling and Servicing Agreement,
the Financial Guaranty Insurer may be subrogated to the rights of each
Securityholder to receive payments under the Securities to the extent of any
payment by such Financial Guaranty Insurer under the related Financial Guaranty
Insurance Policy.
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Other Insurance, Guarantees and Similar Instruments or Agreements
If specified in the related Prospectus Supplement, a Trust may include
in lieu of some or all of the foregoing or in addition thereto third party
guarantees, and other arrangements for maintaining timely payments or providing
additional protection against losses on the assets included in such Trust,
paying administrative expenses, or accomplishing such other purpose as may be
described in the Prospectus Supplement. The Trust may include a guaranteed
investment contract or reinvestment agreement pursuant to which funds held in
one or more accounts will be invested at a specified rate. If any class of
Securities has a floating interest rate, or if any of the Mortgage Assets has a
floating interest rate, the Trust may include an interest rate swap contract, an
interest rate cap agreement or similar contract providing limited protection
against interest rate risks.
Cross-Support
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust may be evidenced by separate
classes of the related series of Securities. In such case, credit support may be
provided by a cross-support feature which requires that distributions with
respect to one class of security be made with excess amounts available from
asset groups within the same Trust which support other classes of Securities.
The Prospectus Supplement for a series that includes a cross-support feature
will describe the manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one
or more forms of credit support may apply concurrently to two or more separate
Trusts. If applicable, the Prospectus Supplement will identify the Trusts to
which such credit support relates and the manner of determining the amount of
the coverage provided thereby and of the application of such coverage to the
identified Trusts.
Overcollateralization
If specified in the Prospectus Supplement, subordination provisions of
a Trust may be used to accelerate to a limited extent the amortization of one or
more classes of Securities relative to the amortization of the related Mortgage
Loans. The accelerated amortization is achieved by the application of certain
excess interest to the payment of principal of one or more classes of
Securities. This acceleration feature creates, with respect to the Mortgage
Loans or groups thereof, overcollateralization which results from the excess of
the aggregate principal balance of the related Mortgage Loans, or a group
thereof, over the principal balance of the related class of Securities. Such
acceleration may continue for the life of the related security or may be
limited. In the case of limited acceleration, once the required level of
overcollateralization is reached, and subject to certain provisions specified in
the related Prospectus Supplement, such limited acceleration feature may cease,
unless necessary to maintain the required level of overcollateralization.
Cross-Collateralization
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust may be evidenced by separate
classes of the related series of Securities. In such case, credit support may be
provided by a cross-support feature that requires that distributions with
respect to one class of security be made with excess amounts available from
asset groups within the same Trust that support other classes of Securities. The
Prospectus Supplement for a series that includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
In addition, as may be described in the related Prospectus Supplement,
a Trust Estate may include the right to receive moneys from a common pool of
credit enhancement that may be available for more than one series of Securities,
such as a master reserve account or a master insurance policy. Notwithstanding
the foregoing, no collections on any Mortgage Loans held by any Trust may be
applied to the payment of Securities issued by any other Trust (except to the
limited extent that certain collections in excess of amounts needed to pay the
related Securities may be deposited in a common, master reserve account that
provides credit enhancement for more that one series of Securities).
Maintenance of Credit Enhancement
To the extent that the applicable Prospectus Supplement does not
expressly provide for credit enhancement arrangements in lieu of some or all of
the arrangements mentioned below, the following paragraphs shall apply.
If a form of credit enhancement has been obtained for a series of
Securities, the Company or the Servicer will be obligated to exercise its best
reasonable efforts to keep or cause to be kept such form of credit support in
full force and effect throughout the term of the applicable Pooling and
Servicing Agreement, unless coverage thereunder has been
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exhausted through payment of claims or otherwise, or substitution therefor is
made as described below under "Reduction or Substitution of Credit Enhancement."
In lieu of the Company's or the Servicer's obligation to maintain a
particular form of credit enhancement, the Company or the Servicer may obtain a
substitute or alternate form of credit enhancement. If the Servicer obtains such
a substitute form of credit enhancement, it will maintain and keep such form of
credit enhancement in full force and effect as provided herein. Prior to its
obtaining any substitute or alternate form of credit enhancement, the Company or
the Servicer, as the case may be, will obtain written confirmation from the
Rating Agency or Agencies that rated the related series of Securities that the
substitution or alternate form of credit enhancement for the existing credit
enhancement will not adversely affect the then current ratings assigned to such
Securities by such Rating Agency or Agencies.
The Servicer, on behalf of itself, the Trustee and Securityholders,
will provide the Trustee information required for the Trustee to draw under a
Letter of Credit or Financial Guaranty Insurance Policy, will present claims to
each Pool Insurer, to the issuer of each Special Hazard Insurance Policy or
other special hazard instrument, to the issuer of each Bankruptcy Bond and will
take such reasonable steps as are necessary to permit recovery under such Letter
of Credit, Financial Guaranty Insurance Policy, Purchase Obligation, insurance
policies or comparable coverage respecting defaulted Mortgage Loans or Mortgage
Loans which are the subject of a bankruptcy proceeding. Additionally, the
Servicer will present such claims and take such steps as are reasonably
necessary to provide for the performance by another party of its Purchase
Obligation. As set forth above, all collections by the Servicer under any
Purchase Obligation, any Mortgage Pool Insurance Policy, or any Bankruptcy Bond
and, where the related property has not been restored, any Special Hazard
Insurance Policy, are to be deposited initially in the Principal and Interest
Account and ultimately in the Distribution Account, subject to withdrawal as
described above. All draws under any Letter of Credit or Financial Guaranty
Insurance Policy will be deposited directly in the Distribution Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any applicable form of Credit
Enhancement, the Servicer is not required to expend its own funds to restore the
damaged property unless it determines (i) that such restoration will increase
the proceeds to one or more classes of Securityholders on liquidation of the
Mortgage Loan after reimbursement of the Servicer for its expenses and (ii) that
such expenses will be recoverable by it through Liquidation Proceeds or
Insurance Proceeds. If recovery under any applicable form of credit enhancement
is not available because the Servicer has been unable to make the above
determinations, has made such determinations incorrectly or recovery is not
available for any other reason, the Servicer is nevertheless obligated to follow
such normal practices and procedures (subject to the preceding sentence) as it
deems necessary or advisable to realize upon the defaulted Mortgage Loan and in
the event such determination has been incorrectly made, is entitled to
reimbursement of its expenses in connection with such restoration.
Reduction or Substitution of Credit Enhancement
The amount of credit support provided pursuant to any of the credit
enhancements (including, without limitation, a Mortgage Pool Insurance Policy,
Financial Guaranty Insurance Policy, Special Hazard Insurance Policy, Bankruptcy
Bond, Letter of Credit or any alterative form of credit enhancement) may be
reduced under certain specified circumstances. In addition, if provided in the
related Prospectus Supplement, any formula used in calculating the amount or
degree of credit enhancement may be changed without the consent of the
Securityholders upon written confirmation from each Rating Agency then rating
the Securities that such change will not adversely affect the then-current
rating or ratings assigned to the Securities. In most cases, the amount
available pursuant to any credit enhancement will be subject to periodic
reduction in accordance with a schedule or formula on a nondiscretionary basis
pursuant to the terms of the related Pooling and Servicing Agreement as the
aggregate outstanding principal balance of the Mortgage Loans declines.
Additionally, in certain cases, such credit support (and any replacements
therefor) may be replaced, reduced or terminated upon the written assurance from
each applicable Rating Agency that the then current rating of the related series
of Securities will not be adversely affected. Furthermore, in the event that the
credit rating of any obligor under any applicable credit enhancement is
downgraded, the credit rating of the related Securities may be downgraded to a
corresponding level, and, neither the Company nor the Servicer thereafter will
be obligated to obtain replacement credit support in order to restore the rating
of the Securities, and also will be permitted to replace such credit support
with other credit enhancement instruments issued by obligors whose credit
ratings are equivalent to such downgraded level and in lower amounts which would
satisfy such downgraded level, provided that the then-current rating of the
related series of Securities is maintained. Where the credit support is in the
form of a Reserve Fund, a permitted reduction in the amount of credit
enhancement will result in a release of all or a portion of the assets in the
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Reserve Fund to the Company, one or more Originators, the Servicer or such other
person that is entitled thereto. Any assets so released will not be available to
fund distribution obligations in future periods.
HAZARD INSURANCE; CLAIMS THEREUNDER
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below). The following is only a brief description of
certain insurance policies and does not purport to summarize or describe all of
the provisions of these policies. Such insurance is subject to underwriting and
approval of individual Mortgage Loans by the respective insurers. The
descriptions of any insurance policies described in this Prospectus or any
Prospectus Supplement and the coverage thereunder do not purport to be complete
and are qualified in their entirety by reference to such forms of policies,
sample copies of which are available from the Servicer upon request.
Hazard Insurance Policies
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for the Mortgage Loan. Additionally, the Pooling and
Servicing Agreement will require the Servicer to cause to be maintained with
respect to each Mortgage Loan a hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage relating to such
Mortgage Loan in an amount not less than the least of (i) the outstanding
principal balance of the Mortgage Loan, (ii) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (iii) the full
insurable value of the premises.
If a Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Servicer will be required
to maintain with respect thereto a flood insurance policy in a form meeting the
requirements of the then-current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for recovery by the Servicer on behalf of the Trust
of insurance proceeds relating to such Mortgage Loan of not less than the least
of (i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis,
(iii) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973. Pursuant to the related Pooling and Servicing Agreement,
the Servicer will be required to indemnify the Trust out of the Servicer's own
funds for any loss to the Trust resulting from the Servicer's failure to
maintain such flood insurance.
In the event that the Servicer obtains and maintains a blanket policy
insuring against fire with extended coverage and against flood hazards on all of
the Mortgage Loans, then, to the extent such policy names the Servicer as loss
payee and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of the Pooling and Servicing Agreement, the Servicer shall be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage under the Pooling and Servicing Agreement. Such
blanket policy may contain a deductible clause, in which case the Servicer will
be required, in the event that there shall not have been maintained on the
related Mortgaged Property a policy complying with the Pooling and Servicing
Agreement, and there shall have been a loss that would have been covered by such
policy, to deposit in the Principal and Interest Account from the Servicer's own
funds the difference, if any, between the amount that would have been payable
under a policy complying with the Pooling and Servicing Agreement and the amount
paid under such blanket policy.
While the Servicer does not actively monitor the maintenance of hazard
or flood insurance by borrowers, it responds to the notices of cancellation or
expiration as joint-loss payee by requiring verification of replacement
coverage.
THE COMPANY
The Company, First Alliance Mortgage Company, was incorporated in the
State of California on May 13, 1975. The Company or its affiliates have been
actively involved in the mortgage lending business since its founding. In July
1996, the Company became a wholly owned subsidiary of First Alliance Corporation
("FACO") pursuant to a reorganization in connection with the initial public
offering of the Class A Common Stock of FACO. The current corporation and all of
its predecessors have been located in Orange County, California.
The Company maintains its principal office at 17305 Von Karman Avenue,
Irvine, California 92614. Its telephone number is (714) 224-8500.
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THE SERVICER
With respect to each series of Securities, the related Mortgage Loans
will be serviced by First Alliance Mortgage Company acting as the Servicer or
such other Servicer as provided for in the related Pooling and Servicing
Agreement. The Prospectus Supplement for each series of Securities will specify
the Servicer for such series. An affiliate of the Company may act as Servicer.
THE MASTER SERVICER
A Master Servicer may be appointed pursuant to a Pooling and Servicing
Agreement and named in the related Prospectus Supplement or Current Report on
Form 8-K.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the Securities--General," each
series of Securities will be issued pursuant to a Pooling and Servicing
Agreement as described in that section. The following summaries describe certain
additional provisions common to each Pooling and Servicing Agreement.
Servicing and Other Compensation and Payment of Expenses; Originator's Retained
Yield
The principal servicing compensation to be paid to the Servicer in
respect of its servicing activities for each series of Securities will be equal
to the percentage per annum specified in the related Prospectus Supplement or
Current Report on Form 8-K of the outstanding principal balance of the Mortgage
Loans, and such compensation will be retained by it from collections of interest
on the Mortgage Loans in the related Trust Estate (after provision has been made
for the payment of interest at the applicable Pass-Through Rate or Net Mortgage
Rate, as the case may be, to Securityholders and for the payment of any
Originator's Retained Yield) at the time such collections are deposited into the
applicable Principal and Interest Account. As compensation for its servicing
duties, the Servicer and/or a Sub-Servicer and any Master Servicer will be
entitled to a monthly servicing fee as set forth in the related Prospectus
Supplement. Certain Sub-Servicers may also receive additional compensation in
the amount of all or a portion of the interest due and payable on the applicable
Mortgage Loan which is over and above the interest rate specified at the time
the Company committed to purchase the Mortgage Loan. See "Mortgage Loan
Program--Sub-Servicing by Originators." In addition, the Servicer or a
Sub-Servicer will retain all prepayment charges, assumption fees and late
payment charges, to the extent collected from Mortgagors, and any benefit which
may accrue as a result of the investment of funds in the Principal and Interest
Account or the applicable Distribution Account or in a Sub-Servicing Account, as
the case may be.
The Servicer generally will pay or cause to be paid certain ongoing
expenses associated with each Trust Estate and incurred by it in connection with
its responsibilities under the Pooling and Servicing Agreement, including,
without limitation, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Master Servicer, the Trustee, any custodian appointed by
the Trustee, the Security Registrar and any Paying Agent, and payment of
expenses incurred in enforcing the obligations of Sub-Servicers and Originators.
The Servicer may be entitled to reimbursement of expenses incurred in enforcing
the obligations of Sub-Servicers and Originators under certain limited
circumstances. In addition, as indicated in the preceding section, the Servicer
will be entitled to reimbursements for certain expenses incurred by it in
connection with Liquidated Mortgage Loans and in connection with the restoration
of Mortgaged Properties, such right of reimbursement being prior to the rights
of Securityholders to receive any related Liquidation Proceeds (including
Insurance Proceeds).
The Prospectus Supplement for a series of Securities will specify if
there will be any Originator's Retained Yield retained. Any such Originator's
Retained Yield will be a specified portion of the interest payable on each
Mortgage Loan in a Mortgage Pool. Any such Originator's Retained Yield will be
established on a loan-by-loan basis and the amount thereof with respect to each
Mortgage Loan in a Mortgage Pool will be specified on an exhibit to the related
Pooling and Servicing Agreement. Any Originator's Retained Yield in respect of a
Mortgage Loan will represent a specified portion of the interest payable thereon
and will not be part of the related Trust Estate. Any partial recovery of
interest in respect of a Mortgage Loan will be allocated between the owners of
any Originator's Retained Yield and the holders of classes of Securities
entitled to payments of interest as provided in the Prospectus Supplement and
the applicable Pooling and Servicing Agreement.
Evidence as to Compliance
The Servicer will be required to deliver to the Trustee, the Master
Servicer (if applicable), the Rating Agencies and any Credit Enhancer on or
before a specified date of each year, beginning the first such date that is at
least a specified number of months after the Cut-Off Date, an officers'
certificate stating, as to each signer thereof, that (i) a review of the
activities of the Servicer during such preceding calendar year and of
performance under the related Pooling and Servicing Agreement has been made
under such officers' supervision, and (ii) to the best of such officers'
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knowledge, based on such review, the Servicer has fulfilled all its obligations
under the related Pooling and Servicing Agreement for such year, or, if there
has been a default in the fulfillment of any such obligations, specifying each
such default known to such officers and the nature and status thereof including
the steps being taken by the Servicer to remedy such defaults.
On or before the last day of a specified month of each year, beginning
the first such date that is at least a specified number of months after the
Cut-Off Date, the Servicer will be required to cause to be delivered to the
Trustee, the Master Servicer (if applicable), the Rating Agencies and any Credit
Enhancer, if applicable, a letter or letters of a firm of independent,
nationally recognized certified public accountants reasonably acceptable to the
Credit Enhancer, if applicable, stating that such firm has, with respect to the
Servicer's overall servicing operations (i) performed applicable tests in
accordance with the compliance testing procedures as set forth in Appendix 3 of
the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii)
examined such operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers, and in either case stating such
firm's conclusions relating thereto.
Removal and Resignation of the Servicer
Each Pooling and Servicing Agreement provides that the Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or subject to the consent of the Master Servicer or Financial Guaranty
Insurer and the Trustee. No such resignation will become effective until the
Trustee, the Master Servicer or a successor Servicer has assumed the Servicer's
obligations and duties under the Pooling and Servicing Agreement. The Trustee,
the Master Servicer, the Financial Guaranty Insurer or the Securityholders will
have the right, pursuant to the related Pooling and Servicing Agreement, to
remove the Servicer upon the occurrence of any of (a) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer and certain actions by the Servicer
indicating its insolvency or inability to pay its obligations; (b) the failure
of the Servicer to perform any one or more of its material obligations under the
Pooling and Servicing Agreement as to which the Servicer shall continue in
default with respect thereto for a period of sixty (60) days after notice by the
Trustee, the Master Servicer or any Financial Guaranty Insurer of said failure;
(c) the failure of the Servicer to cure any breach of any of its representations
and warranties set forth in the Pooling and Servicing Agreement which materially
and adversely affects the interests of the Securityholders or any Financial
Guaranty Insurer, if applicable, for a period of sixty (60) days after the
Servicer's discovery or receipt of notice thereof; or (d) the failure to deliver
to Trustee any proceeds or required payments.
The Pooling and Servicing Agreement may also provide that a Financial
Guaranty Insurer may remove the Servicer, or the Master Servicer pursuant to
clause (iii) below, upon the occurrence of any of certain events including:
(i) with respect to any Payment Date, if the total available
funds with respect to the Mortgage Loans Group will be less than the
related distribution amount on the class of insured securities in
respect of such Payment Date; provided, however, that the Financial
Guaranty Insurer will have no right to remove the Servicer pursuant to
the provision described in this clause (i) if the Servicer can
demonstrate to the reasonable satisfaction of the Financial Guaranty
Insurer that such event was due to circumstances beyond the control of
the Servicer;
(ii) the failure by the Servicer to make any required
Servicing Advance;
(iii) the failure of the Servicer (or the Master Servicer, if
applicable) to perform one or more of its material obligations under
the Pooling and Servicing Agreement and such failure shall continue for
a period of 30 days; or
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating Interest.
Resignation of the Master Servicer
Each applicable Pooling and Servicing Agreement provides that the
Master Servicer may not resign from its obligations and duties thereunder,
unless such duties and obligations are no longer permissible under applicable
law or the Trustee resigns. No such resignation is acceptable until a successor
Master Servicer assumes such duties and obligations.
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Rights Upon Event of Default
So long as an Event of Default remains unremedied, the Trustee, the
Master Servicer or the Financial Guaranty Insurer (as provided in the related
Pooling and Servicing Agreement) may, by written notification to the Servicer,
terminate all of the rights and obligations of the Servicer under the Pooling
and Servicing Agreement (other than any rights of the Servicer as
Securityholder) covering such Trust Estate and in and to the Mortgage Loans and
the proceeds thereof, whereupon the Master Servicer, if designated in the
related Pooling and Servicing Agreement, the Trustee or, with the Financial
Guaranty Insurer's consent, its designee will succeed to all responsibilities,
duties and liabilities of the Servicer under such Pooling and Servicing
Agreement (other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Master Servicer and Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint, or petition a
court of competent jurisdiction for the appointment of, a FNMA-or FHLMC-approved
mortgage servicing institution with a net worth of at least $5,000,000 to act as
successor to the Servicer under the Pooling and Servicing Agreement (unless
otherwise set forth in the Pooling and Servicing Agreement). Pending such
appointment, the Master Servicer is obligated to act in such capacity.
Amendment
Each Pooling and Servicing Agreement may be amended by the Company, the
Servicer, the Master Servicer and the Trustee, with the prior approval of a
Financial Guaranty Insurer, if required, but without giving notice or the
consent of any of the holders of Securities covered by such Pooling and
Servicing Agreement, (i) to cure an ambiguity, (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein,
(iii) to change the timing and/or nature of deposits in the Principal and
Interest Account or the Distribution Account or to change the name in which the
Principal and Interest Account is maintained to that of the Servicer alone;
provided that (a) the Remittance Date would in no event be later than the
related Payment Date, (b) such change would not adversely affect in any material
respect the interests of any Securityholder, as evidenced by an opinion of
counsel, and (c) such change would not adversely affect the then-current rating
of any rated classes of Securities, as evidenced by a letter from each
applicable Rating Agency, (iv) if a REMIC election has been made with respect to
the related Trust Estate, to modify, eliminate or add to any of its provisions
(A) to such extent as shall be necessary to maintain the qualification of the
Trust Estate as a REMIC or to avoid or minimize the risk of imposition of any
tax on the related Trust Estate, provided that the Trustee has received an
Opinion of Counsel to the effect that (1) such action is necessary or desirable
to maintain such qualifications or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any
holder of Securities covered by the Pooling and Servicing Agreement, or (B) to
restrict the transfer of the REMIC Residual Securities, provided that the
Company has determined that the then-current ratings of the classes of the
Securities that have been rated will not be adversely affected, as evidenced by
a letter from each applicable Rating Agency, and that any such amendment will
not give rise to any tax with respect to the transfer of the REMIC Residual
Securities to a non-permitted transferee, (v) to make any other provisions with
respect to matters or questions arising under such Pooling and Servicing
Agreement which are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Securityholder or (vi) to make any changes required by law.
The Pooling and Servicing Agreement may also be amended by the Company,
the Servicer, the Master Servicer and the Trustee with the consent of the
holders of Securities of each class affected thereby evidencing, in each case,
not less than 51% of the aggregate Percentage Interests constituting such class
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Pooling and Servicing Agreement or of
modifying in any manner the rights of the holders of Securities covered by such
Pooling and Servicing Agreement, except that no such amendment may (i) reduce in
any manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on a Security of any class without
the consent of the holder of such Security or (ii) reduce the aforesaid
percentage of Securities of any class the holders of which are required to
consent to any such amendment without the consent of the holders of all
Securities of such class covered by such Pooling and Servicing Agreement then
outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Estate, the Trustee will not be entitled to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an Opinion of Counsel to the effect that such amendment or the exercise
of any power granted to the Servicer, the Company or the Trustee in accordance
with such amendment will not result in the imposition of a tax on the related
Trust Estate or cause such Trust Estate to fail to qualify as a REMIC.
Each Pooling and Servicing Agreement may also be amended by the
Trustee, the Servicer, the Company or the Master Servicer at any time and from
time to time, with the prior written approval of a Financial Guaranty Insurer,
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if required, and not less than a majority of the Percentage Interest represented
by each related class of Securities then outstanding, for the purpose of adding
any provisions or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the Securityholders thereunder; provided, however, that no such amendment shall
(a) change in any manner the amount of, or delay the timing of, payments which
are required to be distributed to any Securityholders without the consent of the
holder of such Security or (b) change the aforesaid percentages of Percentage
Interest which are required to consent to any such amendments, without the
consent of the holders of all Securities of the class or classes affected then
outstanding.
Termination; Retirement of Securities
Each Pooling and Servicing Agreement will provide that a Trust will
terminate upon the earlier of (i) the payment to the Securityholders of all
Securities issued by the Trust from amounts other than those available under, if
applicable, a Financial Guaranty Insurance Policy of all amounts required to be
paid to such Securityholders upon the later to occur of (a) the final payment or
other liquidation (or any advance made with respect thereto) of the last
Mortgage Loan in the Trust Estate or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (ii) any
time when a Qualified Liquidation (as defined in the Code) of the Trust Estate
is effected. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death of
the survivor of certain persons named in such Pooling and Servicing Agreement.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Securityholder, and the final distribution will be made only upon
surrender and cancellation of the Securities at an office or agency appointed by
the Trustee that will be specified in the notice of termination. If the
Securityholders are permitted to terminate the trust under the applicable
Pooling and Servicing Agreement, a penalty may be imposed upon the
Securityholders based upon the fee that would be foregone by the Servicer
because of such termination. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Securityholder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency appointed by the Trustee that will be specified in the
notice of termination. If the Securityholders are permitted to terminate the
trust under the applicable Pooling and Servicing Agreement, a penalty may be
imposed upon the Securityholders based upon the fee that would be foregone by
the Servicer because of such termination.
Any purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Securities shall be made at the option
of the Servicer, the Company or, if applicable, the holder of the REMIC Residual
Securities at the price specified in the related Prospectus Supplement. The
exercise of such right will effect earlier than expected retirement of the
Securities of that series, but the right of the Servicer, the Company or, if
applicable, such holder to so purchase is, unless otherwise specified in the
applicable Prospectus Supplement, subject to the aggregate principal balance of
the Mortgage Loans for that series as of any Remittance Date being less than the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans at the Cut-Off Date for that series. The
Prospectus Supplement or Form 8-K for each series of Securities will set forth
the amounts that the holders of such Securities will be entitled to receive upon
such earlier than expected retirement. If a REMIC election has been made, the
termination of the related Trust Estate will be effected in a manner consistent
with applicable federal income tax regulations and its status as a REMIC.
The Trustee
The Trustee under each Pooling and Servicing Agreement will be named in
the related Prospectus Supplement. The commercial bank or trust company serving
as Trustee may have normal banking relationships with the Company and/or its
affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Company will be obligated to appoint a
successor Trustee. The Trustee may also be removed at any time by the holders of
Securities evidencing not less than 51% of the aggregate undivided interests
(or, if so specified in the related Prospectus Supplement, voting rights) in the
related Trust Estate or by the related Financial Guaranty Insurer or Credit
Enhancer, if any. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
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YIELD CONSIDERATIONS
The yield to maturity of a Security will depend on the price paid by
the holder for such Security, the Pass-Through Rate on any such Security
entitled to payments of interest (which Pass-Through Rate may vary if so
specified in the related Prospectus Supplement) and the rate of payment of
principal on such Security (or the rate at which the notional amount thereof is
reduced if such Security is not entitled to payments of principal) and other
factors.
Each month the interest payable on an actuarial type of Mortgage Loan
will be calculated as one-twelfth of the applicable Mortgage Rate multiplied by
the principal balance of such Mortgage Loan outstanding as of a specified day,
usually the first day of the month prior to the month in which the Payment Date
for the related series of Securities occurs, after giving effect to the payment
of principal due on such day, subject to any Deferred Interest. With respect to
date of payment Mortgage Loans, interest is charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note and calculated
based on the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payments. The amount of
such payments with respect to each Mortgage Loan distributed (or accrued in the
case of Deferred Interest or Accrual Securities) either monthly, quarterly or
semi-annually to holders of a class of Securities entitled to payments of
interest will be similarly calculated on the basis of such class specified
percentage of each such payment of interest (or accrual in the case of Accrual
Securities) and will be expressed as a fixed, adjustable or variable
Pass-Through Rate payable on the outstanding principal balance or notional
amount of such Security, calculated as described herein and in the related
Prospectus Supplement. Holders of Strip Securities or a class of Securities
having a fixed Pass-Through Rate that varies based on the weighted average
Mortgage Rate of the underlying Mortgage Loans will be affected by
disproportionate prepayments and repurchases of Mortgage Loans having higher Net
Mortgage Rates or rates applicable to the Strip Securities, as applicable.
The effective yield to maturity to each holder of fixed-rate Securities
entitled to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Security because, while
interest will accrue on each Mortgage Loan from the first day of each month, the
distribution of such interest will be made on the 20th day (or, if such day is
not a business day, the next succeeding business day) of the month (or, in the
case of quarterly-pay Securities, the twentieth day of every third month, or, in
the case of semi-annually-pay Securities, the twentieth day of every sixth
month) following the month of accrual.
A class of Securities may be entitled to payments of interest at a
fixed Pass-Through Rate specified in the related Prospectus Supplement, a
variable Pass-Through Rate or adjustable Pass-Through Rate calculated based on
the weighted average of the Mortgage Rates (net of Servicing Fees and any
Originator's Retained Yield (each, a "Net Mortgage Rate")) of the related
Mortgage Loans for the designated periods preceding the Payment Date if so
specified in the related Prospectus Supplement, or at such other variable rate
as may be specified in the related Prospectus Supplement.
As will be described in the related Prospectus Supplement, the
aggregate payments of interest on a class of Securities, and the yield to
maturity thereon, will be effected by the rate of payment of principal on the
Securities (or the rate of reduction in the notional balance of Securities
entitled only to payments of interest) and, in the case of Securities evidencing
interests in ARM Loans, by changes in the Net Mortgage Rates on the ARM Loans.
See "Maturity and Prepayment Considerations" below. The yield on the Securities
also will be effected by liquidations of Mortgage Loans following Mortgagor
defaults and by purchases of Mortgage Loans required by the Pooling and
Servicing Agreement in the event of breaches of representations made in respect
of such Mortgage Loans by the Company, the Originators, the Servicer and others,
or repurchases due to conversions of ARM Loans to a fixed interest rate. See
"Mortgage Loan Program--Representations by Originators" and "Descriptions of the
Securities--Assignment of Mortgage Loans" above. In general, if a class of
Securities is purchased at initial issuance at a premium and payments of
principal on the related Mortgage Loans occur at a rate faster than anticipated
at the time of purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Conversely, if a class of Securities
is purchased at initial issuance at a discount and payments of principal on the
related Mortgage Loans occur at a rate slower than that assumed at the time of
purchase, the purchaser's actual yield to maturity will be lower than that
originally anticipated. The effect of principal prepayments, liquidations and
purchases on yield will be particularly significant in the case of a series of
Securities having a class entitled to payments of interest only or to payments
of interest that are disproportionately high relative to the principal payments
to which such class is entitled. Such a class will likely be sold at a
substantial premium to its principal balance, if any, and any faster than
anticipated rate of prepayments will adversely affect the yield to holders
thereof. In certain circumstances, rapid prepayments may result in the failure
of such holders to recoup their original investment. In addition, the yield to
maturity on certain other types of classes of Securities, including Accrual
Securities or certain other classes in a series including more than one class
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of Securities, may be relatively more sensitive to the rate of prepayment on the
related Mortgage Loans than other classes of Securities.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. In general, the earlier
a prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, 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 and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Securities
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for the
number of days in the month actually elapsed up to the date of the prepayment,
at a daily rate determined by dividing the Mortgage Rate by 365. The effect of
prepayments in full will be to reduce the amount of interest paid in the next
succeeding month to holders of Securities entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. A partial
prepayment of principal is applied so as to reduce the outstanding principal
balance of the related Mortgage Loan as of the first day of the month in which
such partial prepayment is received. As a result, unless otherwise specified in
the related Prospectus Supplement, the effect of a partial prepayment on a
Mortgage Loan will be to reduce the amount of interest passed through to holders
of Securities on the Payment Date following the receipt of such partial
prepayment by an amount equal to one month's interest at the applicable
Pass-Through Rate or Net Mortgage Rate, as the case may be, on the prepaid
amount. With respect to amounts due the Servicer from Sub-Servicers in respect
of partial principal prepayments, see "Description of the Securities--Payment on
Mortgage Loans; Deposits to Distribution Account." Neither full nor partial
principal prepayments are passed through until the month following receipt. See
"Maturity and Prepayment Considerations."
The Mortgage Rates on certain ARM Loans subject to negative
amortization adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the indices applicable at origination and the related Note Margins) the amount
of interest accruing on the principal balance of such Mortgage Loans may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing Mortgage Loans may
become Deferred Interest that will be added to the principal balance thereof and
will bear interest at the applicable Mortgage Rate. The addition of any such
Deferred Interest to the principal balance will lengthen the weighted average
life of the Securities evidencing interests in such Mortgage Loans and may
adversely affect yield to holders thereof depending upon the price at which such
Securities were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce such principal balance, the weighted average life of such Securities
will be reduced and may adversely affect yield to holders thereof depending upon
the price at which such Securities were purchased.
For each Mortgage Pool, if all necessary advances are made, if there is
no unrecoverable loss on any Mortgage Loan and if the related Credit Enhancer is
not in default under its obligations or other credit enhancement has not been
exhausted, the net effect of each distribution respecting interest will be to
pass-through to each holder of a class of Securities entitled to payments of
interest an amount which is equal to one month's interest (or, in the case of
quarterly-pay Securities, three month's interest or, in the case of
semi-annually-pay Securities, six month's interest) at the applicable
Pass-Through Rate on such class' principal balance or notional balance, as
adjusted downward to reflect any decrease in interest caused by any principal
prepayments and the addition of any Deferred Interest to the principal balance
of any Mortgage Loan "Description of the Securities--Principal and Interest on
the Securities."
With respect to certain of the ARM Loans, the Mortgage Rate at
origination may be below the rate that would result if the index and margin
relating thereto were applied at origination. Under the Company's underwriting
standards, the Mortgagor under each Mortgage Loan will be qualified on the basis
of the Mortgage Rate in effect at origination. The repayment of any such
Mortgage Loan may thus be dependent on the ability of the Mortgagor to make
larger level monthly payments following the adjustment of the Mortgage Rate.
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MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Securities will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Generally, all of the Mortgage Loans may be prepaid without penalty in full or
in part at any time. The prepayment experience with respect to the Mortgage
Loans in a Mortgage Pool will affect the maturity, average life and yield of the
related series of Securities.
With respect to Balloon Loans, payment of the Balloon Amount (which,
based on the amortization schedule of such Mortgage Loans, may be a substantial
amount) will generally depend on the Mortgagor's ability to obtain refinancing
of such Mortgage Loan or to sell the Mortgaged Property prior to the maturity of
the Balloon Loan. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required, including,
without limitation, real estate values, the Mortgagor's financial situation,
prevailing mortgage loan interest rates, the Mortgagor's equity in the related
Mortgaged Property, tax laws and prevailing general economic conditions. Neither
the Company, the Servicer, nor any of their affiliates will be obligated to
refinance or repurchase any Mortgage Loan or to sell the Mortgaged Property.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds, affect prepayment experience. Generally all
Mortgage Loans will contain due-on-sale provisions permitting the mortgagee to
accelerate the maturity of the Mortgage Loan upon sale or certain transfers by
the Mortgagor of the underlying Mortgaged Property. Unless the related
Prospectus Supplement indicates otherwise, the Servicer will generally enforce
any due-on-sale clause to the extent it has knowledge of the conveyance or
proposed conveyance of the underlying Mortgaged Property and it is entitled to
do so under applicable law; provided, however, that the Servicer will not take
any action in relation to the enforcement of any due-on-sale provision which
would adversely affect or jeopardize coverage under any applicable insurance
policy. Certain ARM Loans may be assumable under certain conditions if the
proposed transferee of the related Mortgaged Property establishes its ability to
repay the Mortgage Loan and, in the reasonable judgment of the Servicer or the
related Sub-Servicer, the security for the ARM Loan would not be impaired or
might be improved by the assumption. The extent to which ARM Loans are assumed
by purchasers of the Mortgaged Properties rather than prepaid by the related
Mortgagors in connection with the sales of the Mortgaged Properties will affect
the weighted average life of the related series of Securities. See "Description
of the Securities--Collection and Other Servicing Procedures" and "Certain Legal
Aspects of the Mortgage Loans and Related Matters--Enforceability of Certain
Provisions" for a description of certain provisions of the Pooling and Servicing
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any reliable, publicly available statistics
relating to the principal prepayment experience of diverse portfolios of
mortgage loans such as the Mortgage Loans over an extended period of time. All
statistics known to the Company that have been compiled with respect to
prepayment experience on mortgage loans indicates that while some mortgage loans
may remain outstanding until their stated maturities, a substantial number will
be paid prior to their respective stated maturities.
Although the Mortgage Rates on ARM Loans will be subject to periodic
adjustments, such adjustments generally will, (i) not increase or decrease such
Mortgage Rates by more than a fixed percentage amount on each adjustment date,
(ii) not increase such Mortgage Rates over a fixed percentage amount during the
life of any ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with mortgage interest rates) plus the related Note Margin (which
may be different from margins being used at the time for newly originated
adjustable rate mortgage loans). As a result, the Mortgage Rates on the ARM
Loans in a Mortgage Pool at any time may not equal the prevailing rates for
similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of refinancings. There can
be no certainty as to the rate of prepayments on the Mortgage Loans during any
period or over the life of any series of Securities.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of additional Mortgage Loans
during a specified period (rather than used to fund payments of principal to
Securityholders during such period) with the result that the related securities
possess an interest-only period, also commonly referred to as a revolving
period, which will be followed by an amortization period. Any such interest-only
or revolving period may, upon the occurrence of certain events to be described
in the related
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Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that all or
a portion of such collected principal may be retained by the Trustee (and held
in certain temporary investments, including Mortgage Loans) for a specified
period prior to being used to fund payments of principal to Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in the current funding
of principal payments to the related Securityholders and an acceleration of the
amortization of such Securities.
Under certain circumstances, the Servicer, the Company or, if specified
in the related Prospectus Supplement, the holders of the REMIC Residual
Securities or the Credit Enhancer may have the option to purchase the Mortgage
Loans in a Trust Estate. See "The Pooling and Servicing Agreement--Termination;
Retirement of Securities."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state laws (which laws may differ substantially),
the summaries do not purport to be complete nor to reflect the laws of any
particular state nor to encompass the laws of all states in which the Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
General
The Mortgage Loans will be secured by either deeds of trust or
mortgages, depending upon the prevailing practice in the state in which the
Mortgaged Property subject to a Mortgage Loan is located. In California,
Mortgage Loans are secured by deeds of trust. In some states, a mortgage creates
a lien upon the real property encumbered by the mortgage. In other states, the
mortgage conveys legal title to the property to the mortgagee subject to a
condition subsequent (i.e., the payment of the indebtedness secured thereby).
The mortgage is not prior to the lien for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority between
mortgages depends on their terms in some cases or on the terms of separate
subordination or intercreditor agreements, and generally on the order of
recordation of the mortgage in the appropriate recording office. There are two
parties to a mortgage, the mortgagor, who is the borrower and homeowner, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower is the beneficiary;
at origination of a mortgage loan, the borrower executes a separate undertaking
to make payments on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower-homeowner called the
trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by law, the express provisions of the
deed of trust or mortgage, and, in some cases, the directions of the
beneficiary.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale (private sale) under a specific provision in the
deed of trust and state laws which authorize the trustee to sell the property
upon any default by the borrower under the terms of the note or deed of trust.
Beside the non-judicial remedy, a deed of trust may be judicially foreclosed. In
addition to any notice requirements contained in a deed of trust, in some
states, the trustee must record a notice of default and within a certain period
of time send a copy to the borrower trustor and to any person who has recorded a
request for a copy of notice of default and notice of sale. In addition, the
trustee must provide notice in some states to any other individual having an
interest of record in the real property, including any junior lienholders. If
the deed of trust is not reinstated within a specified period, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more local newspapers. In addition, some state laws
require
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that a copy of the notice of sale be posted on the property and sent to
all parties having an interest of record in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale unless there is a great deal of economic incentive for new
purchaser to purchase the subject property at the sale. Rather, it is common for
the lender to purchase the property from the trustee or referee for a credit bid
less than or equal to the unpaid principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expense of foreclosure. Generally,
state law controls the amount of foreclosure costs and expenses, including
attorneys' fees, which may be recovered by a lender. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender will commonly
obtain the services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property and, in some states, the lender may be entitled to a
deficiency judgment. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
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 or other parties are
given a statutory period in which to redeem the property from the foreclosure
sale. In some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The rights
of redemption would defeat the title of any purchaser subsequent to foreclosure
or sale under a deed of trust. 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,
there is no right to redeem property after a Trustee's sale under a deed of
trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states including California, statutes limit the right of the beneficiary
or mortgagee to obtain a deficiency judgment against the borrower following
foreclosure. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale of the real property. In
the case of a Mortgage Loan secured by a property owned by a trust where the
Mortgage Note is executed on behalf of the trust, a deficiency judgment against
the trust following foreclosure or sale under a deed of trust, even if
obtainable under applicable law, may be of little value to the mortgagee or
beneficiary if there are no trust assets against which such deficiency judgment
may be executed. Other statutes require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, in those states permitting
such election, is that lenders will usually proceed against the security first
rather than bringing a personal action against the borrower. Finally, in certain
other states, statutory provisions limit any deficiency judgment against the
former borrower following a
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foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a
monetary default in respect of a mortgage loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet occurred) prior to the filing of the debtor's petition.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction also have indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the residence
and the outstanding balance of the loan.
Certain state courts have imposed general equitable principles upon
judicial foreclosure. These equitable principles are generally designed to
relieve the borrower from the legal effect of the borrower's default under the
related loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes for the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disabilities. In other cases, such courts have limited the right of the lender
to foreclose if the default under the loan is not monetary, such as the borrower
failing to adequately maintain the property or the borrower executing a second
deed of trust affecting the property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include, by example, the federal Truth-in-Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and related statutes and the California Fair Debt
Collection Practices Act. These laws and regulations impose specific statutory
liabilities upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien generally will have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In some states, however, such a lien will not
have priority over prior recorded liens of a deed of trust. In addition, under
federal environmental legislation and under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale or assumes active control over the operation or
management of a property so as to be deemed an "owner" or "operator" of the
property may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a lender (such as a Trust Estate) secured by residential real
property. In the event that title to a Mortgaged Property securing a Mortgage
Loan in a Trust Estate was acquired by the Trust and cleanup costs were incurred
in respect of the Mortgaged Property, the holders of the related series of
Securities might realize a loss if such costs were required to be paid by the
Trust. The Servicer shall take into account the existence of any hazardous
substances, hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act of 1976, or other federal, state or local
environmental legislation, on a Mortgaged Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Property.
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Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, generally all of
the Mortgage Loans contain due-on-sale clauses. These clauses permit the lender
to accelerate the maturity of the loan if the borrower sells, transfers or
conveys the property. The enforceability of these clauses has been the subject
of legislation or litigation in many states including California, and in some
cases the enforceability of these clauses was limited or denied. However, the
Garn-St. Germain Depository Institutions Act of 1982 (the "Garn-St. Germain
Act") preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St. Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, that may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans that may be
outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles generally are designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for 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 judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily prescribed minimum. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
Certain Provisions of California Deeds of Trust
Most institutional lenders in California, including the Company, use a
form of deed of trust that confers on the beneficiary the right both to receive
all proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the deed of trust, in such order as the
beneficiary may determine; provided, however, that California law prohibits the
beneficiary from applying insurance and condemnation proceeds to the
indebtedness secured by the deed of trust unless the beneficiary's security has
been impaired by the casualty or condemnation, and, if such security has been
impaired, permits such proceeds to be so applied only to the extent of such
impairment. Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property is taken by
condemnation, and, as a result thereof, the beneficiary's security is impaired,
the beneficiary under the underlying first deed of trust will have the prior
right to collect any insurance proceeds payable under a hazard insurance policy
and any award of damages in connection with the condemnation and to apply the
same to the indebtedness secured by the first deed of trust. Proceeds in excess
of the amount of indebtedness secured by a first deed of trust will, in most
cases, be applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used by
most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the deed
of trust, to provide and maintain fire insurance on the property, to maintain
and repair the property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to affect the property
or the rights of the beneficiary under the deed of trust. Upon a failure of the
trustor to perform any of these obligations, the beneficiary is given the right
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under the deed of trust to perform the obligation itself, at its election, with
the trustor agreeing to reimburse the beneficiary for any sums expended by the
beneficiary on behalf of the trustor. All sums so expended by the beneficiary
become part of the indebtedness secured by the deed of trust.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
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 or to limit
discount points or other charges.
As indicated above under "Mortgage Loan Program--Representations by
Originators," each Originator of a Mortgage Loan will have represented that such
Mortgage Loan was originated in compliance with then applicable state laws,
including usury laws, in all material respects. However, the Mortgage Rates on
the Mortgage Loans will be subject to applicable usury laws as in effect from
time to time.
Alternative Mortgage Instruments
Alternative mortgage instruments, including ARM Loans and early
ownership mortgage loans, originated by non-federally chartered lenders have
historically been subjected to a variety of restrictions. Such restrictions
differed from state to state, resulting in difficulties in determining whether a
particular alternative mortgage instrument originated by a state-chartered
lender was in compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St. Germain
Act ("Title VIII"). Title VIII provides that: notwithstanding any state law to
the contrary, state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the Comptroller of the
Currency with respect to origination of alternative mortgage instruments by
national banks; state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions; and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alterative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII
provides that any state may reject applicability of the provisions of Title VIII
by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
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 Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor 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 Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
Mortgagors who 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 Mortgagors
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 that may be effected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Securities, and would
not be covered by advances, any Letter of Credit or any other form of credit
enhancement (other than a Financial Guaranty Insurance Policy) provided in
connection with the related series of Securities. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor's period of active duty
status, and, under certain circumstances, during an additional three month
period thereafter. Thus, in the event that the Relief Act or similar legislation
or regulations applies to any Mortgage Loan which goes into default, there
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may be delays in payment and losses on the related Securities in connection
therewith. Any other interest shortfalls, deferrals or forgiveness of payments
on the Mortgage Loans resulting from similar legislation or regulations may
result in delays in payments or losses to Securityholders of the related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is based upon the opinion of Arter & Hadden LLP, special
tax counsel to the Company, with respect to the material federal income tax
consequences to investors of the purchase, ownership and disposition of the
Securities offered hereby. Opinions of counsel are not binding on the IRS,
however, and there is no assurance that the IRS could not challenge successfully
the opinions of counsel. The discussion is based upon laws, regulations, rulings
and decisions now in effect, all of which are subject to change. The discussion
below does not purport to deal with all federal tax consequences applicable to
all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Securities.
The following discussion addresses securities of three general types:
(i) securities ("Grantor Trust Securities") representing interests in a Trust
Estate (a "Grantor Trust Estate") which the Company will covenant not to elect
to have treated as a real estate mortgage investment conduit ("REMIC"),(ii)
securities ("REMIC Securities") representing interests in a Trust Estate, or a
portion thereof, which the Company will covenant to elect to have treated as a
REMIC under sections 860A through 860G of the Internal Revenue Code of 1986, as
amended (the "Code"); and (iii) securities ("Debt Securities") that are intended
to be treated for federal income tax purposes as indebtedness secured by the
underlying Mortgage Loans. This Prospectus does not address the tax treatment of
partnership interests or interests in a FASIT. Such a discussion will be set
forth in the applicable Prospectus Supplement for any Trust issuing Securities
characterized as partnership interests or interests in a FASIT. The Prospectus
Supplement for each Series of Securities will indicate whether a REMIC or FASIT
election (or elections) will be made for the related Trust Estate and, if a
REMIC or FASIT election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC or all "regular interests," "high-yield
interests" or "ownership interest" in a FASIT. For purposes of this discussion,
references to a "Securityholder" or a "Holder" are to the beneficial owner of a
Security.
Grantor Trust Securities
With respect to each Series of Grantor Trust Securities, Arter & Hadden
LLP, special tax counsel to the Company, will deliver its opinion to the Company
that (unless otherwise limited in the applicable Prospectus Supplement) the
related Grantor Trust Estate will be classified as a grantor trust and not as a
partnership or an association taxable as a corporation. Accordingly, each Holder
of a Grantor Trust Security will generally be treated as the owner of an
interest in the Mortgage Loans included in the Grantor Trust Estate.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Estate, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Security." A Grantor Trust Security representing ownership
of all or a portion of the difference between interest paid on the Mortgage
Loans constituting the related Grantor Trust Estate and interest paid to the
Holders of Grantor Trust Fractional Interest Securities issued with respect to
such Grantor Trust Estate will be referred to as a "Grantor Trust Strip
Security."
Special Tax Attributes
Unless otherwise disclosed in an applicable Prospectus Supplement,
Arter & Hadden LLP, special tax counsel to the Company, will deliver its opinion
to the Company that (a) Grantor Trust Fractional Interest Securities will
represent interests in (i) "qualifying real property loans" within the meaning
of section 593(d) of the Code; (ii) "loans . . . secured by an interest in real
property" within the meaning of section 7701(a)(19)(C)(v) of the Code; and (iii)
"obligation[s] (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 (b)
interest on Grantor Trust Fractional Interest Securities will 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. In
addition, the Grantor Trust Strip Securities will be "obligation[s] (including
any participation or certificate of beneficial ownership therein) . . .
principally secured by an interest in real "property" within the meaning of
section 860G(a)(3)(A) of the Code.
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Taxation of Holders of Grantor Trust Securities
Holders of Grantor Trust Fractional Interest Securities generally will
be required to report on their federal income tax returns their respective
shares of the income from the Mortgage Loans (including amounts used to pay
reasonable servicing fees and other expenses but excluding amounts payable to
Holders of any corresponding Grantor Trust Strip Securities) and, subject to the
limitations described below, will be entitled to deduct their shares of any such
reasonable servicing fees and other expenses. If a Holder acquires a Grantor
Trust Fractional Interest Security for an amount that differs from its
outstanding principal amount, the amount includible in income on a Grantor Trust
Fractional Interest Security may differ from the amount of interest
distributable thereon. See "Discount and Premium," below. Individuals holding a
Grantor Trust Fractional Interest Security 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. Further, Holders (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining alternative minimum taxable income.
Holders of Grantor Trust Strip Securities generally will be required to
treat such Securities as "stripped coupons" under section 1286 of the Code.
Accordingly, such a Holder will be required to treat the excess of the total
amount of payments on such a Security over the amount paid for such Security as
original issue discount and to include such discount in income as it accrues
over the life of such Security. See "Discount and Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the in the Holder's
income as it accrues (regardless of the Holder's method of accounting), as
described below under "Discount and Premium." The coupon stripping rules will
not apply, however, if (i) the pass-through rate is no more than 100 basis
points lower than the gross rate of interest payable on the underlying Mortgage
Loans and (ii) the difference between the outstanding principal balance on the
Security and the amount paid for such Security is less than 0.25% of such
principal balance times the weighted average remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security
(equal to the difference between the amount realized on the sale and the
adjusted basis of such Grantor Trust Security) 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 Security will generally 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 of principal.
Grantor Trust Reporting
The Trustee will furnish to each Holder of a Grantor Trust Fractional
Interest Security with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the related Pass-Through Rate. In addition, within a
reasonable time after the end of each calendar year, based on information
provided by the Servicer, the Trustee will furnish to each Holder during such
year such customary factual information as the Servicer deems necessary or
desirable to enable Holders of Grantor Trust Securities to prepare their tax
returns and will furnish comparable information to the Internal Revenue Service
(the "IRS") as and when required to do so by law.
REMIC Securities
If provided in an applicable Prospectus Supplement, an election will be
made to treat a Trust Estate or one or more trusts or segregated pools of assets
therein as one or more REMICs under the Code. Qualification as a REMIC requires
ongoing compliance with certain conditions. A Trust Estate or a portion or
portions thereof as to which one or more REMIC elections will be made will be
referred to as a "REMIC Trust." With respect to each REMIC Trust for which such
an election is made, Arter & Hadden LLP, special tax counsel to the Company,
will deliver its opinion to the Company that (unless otherwise limited in the
applicable Prospectus Supplement), assuming compliance with the Pooling and
Servicing Agreement, the REMIC Trust will be treated as one or more REMICs for
federal income tax purposes. The Securities of each Class will be designated as
"regular interests" in the REMIC Trust except that a separate Class will be
designated as the "residual interest" in the REMIC Trust. The Prospectus
Supplement for each
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Series of Securities will state whether Securities of each Class will constitute
a regular interest (a "Regular Security") or a residual interest (a "Residual
Security").
A REMIC Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances
described below. See "Taxes on a REMIC Trust". Generally, the total income from
the Mortgage Loans in a REMIC Trust will be taxable to the Holders of the
Securities of that Series, as described below.
Special Tax Attributes
Regular and Residual Securities will be "regular or residual interests
in a REMIC" within the meaning of section 7701(a)(19)(C)(xi) of the Code,
"qualifying real property loans" within the meaning of section 593(d) of the
Code and "real estate assets" within the meaning of section 856(c)(5)(A) of the
Code. If at any time during a calendar year less than 95 percent of the assets
of a REMIC Trust consist of "qualified mortgages" (within the meaning of section
860G(a)(3) of the Code) then the portion of the Regular and Residual Securities
that are qualifying assets under those sections during such calendar year may be
limited to the portion of the assets of such REMIC Trust that are qualified
mortgages. Similarly, income on the Regular and Residual Securities will be
treated as "interest on obligations secured by mortgages on real property"
within the meaning of section 856(c)(3)(B) of the Code, subject to the same
limitation as set forth in the preceding sentence. For purposes of applying this
limitation, a REMIC Trust should be treated as owning the assets represented by
the qualified mortgages. The assets of the Trust Estate will include, in
addition to the Mortgage Loans, payments on the Mortgage Loans held pending
distribution on the Regular and Residual Securities and any reinvestment income
thereon. Regular and Residual Securities held by a financial institution to
which section 585, 586 or 593 of the Code applies will be treated as evidences
of indebtedness for purposes of section 582(c)(1) of the Code. Regular
Securities will also be qualified mortgages with respect to other REMICs.
Taxation of Holders of Regular Securities
Except as indicated below in this federal income tax discussion, the
Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Settlement Date") and not as ownership interests in the
REMIC Trust or its assets. Holders of Regular Securities that otherwise report
income under a cash method of accounting will be required to report income with
respect to such Securities under an accrual method. For additional tax
consequences relating to Regular Securities purchased at a discount or with
premium, see "Discount and Premium," below.
Taxation of Holders of Residual Securities
Daily Portions. Except as indicated below, a Holder of a Residual
Security for a REMIC Trust generally will be required to report its daily
portion of the taxable income or net loss of the REMIC Trust for each day during
a calendar quarter that the Holder owned such Residual Security. For this
purpose, the daily portion shall be determined by allocating to each day in the
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC Trust for such quarter and by allocating the amount so allocated among the
Residual Holders (on such day) in accordance with their percentage interests on
such day. Any amount included in the gross income or allowed as a loss of any
Residual Holder by virtue of this paragraph will be treated as ordinary income
or loss.
The requirement that each Holder of a Residual Security report its
daily portion of the taxable income or net loss of the REMIC Trust will continue
until there are no Securities of any Class outstanding, even though the Holder
of the Residual Security may have received full payment of the stated interest
and principal on its Residual Security.
The Trustee will provide to Holders of Residual Securities of each
Series of Securities (i) such information as is necessary to enable them to
prepare their federal income tax returns and (ii) any reports regarding the
Securities of such Series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the Regular Securities
(but not the Residual Securities), even though Regular Securities are for
non-tax purposes evidences of beneficial ownership rather than indebtedness of a
REMIC Trust. Second, market discount or premium equal to the difference between
the total stated principal balances of the qualified mortgages and the basis to
the REMIC Trust
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therein generally will be included in income (in the case of discount) or
deductible (in the case of premium) by the REMIC Trust as it accrues under a
constant yield method, taking into account the Prepayment Assumption. The basis
to a REMIC Trust in the qualified mortgages is the aggregate of the issue prices
of all the Regular and Residual Securities in the REMIC Trust on the Settlement
Date. If, however, a substantial amount of a Class of Regular or Residual
Securities has not been sold to the public, then the fair market value of all
the Regular or Residual Securities in that Class as of the date of the
Prospectus Supplement should be substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "Taxes on a REMIC Trust--Prohibited Transactions"
below) will be taken into account. Fourth, a REMIC Trust generally may not
deduct any item that would not be allowed in calculating the taxable income of a
partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation
on miscellaneous itemized deductions imposed on individuals by section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees. (See, however, "Pass-Through of Servicing and Guaranty Fees to
Individuals" below.) In addition, under the REMIC Regulations, any expenses that
are incurred in connection with the formation of a REMIC Trust and the issuance
of the Regular and Residual Securities are not treated as expenses of the REMIC
Trust for which a deduction is allowed. If the deductions allowed to a REMIC
Trust exceed its gross income for a calendar quarter, such excess will be a net
loss for the REMIC Trust for that calendar quarter. The REMIC Regulations also
provide that any gain or loss to a REMIC Trust from the disposition of any
asset, including a qualified mortgage or "permitted investment" (as defined in
section 86OG(a)(5) of the Code) will be treated as ordinary gain or loss.
A Holder of a Residual Security may be required to recognize taxable
income without being entitled to receive a corresponding amount of cash. This
could occur, for example, if the qualified mortgages are considered to be
purchased by the REMIC Trust at a discount, some or all of the Regular
Securities are issued at a discount, and the discount included as a result of a
prepayment on a Mortgage Loan that is used to pay principal on the Regular
Securities exceeds the REMIC Trust's deduction for unaccrued original issue
discount relating to such Regular Securities. Taxable income may also be greater
in earlier years because interest expense deductions, expressed as a percentage
of the outstanding principal amount of the Regular Securities, may increase over
time as the earlier Classes of Regular Securities are paid, whereas interest
income with respect to any given Mortgage Loan expressed as a percentage of the
outstanding principal amount of that Mortgage Loan, will remain constant over
time.
Basis Rules and Distributions
A Holder of a Residual Security has an initial basis in its Security
equal to the amount paid for such Residual Security. Such basis is increased by
amounts included in the income of the Holder and decreased by distributions and
by any net loss taken into account with respect to such Residual Security. A
distribution on a Residual Security to a Holder is not included in gross income
to the extent it does not exceed such Holder's basis in the Residual Security
(adjusted as described above) and, to the extent it exceeds the adjusted basis
of the Residual Security, shall be treated as gain from the sale of the Residual
Security.
A Holder of a Residual Security is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such
Holder's adjusted basis in its Residual Security as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed 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 Residual Security.
Excess Inclusions. Any excess inclusions with respect to a Residual
Security are subject to certain special tax rules. With respect to a Holder of a
Residual Security, the excess inclusion for any calendar quarter is defined as
the excess (if any) of the daily portions of taxable income over the sum of the
"daily accruals" for each day during such quarter that such Residual Security
was held by such Holder. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the Residual Security at the beginning of the calendar
quarter and 120 percent of the "federal long-term rate" in effect on the
Settlement Date, based on quarterly compounding, and properly adjusted for the
length of such quarter. For this purpose, the adjusted issue price of a Residual
Security as of the beginning of any calendar quarter is equal to the issue price
of the Residual Security, increased by the amount of daily accruals for all
prior quarters and decreased by any distributions made with respect to such
Residual Security before the beginning of such quarter. The issue price of a
Residual Security is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the Residual Securities was
sold. The federal long-term rate is a blend of current yields on Treasury
securities having a maturity of more than nine years, computed and published
monthly by the IRS.
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Any excess inclusions cannot be offset by losses from other activities.
For Holders that are subject to tax only on unrelated business taxable income
(as defined in section 511 of the Code), an excess inclusion of such Holder is
treated as unrelated business taxable income. With respect to variable contracts
(within the meaning of section 817 of the Code), a life insurance company cannot
adjust its reserve to the extent of any excess inclusion, except as provided in
regulations. The REMIC Regulations indicate that if a Holder of a Residual
Security is a member of an affiliated group filing a consolidated income tax
return, the taxable income of the affiliated group cannot be less than the sum
of the excess inclusions attributable to all residual interests in REMICs held
by members of the affiliated group. For a discussion of the effect of excess
inclusions on certain foreign investors that own Residual Securities, see
"Foreign Investors" below.
The Treasury Department also has the authority to issue regulations
that would treat all taxable income of a REMIC Trust as excess inclusions if the
Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
whether the test for "significant value" that is contained in the REMIC
Regulations would be applicable. If no such rule is applicable, excess
inclusions should be calculated as discussed above.
In the case of any Residual Securities that are held by a real estate
investment trust, the aggregate excess inclusions with respect to such Residual
Securities 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
Residual Security as if held directly by such shareholder. Similar rules will
apply in the case of regulated investment companies, common trust funds and
certain cooperatives that hold a Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of
a Residual Security who is an individual will be required to include in income a
share of any servicing and guaranty fees. A deduction for such fees will be
allowed to such Holder only to the extent that such fees, along with certain of
such Holder's other miscellaneous itemized deductions exceed 2 percent of such
Holder's adjusted gross income. In addition, a Holder of a Residual Security may
not be able to deduct any portion of such fees in computing such Holder's
alternative minimum tax liability. A Holder's share of such fees will generally
be determined by (i) allocating the amount of such expenses for each calendar
quarter on a pro rata basis to each day in the calendar quarter, and (ii)
allocating the daily amount among the Holders in proportion to their respective
holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100
percent of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of investment income from
a source other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
with the payments on the qualified mortgages for temporary investment pending
distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax
on a REMIC equal to 100 percent of the value of any property contributed to the
REMIC after the "startup day" (generally the same as the Settlement Date).
Exceptions are provided for cash contributions to a REMIC (i) during the three
month period beginning on the startup day, (ii) made to a qualified reserve fund
by a Holder of a residual interest, (iii) in the nature of a guarantee, (iv)
made to facilitate a qualified liquidation or clean-up call, and (v) as
otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of three years, with
possible extensions. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
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Sales of REMIC Securities
General. Except as provided below, if a Regular or Residual Security is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Security. The adjusted
basis of a Regular Security generally will equal the cost of such Security to
the seller, increased by any original issue discount or market discount included
in the seller's gross income with respect to such Security and reduced by
distributions on such Security previously received by the seller of amounts
included in the stated redemption price at maturity and by any premium that has
reduced the seller's interest income with respect to such Security. See
"Discount and Premium." The adjusted basis of a Residual Security is determined
as described above under "Taxation of Holders of Residual Securities-Basis Rules
and Distributions." Except as provided in the following paragraph or under
section 582(c) of the Code, any such gain or loss will be capital gain or loss,
provided such Security is held as a "capital asset" (generally, property held
for investment) within the meaning of section 1221 of the Code.
Gain from the sale of a Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the Holder of a Regular Security had income accrued
at a rate equal to 110 percent of the "applicable federal rate" (generally, an
average of current yields on Treasury securities) as of the date of purchase
over (ii) the amount actually includible in such Holder's income. In addition,
gain recognized on such a sale by a Holder of a Regular Security who purchased a
such Security at a market discount would also be taxable as ordinary income in
an amount not exceeding the portion of such discount that accrued during the
period such Security was held by such Holder, reduced by any market discount
includible in income under the rules described below under "Discount and
Premium."
If a Holder of a Residual Security sells its Residual Security at a
loss, the loss will not be recognized if, within six months before or after the
sale of the Residual Security, such Holder purchases another residual interest
in any REMIC or any interest in a taxable mortgage pool (as defined in section
7701(i) of the Code) comparable to a residual interest in a REMIC. Such
disallowed loss would be allowed upon the sale of the other residual interest
(or comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While this rule may be modified by Treasury regulations,
no such regulations have yet been published.
Transfers of Residual Securities. Section 860E(e) of the Code imposes a
substantial tax, payable by the transferor (or, if a transfer is through a
broker, nominee, or other middleman as the transferee's agent, payable by that
agent) upon any transfer of a Residual Security to a disqualified organization
and upon a pass-through entity (including regulated investment companies, real
estate investment trusts, common trust funds, partnerships, trusts, estates,
certain cooperatives, and nominees) that owns a Residual Security if such
pass-through entity has a disqualified organization as a record-holder. For
purposes of the preceding sentence, a transfer includes any transfer of record
or beneficial ownership, whether pursuant to a purchase, a default under a
secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(other than certain taxable instrumentalities), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization (other than a farmers' cooperative) that is exempt
from federal income tax, unless such organization is subject to the tax on
unrelated business income. 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 a Residual Security and certain
other provisions that are intended to meet this requirement are described in the
Pooling and Servicing Agreement, and will be discussed more fully in the
applicable Prospectus Supplement relating to the offering of any Residual
Security. In addition, a pass-through entity (including a nominee) that holds a
Residual Security may be subject to additional taxes if a disqualified
organization is a recordholder therein. A transferor of a Residual Security (or
an agent of a transferee of a Residual Security, as the case may be) will be
relieved of such tax liability if (i) the transferee furnishes to the transferor
(or the transferee's agent) an affidavit that the transferee is not a
disqualified organization, and (ii) the transferor (or the transferee's agent)
does not have actual knowledge that the affidavit is false at the time of the
transfer. Similarly, no such tax will be imposed on a pass-through entity for a
period with respect to an interest therein owned by a disqualified organization
if (i) the record-holder of such interest furnishes to the pass-through entity
an affidavit that it is not a disqualified organization, and (ii) during such
period, the pass-through entity has no actual knowledge that the affidavit is
false.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "Foreign Investors -- Grantor
Trust Securities and Regular Securities") will be disregarded for all federal
tax purposes unless no significant purpose of the transfer is to impede the
assessment or collection of tax. A Residual Security would be treated as
constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the
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present value of the expected future distributions on the Residual Security is
no less than the product of the present value of the "anticipated excess
inclusions" with respect to such Security and the highest corporate rate of tax
for the year in which the transfer occurs, and (ii) the transferor reasonably
expects that the transferee will receive distributions from the applicable REMIC
Trust in an amount sufficient to satisfy the liability for income tax on any
"excess inclusions" at or after the time when such liability accrues.
Anticipated excess inclusions are the excess inclusions that are anticipated to
be allocated to each calendar quarter (or portion thereof) following the
transfer of a Residual Security, determined as of the date such Security is
transferred and based on events that have occurred as of that date and on the
Prepayment Assumption. See "Discount and Premium" and "Taxation of Holders of
Residual Securities--Excess Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a Residual Security has "improper knowledge" (i.e., either knew,
or should have known, that the transferee would be unwilling or unable to pay
taxes due on its share of the taxable income of the REMIC Trust). A transferor
is presumed not to have improper knowledge if (i) the transferor conducts, at
the time of a transfer, a reasonable investigation of the financial condition of
the transferee and, as a result of the investigation, the transferor finds that
the transferee has historically paid its debts as they come due and finds no
significant evidence to indicate that the transferee will not continue to pay
its debts as they come due in the future; and (ii) the transferee makes certain
representations to the transferor in the affidavit relating to disqualified
organizations discussed above. Transferors of a Residual Security should consult
with their own tax advisors for further information regarding such transfers.
Reporting and Other Administrative Matters
For purposes of the administrative provisions of the Code, each REMIC
Trust will be treated as a partnership and the Holders of Residual Securities
will be treated as partners. The Trustee will prepare, sign and file federal
income tax returns for each REMIC Trust, which returns are subject to audit by
the IRS. Moreover, within a reasonable time after the end of each calendar year,
the Trustee will furnish to each Holder that received a distribution during such
year a statement setting forth the portions of any such distributions that
constitute interest distributions, original issue discount, and such other
information as is required by Treasury regulations and, with respect to Holders
of Residual Securities in a REMIC Trust, information necessary to compute the
daily portions of the taxable income (or net loss) of such REMIC Trust for each
day during such year. The Trustee will also act as the tax matters partner for
each REMIC Trust, either in its capacity as a Holder of a Residual Security or
in a fiduciary capacity. Each Holder of a Residual Security, by the acceptance
of its Residual Security, agrees that the Trustee will act as its fiduciary in
the performance of any duties required of it in the event that it is the tax
matters partner.
Each Holder of a Residual Security is required to treat items on its
return consistently with the treatment on the return of the REMIC Trust, unless
the Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Trust level. The Trustee does not intend to register any
REMIC Trust as a tax shelter pursuant to section 6111 of the Code.
Termination
In general, no special tax consequences will apply to a Holder of a
Regular Security upon the termination of a REMIC Trust by virtue of the final
payment or liquidation of the last Mortgage Loan remaining in the Trust Estate.
If a Holder of a Residual Security's adjusted basis in its Residual Security at
the time such termination occurs exceeds the amount of cash distributed to such
Holder in liquidation of its interest, although the matter is not entirely free
from doubt, it would appear that the Holder of the Residual Security is entitled
to a loss equal to the amount of such excess.
Debt Securities
General
With respect to each Series of Debt Securities, Arter & Hadden LLP,
special tax counsel to the Company, will deliver its opinion to the Company that
(unless otherwise limited in the applicable Prospectus Supplement) the
Securities will be classified as debt of the Company secured by the related
Mortgage Loans. Since different criteria are used to determine the non-tax
accounting treatment of the issuance of Debt Securities, the Company expects to
treat such transactions, for financial accounting purposes, as a transfer of an
ownership interest in the related Mortgage Loans to the related Trust and not as
the issuance of debt obligations. In this regard, it should be noted that the
IRS has issued a notice stating that, upon examination, it will scrutinize
instruments treated as debt for federal income tax purposes but
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as equity for regulatory, rating agency or financial accounting purposes to
determine if their purported status as debt for federal income tax purposes is
appropriate. Consequently, the Debt Securities will not be treated as ownership
interests in the Mortgage Loans or the Trust. Assuming the Debt Securities are
treated as debt for federal income tax purposes, Holders will be required to
report income received with respect to the Debt Securities in accordance with
their normal method of accounting. For additional tax consequences relating to
Debt Securities purchased at a discount or with premium, see "Discount and
Premium," below.
Special Tax Attributes
As described above, Grantor Trust Securities will possess certain
special tax attributes by virtue of their being ownership interests in the
underlying Mortgage Loans. Similarly, REMIC Securities will possess similar
attributes by virtue of the REMIC provisions of the Code. In general, Debt
Securities will not possess such special tax attributes. Investors to whom such
attributes are important should consult their own tax advisors regarding
investment in Debt Securities.
Sale or Exchange
If a Holder of a Debt Security sells or exchanges such Security, the
Holder will recognize gain or loss equal to the difference, in any, between the
amount received and the Holder's adjusted basis in the Security. The adjusted
basis in the Security generally will equal its initial cost, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Security and reduced by the payments previously
received on the Security, other than payments of qualified stated interest, and
by any amortized premium.
In general (except as described in "Discount and Premium -- Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss.
Discount and Premium
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a Holder's income as it accrues (regardless of
the Holder's regular method of accounting) using a constant yield method; (ii)
market discount is treated as ordinary income and must be included in a Holder's
income as principal payments are made on the Security (or upon a sale of a
Security) and (iii) if a Holder so elects, premium may be amortized over the
life of the Security and offset against inclusions of interest income. These tax
consequences are discussed in greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original
issue discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial amount of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Interest Accrual Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an accrual Security is equal to the sum of
all distributions to be made under such Security. The stated redemption price at
maturity of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Distribution
Date over the interest that accrues for the period from the Settlement Date to
the first Distribution Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25 percent of the stated
redemption price at maturity multiplied by its weighted average life. The
weighted average life of a Security is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity of the amounts determined by multiplying (i) the number of complete
years (rounding down for partial years) from the Settlement Date until the date
on which each such distribution is expected to be made under the assumption that
the Mortgage Loans prepay at the rate specified in the applicable Prospectus
Supplement (the Prepayment Assumption) by (ii) a fraction, the numerator of
which is the amount of such distribution and the denominator of which is the
Security's stated redemption price at maturity. If original issue discount is
treated as zero under this rule, the actual amount of original issue discount
must be allocated to the principal distributions on the
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Security and, when each such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities and applicable
by analogy to Grantor Trust Securities. Investors in Grantor Trust Strip
Securities should be aware that there can be no assurance that the rules
described below will be applied to such Securities. Under these rules (described
in greater detail below), (i) the amount and rate of accrual of original issue
discount on each Series of Securities will be based on (x) the Prepayment
Assumption, and (y) in the case of a Security calling for a variable rate of
interest, an assumption that the value of the index upon which such variable
rate is based remains equal to the value of that rate on the Settlement Date,
and (ii) adjustments will be made in the amount of discount accruing in each
taxable year in which the actual prepayment rate differs from the Prepayment
Assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Company anticipates that the Prepayment Assumption
for each Series of Securities will be consistent with this standard. The Company
makes no representation, however, that the Mortgage Loans for a given Series
will prepay at the rate reflected in the Prepayment Assumption for that Series
or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each Securityholder must include in gross income the sum of the "daily
portions" of original issue discount on its Security for each day during its
taxable year on which it held such Security. For this purpose, in the case of an
original Holder, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." The Trustee
will supply, at the time and in the manner required by the IRS, to
Securityholders, brokers and middlemen information with respect to the original
issue discount accruing on the Securities. Unless otherwise disclosed in the
applicable Prospectus Supplement, the Trustee will report original issue
discount based on accrual periods of one month, each beginning on a payment date
(or, in the case of the first such period, the Settlement Date) and ending on
the day before the next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history to section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Holders of such
Securities should consult their own tax advisors concerning the treatment of
such negative accruals.
A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion
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and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent such distribution does not exceed the aggregate amount of accrued
market discount on such Security not previously included in income. With respect
to Securities that have unaccrued original issue discount, such market discount
must be included in income in addition to any original issue discount. A Holder
that incurs or continues indebtedness to acquire a Security at a market discount
may also be required to defer the deduction of all or a portion of the interest
on such indebtedness until the corresponding amount of market discount is
included in income. In general terms, market discount on a Security may be
treated as accruing either (i) under a constant yield method or (ii) in
proportion to remaining accruals of original issue discount, if any, or if none,
in proportion to remaining distributions of interest on the Security, in any
case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to Holders of Securities information
necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25 percent of the
remaining stated redemption price at maturity of such Security multiplied by its
weighted average remaining life. Weighted average remaining life presumably
would be calculated in a manner similar to weighted average life, taking into
account payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Security (a "Premium Security") at a premium.
Such a purchaser need not include in income any remaining original issue
discount and may elect, under section 171(c)(2) of the Code, to treat such
premium as "amortizable bond premium." If a Holder makes such an election, the
amount of any interest payment that must be included in such Holder's income for
each period ending on a Distribution Date will be reduced by the portion of the
premium allocable to such period based on the Premium Security's yield to
maturity. Under recently issued Treasury regulations, such premium amortization
will be made under principles analogous to those governing the accrual of market
discount (as discussed above under "Market Discount"). If such election is made
by the Holder, the election will also apply to all bonds the interest on which
is not excludible from gross income ("fully taxable bonds") held by the Holder
at the beginning of the first taxable year to which the election applies and to
all such fully taxable bonds thereafter acquired by it, and is irrevocable
without the consent of the IRS. If such an election is not made, (i) such a
Holder must include the full amount of each interest payment in income as it
accrues, and (ii) the premium must be allocated to the principal distributions
on the Premium Security and, when each such distribution is received, a loss
equal to the premium allocated to such distribution will be recognized. Any tax
benefit from the premium not previously recognized will be taken into account in
computing gain or loss upon the sale or disposition of the Premium Security.
Special Election
For any Security acquired on or after April 4, 1994, a Holder may elect
to include in gross income all "interest" that accrues on the Security by using
a constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest as adjusted by any amortizable bond premium or acquisition
premium. A Holder should consult its own tax advisor regarding the time and
manner of making and the scope of the election and the implementation of the
constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31 percent if recipients of
such distributions 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
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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
distributions that is required to supply information but that does not do so in
the proper manner.
Foreign Investors
Grantor Trust Securities and Regular Securities
Distributions made on a Grantor Trust Security or a Regular Security
to, or on behalf of, a Holder that is not a U.S. Person generally will be exempt
from U.S. federal income and withholding taxes. The term "U.S. 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 or trust that is subject to U.S.
federal income tax regardless of the source of its income. This exemption is
applicable provided (a) the Holder is not subject to U.S. tax as a result of a
connection to the United States other than ownership of the Security, (b) the
Holder signs a statement under penalties of perjury that certifies that such
Holder is not a U.S. Person, and provides the name and address of such Holder,
and (c) the last U.S. Person in the chain of payment to the Holder receives such
statement from such Holder or a financial institution holding on its behalf and
does not have actual knowledge that such statement is false. Holders should be
aware that the IRS might take the position that this exemption does not apply to
a Holder that also owns 10 percent or more of the Residual Securities, or to a
Holder that is a "controlled foreign corporation" described in section
881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a Holder of a Residual Security that is a not a
U.S. Person generally will be treated as interest for purposes of applying the
30 percent (or lower treaty rate) withholding tax on income that is not
effectively connected with a U.S. trade or business. Treasury Regulations
clarify that amounts not constituting excess inclusions that are distributed on
a Residual Security to a Holder that is not a U.S. Person generally will be
exempt from U.S. federal income and withholding tax, subject to the same
conditions applicable to distributions on Grantor Trust Securities and Regular
Securities, as described above, but only to the extent that the obligations
directly underlying the REMIC Trust that issued the Residual Security (e.g.,
Mortgage Loans or regular interests in another REMIC) were issued after July 18,
1984. In no case will any portion of REMIC income that constitutes an excess
inclusion be entitled to any exemption from the withholding tax or a reduced
treaty rate for withholding. See "Taxation of Holders of Residual
Securities--Excess Inclusions.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts
("IRAs") described in Section 408 of the Code (collectively, "Tax-Favored
Plans").
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), are not subject to the ERISA requirements discussed
herein. Accordingly, assets of such plans may be invested in Securities without
regard to the ERISA considerations described below, subject to the provisions of
applicable federal and state law. Any such plan that is a Qualified Retirement
Plan 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.
Section 404 of ERISA imposes general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
Plan's investment be made in accordance with the documents governing the Plan.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit a broad
range of transactions involving assets of ERISA Plans and Tax-Favored Plans
(collectively, "Plans") and persons ("Parties in Interest" under ERISA or
"Disqualified Persons" under the Code) who have certain specified relationships
to the Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest (or Disqualified Persons) that participate in a
prohibited transaction may be subject to a penalty (or an excise tax) imposed
pursuant to Section 502(i) of ERISA or Section 4975 of the Code, unless a
statutory or administrative exemption is available.
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Plan Asset Regulations
A Plan's investment in Securities may cause the Mortgage Loans included
in a Mortgage Pool to be deemed Plan assets. The U.S. Department of Labor (the
"DOL") has promulgated regulations (the "DOL Regulations") concerning whether or
not a Plan's assets would be deemed to include an interest in the underlying
assets of an entity (such as a Trust Estate), for purposes of applying the
general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and the Code, when a Plan acquires an "equity
interest" (such as a Security) in such entity. Because of the factual nature of
certain of the rules set forth in the DOL Regulations, an investing Plan's
assets either may be deemed to include an interest in the assets of a Trust
Estate or may be deemed merely to include its interest in the Securities.
Therefore, Plans should not acquire or hold Securities in reliance upon the
availability of any exception under the DOL Regulations.
The prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code may apply to a Trust Estate and cause the Company, the
Servicer, any Sub-Servicer, the Trustee, the obligor under any credit
enhancement mechanism or certain affiliates thereof, to be considered or become
Parties in Interest or Disqualified Persons with respect to an investing Plan.
If so, the acquisition or holding of Securities by or on behalf of the investing
Plan could also give rise to a prohibited transaction under ERISA and the Code,
unless some statutory or administrative exemption is available. Securities
acquired by a Plan would be assets of that Plan. Under the DOL Regulations, the
Trust Estate, including the Mortgage Loans and the other assets held in the
Trust Estate, may also be deemed to be assets of each Plan that acquires
Securities. Special caution should be exercised before the assets of a Plan are
used to acquire a Security in such circumstances, especially if, with respect to
such assets, the Company, the Servicer, any Sub-Servicer, the Trustee, the
obligor under any credit enhancement mechanism or an affiliate thereof either
(i) has investment discretion with respect to the investment of Plan assets; or
(ii) has authority or responsibility to give (or regularly gives) investment
advice with respect to Plan assets for a fee pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets.
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 (in the manner described above),
is a fiduciary of the investing Plan. If the Mortgage Loans were to constitute
Plan assets, then any party exercising management or discretionary control
regarding those assets may be deemed to be a Plan "fiduciary," and thus subject
to the fiduciary requirements of ERISA and the prohibited transaction provisions
of ERISA and Section 4975 of the Code with respect to the investing Plan. In
addition, if the Mortgage Loans were to constitute Plan assets, then the
acquisition or holding of Securities by a Plan, as well as the operation of the
Trust Estate, may constitute or involve a prohibited transaction under ERISA and
the Code.
Prohibited Transaction Class Exemption
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which generally exempts from the prohibited
transaction provisions of Section 406(a) of ERISA, and from the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(A) through (D) of the Code, certain transactions involving
residential mortgage pool investment trusts relating to the purchase, sale and
holding of securities in the initial issuance of Securities and the servicing
and operation of "mortgage pools" (as defined below). PTCE 83-1 permits, subject
to certain general and specific conditions, transactions which might otherwise
be prohibited between Plans and Parties in Interest (or Disqualified Persons)
with respect to those Plans, related to the origination, maintenance and
termination of mortgage pools and the acquisition and holding of certain
mortgage pool pass-through Securities representing interests in such mortgage
pools by Plans, whether or not the Plan's assets would be deemed to include an
ownership interest in the mortgage loans in the mortgage pool. PTCE 83-1 does
not provide an exemption for Subordinate Securities.
PTCE 83-1 defines the term "mortgage pool" as "an investment pool the
corpus of which (1) is held in trust; and (2) consists solely of (a) interest
bearing obligations secured by either first or second mortgages or deeds of
trust on one-to four-family, residential property; (b) property which had
secured obligations and which has been acquired by foreclosure; and (c)
undistributed cash." The Company expects that each pool of Mortgage Loans will
be a "mortgage pool" within the meaning of PTCE 83-1.
PTCE 83-1 defines the term "mortgage pool pass-through certificate" as
a "certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool Company." The Company has been advised by Arter & Hadden
LLP that, for purposes of applying PTCE 83-1, the term "mortgage pool
pass-through certificate" would include (i) Securities representing interests in
a Trust Estate consisting of Mortgage Loans issued in
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a series consisting of only a single class of Securities; and (ii) Senior
Securities representing interests in a Trust Estate consisting of Mortgage Loans
issued in a series in which there is only one class of Senior Securities;
provided that the Securities described in clauses (i) and (ii) evidence the
beneficial ownership of a specified portion of both future interest payments and
future principal payments with respect to the Mortgage Loans.
It is not clear whether all types of Securities that may be offered
hereunder would be "mortgage pass-through certificates" for purposes of applying
PTCE 83-1, including, but not limited to, (a) a class of Securities that
evidences the beneficial ownership of interest payments only or principal
payments only, disproportionate interest and principal payments, or nominal
principal or interest payments, such as the Strip Securities; or (b) Securities
in a series including classes of Securities which differ as to timing,
sequential order, rate or amount of distributions of principal or interest or
both, or as to which distributions of principal or interest or both on any class
may be made upon the occurrence of specified events, in accordance with a
schedule or formula, or on the basis of collections from designated portions of
the Mortgage Pool; or (c) Securities evidencing an interest in a Trust Estate as
to which two or more REMIC elections have been made; or (d) a series including
other types of multiple classes. Accordingly, until further clarification by the
DOL, Plans should not acquire or hold Securities representing interests
described in this paragraph in reliance upon the availability of PTCE 83-1
without first consulting with their counsel regarding the application of PTCE
83-1 to the proposed acquisition and holding of such Securities.
PTCE 83-1 sets forth three general conditions that must be satisfied
for any transaction involving the purchase, sale and holding of "mortgage pool
pass-through certificates" and the servicing and operation of the "mortgage
pool" to be eligible for exemption: (1) the pool trustee must not be an
affiliate of the pool Company; (2) a system of insurance or other protection for
the pooled mortgage loans and property securing such loans, and for indemnifying
securityholders against reductions in pass-through payments due to property
damage or defaults in loan payments in an amount not less than the greater of
one percent of the aggregate principal balance of all covered pooled mortgages,
or the principal balance of the largest covered mortgage, must be maintained;
and (3) the amount of the payment retained by the pool Company together with
other funds inuring to its benefit must be limited to not more than adequate
consideration for forming the mortgage pools plus reasonable compensation for
services provided by the pool Company to the mortgage pool. PTCE 83-1 also
imposes additional specific conditions for certain types of transactions
involving an investing Plan and for situations in which the Parties in Interest
or Disqualified Persons are fiduciaries.
The Prospectus Supplement for a series will set forth whether the
Trustee in respect of that series is affiliated with the Company. If the credit
enhancement mechanism for a series of Securities constitutes a system of
insurance or other protection within the meaning of PTCE 83-1 and is maintained
in an amount not less than the greater of one percent of the aggregate principal
balance of the Mortgage Loans or the principal balance of the largest Mortgage
Loan, then the Company has been advised that the second general condition
referred to above will be satisfied. The Company will not receive total
compensation for forming and providing services to the Mortgage Pools which will
be more than adequate consideration. Each Plan fiduciary responsible for making
the investment decision whether to acquire or hold Securities must make its own
determination as to whether (i) the Securities constitute "mortgage pool
pass-through certificates" for purposes of applying PTCE 83-1, (ii) the second
and third general conditions will be satisfied, and (iii) the specific
conditions, not discussed herein, of PTCE 83-1 have been satisfied.
It should be noted that in promulgating PTCE 83-1 and its predecessor,
the DOL did not have under its consideration interests in pools of the exact
nature described herein. There are other class and individual prohibited
transaction exemptions issued by the DOL that could apply to a Plan's
acquisition or holding of Securities. There can be no assurance that any of
those exemptions will apply with respect to any particular Plan that acquires or
holds Securities or, even if all of the conditions specified therein were
satisfied, that the exemption would apply to all transactions involving the
Trust Estate. The applicable Prospectus Supplement under "ERISA Considerations"
may contain additional information regarding the application of PTCE 83-1, or
other prohibited transaction exemptions that may be available, with respect to
the series offered thereby.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is UBTI within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC
Residual Security held by a Tax Exempt Investor will be considered UBTI and thus
will be subject to federal income tax. See "Certain Federal Income Tax
Consequences--Taxation of Owners of REMIC Residual Securities--Excess
Inclusions."
75
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Consultation With Counsel
Any Plan fiduciary that proposes to cause a Plan to acquire or hold
Securities should consult with its counsel with respect to the potential
applicability of the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code to the proposed
investment and the availability of PTCE 83-1 or any other prohibited transaction
exemption.
LEGAL INVESTMENT MATTERS
Certain classes of Securities offered hereby and by the related
Prospectus Supplement will constitute "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as
they are rated in at least the second highest rating category by any Rating
Agency, and as such may 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, 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 provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase, hold
or invest in "mortgage related securities," or require the sale or other
disposition of such securities, so long as such contractual commitment was made
or such securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
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 Federal Financial Institutions Examination Council has adopted 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 Office of Thrift Supervision. 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 Securities will be treated as high-risk under the Policy
Statement. In addition, although it has not adopted the Policy Statement, 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 Securities. 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 Securities or to purchase any class of
Securities representing more than a specified percentage of the investors
assets. The Company will make no representations as to the proper
characterization of any class of Securities for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Securities under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Securities. 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 Securities of any class constitute legal investments under SMMEA or
are subject to investment, capital or other restrictions, and whether SMMEA has
been overridden in any jurisdiction applicable to such investor.
76
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USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Securities will be applied by the Company to finance the origination or purchase
of, or to repay short-term loans incurred to finance the origination or purchase
of, the Mortgage Loans underlying the Securities or will be used by the Company
for general corporate purposes. The Company expects that it will make additional
sales of securities similar to the Securities from time to time, but the timing
and amount of any such additional offerings will be dependent upon a number of
factors, including the volume of mortgage loans purchased by the Company,
prevailing interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement
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 public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
The Company intends that Securities 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 Securities may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters (which may include affiliates of
the Company);
2. By placements by the Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
In addition, if specified in the related Prospectus Supplement, a
series of Securities may be offered in whole or in part in exchange for the
Mortgage Loans (and other assets, if applicable) that would comprise the
Mortgage Pool in respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. Such underwriters may be
broker-dealers affiliated with the Company whose identities and relationships to
the Company will be as set forth in the related Prospectus Supplement. The
managing underwriter or underwriters with respect to the offer and sale of a
particular series of Securities 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.
In connection with the sale of the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended. The Prospectus Supplement will describe any such compensation
paid by the Company.
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Company and
purchasers of Securities of such series.
The Company anticipates that the Securities offered hereby will be sold
primarily to institutional investors or be placed with individuals by the
Company or an affiliate of the Company. Purchasers of Securities, including
dealers, may, depending on the facts and circumstances of such purchases, be
deemed to be "underwriters" within the meaning
77
<PAGE>
of the Securities Act of 1933, as amended, in connection with reoffers and sales
by them of Securities. Holders of Securities should consult with their legal
advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Arter &
Hadden LLP, Washington, D.C..
FINANCIAL INFORMATION
The Company has determined that its financial statements are not
material to the offering made hereby.
A Prospectus Supplement and the related Form 8-K (which shall be
incorporated by reference to this Registration Statement) may contain the
financial statements of the related Credit Enhancer, if any.
RATING
It is a condition to the issuance of each class of Securities offered
hereby that they shall have been rated in one of the four highest rating
categories by the related Raging Agencies.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by Securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of degree by which such prepayments might
differ from those originally anticipated. As a result, Securityholders might
suffer a lower than anticipated yield and, in addition, holders of stripped
pass-through certificates in extreme cases might fail to recoup their underlying
investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page
<<Table of Authorities will generate here >>Accrual Securities.............. 6
Advance.....................................................................10
Affiliated Originators...................................................... 4
APR.........................................................................20
Approved Guidelines......................................................... 9
ARM Loans...................................................................17
Balloon Amount..............................................................23
Balloon Loans...............................................................14
Bankruptcy Bond.............................................................47
Bankruptcy Loss.............................................................45
Bankruptcy Loss Amount......................................................45
Book-Entry Securities.......................................................33
Bulk Acquisitions........................................................... 9
Bulk Guidelines.............................................................24
Buydown Account.............................................................19
Buydown Agreement...........................................................38
Buydown Funds...............................................................19
Buydown Mortgage Loans......................................................19
Buydown Period..............................................................19
Cede........................................................................12
Certificates................................................................ 5
Closing Date................................................................35
Code........................................................................63
Combined Loan-to-Value Ratio................................................20
Company..................................................................... 1
Company's Guidelines.........................................................9
Compensating Interest.......................................................40
Contract Sub-Servicers......................................................28
Conventional Loans..........................................................18
Credit Enhancer.............................................................18
Cut-Off Date................................................................20
Debt Securities.............................................................12
Defaulted Mortgage Loss.....................................................45
Deferred Interest...........................................................14
Deficient Valuation.........................................................47
Deleted Mortgage Loan.......................................................29
Delinquency Advances........................................................40
Designated Originator.......................................................26
Detailed Description........................................................18
Determination Date..........................................................40
Direct or Indirect Participants.............................................17
Disqualified Persons........................................................74
Distribution Account........................................................37
DOL.........................................................................74
DOL Regulations.............................................................74
DTC.........................................................................12
Due Date....................................................................36
Due Period.................................................................. 7
Eligible Account............................................................37
Equity Securities........................................................... 6
ERISA.......................................................................11
ERISA Plans.................................................................73
Exchange Act................................................................12
Extraordinary Losses........................................................45
FASIT High-Yield Securities.................................................12
FASIT Regular Securities....................................................12
FDIC........................................................................27
FHLMC.......................................................................14
Financial Guaranty Insurance Policy.........................................47
Financial Guaranty Insurer..................................................47
Fixed-Income Securities..................................................... 6
79
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Page
FNMA........................................................................14
Forward Purchase Agreement.................................................. 9
Fraud Loss..................................................................45
Fraud Loss Amount...........................................................45
Funding Period..............................................................10
Garn-St. Germain Act........................................................61
Grantor Trust Estate........................................................63
Grantor Trust Fractional Interest Security..................................63
Grantor Trust Securities....................................................12
Grantor Trust Strip Security................................................63
Indenture................................................................... 5
Indenture Trustee........................................................... 4
Index.......................................................................22
Indirect Participant........................................................33
Insurance Paying Agent......................................................47
Insurance Proceeds..........................................................36
Insured Payment.............................................................47
Interest Rate............................................................... 6
Investment Company Act...................................................... 8
IRAs........................................................................74
IRS.........................................................................64
Issuer...................................................................... 4
Junior Lien Loans...........................................................20
Letter of Credit............................................................46
Letter of Credit Bank.......................................................46
Liquidated Mortgage Loan....................................................15
Liquidation Proceeds........................................................15
Loan Purchase Price.........................................................28
Loan-to-Value Ratio.........................................................18
Master Commitments..........................................................25
Master Servicer............................................................. 4
Modified Loans..............................................................23
Mortgage Asset Schedule.....................................................18
Mortgage Assets.............................................................18
Mortgage Loan Program.......................................................22
Mortgage Loans.............................................................. 1
Mortgage Notes..............................................................21
Mortgage Pool............................................................... 1
Mortgage Pool Insurance Policy..............................................46
Mortgage Rate...............................................................19
Mortgaged Properties........................................................ 9
Mortgages................................................................... 9
Mortgagor...................................................................14
Net Liquidation Proceeds....................................................37
Net Mortgage Rate...........................................................55
Note Margin.................................................................22
Notes....................................................................... 5
Originator's Retained Yield.................................................21
Originators................................................................. 1
Owner Trustee............................................................... 4
Participants................................................................33
Participating Originator....................................................26
Parties in Interest.........................................................74
Partnership Interests.......................................................12
Pass-Through Rate...........................................................39
Paying Agent................................................................39
Payment Dates............................................................... 7
Percentage Interest.........................................................39
Physical Certificates.......................................................33
Physical Securities.........................................................34
Plan........................................................................11
Plans.......................................................................74
Policy Statement............................................................76
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Page
Pool Factor.................................................................41
Pool Insurer................................................................38
Pooling and Servicing Agreement............................................. 5
Pre-Funding Account......................................................... 9
Principal Prepayments.......................................................36
PTCE 83-1...................................................................74
Purchase Obligation.........................................................13
Qualified Replacement Mortgage..............................................29
Qualified Retirement Plans..................................................74
Rating Agencies.............................................................12
REMIC....................................................................... 2
REMIC Regular Securities....................................................12
REMIC Regulations...........................................................65
REMIC Residual Securities...................................................12
REMIC Securities............................................................63
REMIC Trust.................................................................64
REO Property................................................................43
Realized Loss...............................................................44
Record Date................................................................. 7
Regular Security............................................................65
Relief Act..................................................................18
Remittance Date.............................................................37
Remittance Period........................................................... 7
Reserve Fund................................................................47
Residual Security...........................................................65
RTC.........................................................................27
Securities.................................................................. 1
Security Registrar..........................................................33
Securityholders............................................................. 1
Senior Securities...........................................................31
Servicer.................................................................... 1
Servicing Advances..........................................................43
Servicing Agreement......................................................... 5
Settlement Date.............................................................65
Single Family Loans.........................................................21
SMMEA.......................................................................11
Special Hazard Amount.......................................................44
Special Hazard Insurance Policy.............................................46
Special Hazard Insurer......................................................47
Special Hazard Loss.........................................................45
Statistic Calculation Date..................................................20
Strip Securities............................................................31
Sub-Servicer(s)............................................................. 1
Sub-Servicing Account.......................................................36
Sub-Servicing Agreement.....................................................28
Subordinate Amount..........................................................45
Subordinate Securities...................................................... 6
Subsequent Mortgage Loan.................................................... 9
Tax Exempt Investor.........................................................76
Tax-Favored Plans...........................................................74
Title V.....................................................................62
Trust....................................................................... 1
Trust Agreement............................................................. 5
Trust Estate................................................................ 1
Trustee..................................................................... 4
U.S. Person.................................................................73
UCC.........................................................................33
Unaffiliated Originators.................................................... 4
81
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No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it its unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that information herein or therein is correct as of any
time since the date of this Prospectus Supplement or the Prospectus.
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TABLE OF CONTENTS
Prospectus Supplement
Summary................................................. S-
Risk Factors............................................ S-
The Portfolio of Mortgage Loans......................... S-
The Mortgage Loan Pool.................................. S-
Prepayment and Yield Considerations..................... S-
Additional Information.................................. S-
The Originators......................................... S-
The Company............................................. S-
Description of the Offered Certificates................. S-
The Certificate Insurance Policies and the Certificate
Insurer............................................... S-
The Pooling and Servicing Agreement..................... S-
Certain Federal Income Tax Consequences................. S-
ERISA Considerations.................................... S-
Ratings................................................. S-
Legal Investment Considerations......................... S-
Underwriting............................................ S-
Report of Experts....................................... S-
Certain Legal Matters................................... S-
Prospectus
Available Information................................... 2
Incorporation of Certain Documents by Reference......... 3
Summary of Prospectus................................... 4
Risk Factors............................................ 13
The Trusts.............................................. 18
The Mortgage Pools...................................... 21
Mortgage Loan Program................................... 23
Description of the Securities........................... 31
Subordination........................................... 44
Description of Credit Enhancement....................... 45
Hazard Insurance; Claims Thereunder..................... 50
The Company............................................. 50
The Servicer............................................ 51
The Master Servicer..................................... 51
The Pooling and Servicing Agreement..................... 51
Yield Considerations.................................... 55
Maturity and Prepayment Considerations.................. 57
Certain Legal Aspects of Mortgage Loans and Related
Matters............................................... 58
Certain Federal Income Tax Consequences................. 63
ERISA Considerations.................................... 73
Legal Investment Matters................................ 76
Use of Proceeds......................................... 77
Methods of Distribution................................. 77
Legal Matters........................................... 78
Index of Principal Definitions.......................... 78
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Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the related Securities, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. 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.
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[ LOGO ]
Mortgage Loan
Asset Backed Certificates
Series 199__-__
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PROSPECTUS SUPPLEMENT
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_______________, 199__
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates or Notes, other than
underwriting discounts and commissions.*
Filing Fee for Registration Statement......................$295.00
Legal Fees and Expenses*................................... **
Accounting Fees and Expenses*.............................. **
Trustee's Fees and Expenses (including counsel fees)*...... **
Printing and Engraving Fees*............................... **
Blue Sky Fees and Expenses*................................ **
Rating Agency Fees*........................................ **
Financial Guaranty Insurer's Fee*.......................... **
Miscellaneous*............................................. **
Total................................................$
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* Estimated in accordance with Item 511 of Regulation S-K.
** To be filed by Amendment.
Item 15. Indemnification of Directors and Officers.
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Article IX of the By-Laws of First Alliance Mortgage Company provides
that any director, officer or employee of the corporation, and every person who
serves at the written request of the corporation (or at its oral request
subsequently confirmed in writing), as a director, officer, or employee of
another business, whether or not incorporated, in which the corporation owns
capital stock or other proprietary interest, or of which the corporation is a
creditor, may in the discretion of the Board of Directors be indemnified and
held harmless by the corporation from and against any loss, cost, liability or
expense that may be imposed on or incurred by him in connection with or
resulting from any claim, action, suit, or proceeding, civil or criminal, in
which he may become a party or otherwise involved because of his being or having
been a director, officer, or employee of the corporation, or of the other
business in which the corporation may own capital stock or other proprietary
interest, or of which the corporation is a creditor, whether or not he has this
relationship when the loss, cost, liability, or expense was imposed or incurred.
The phrase "loss, cost, liability, or expense" shall include all expenses
incurred in defense of the claim, action, suit, or proceedings and the amounts
of judgments, fines, or penalties levied or rendered against the indemnified
person, provided that no person shall be entitled to indemnity under such
section unless the Board of Directors determines in good faith that such person
is acting in good faith and within what such person reasonably believed to be
the scope of his employment or authority and for the purpose that he reasonably
believed to be in the corporation's or shareholders' best interest. Payments
authorized under
II-i
<PAGE>
such section shall include amounts paid and expenses incurred in settling the
claim, action, suit or proceeding, and expenses incurred in settling the claim,
action, suit, or proceeding, and expenses incurred in settling the claim,
action, suit or proceeding, whether actually begun or threatened. Expenses
incurred with respect to a claim, action, suit or proceeding indemnified against
under such section may be advanced by the corporation before final disposition
of the matter on receipt of an undertaking (satisfactory in form and amount to
the Board of Directors) by or on behalf of the recipient to repay this amount if
it is ultimately determined that he is not entitled to indemnification. This
right of indemnification shall not affect any other rights to which any person
may otherwise be entitled by law or contract.
The form of the Underwriting Agreement, filed as Exhibit 1.1 hereto,
provides that First Alliance Mortgage Company will indemnify and reimburse the
Underwriter(s) and each director, officer and controlling person of the
Underwriter(s) with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement provides that the Underwriter(s) will similarly indemnify
and reimburse First Alliance Mortgage Company and each director, officer and
controlling person of First Alliance Mortgage Company with respect to certain
material misstatements or omissions in the Registration Statement which are
based on certain written information furnished by the Underwriter(s) for use in
connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of
the registrant, First Alliance Mortgage Company has adopted by-laws which permit
the board of directors to purchase and maintain insurance on behalf of the
registrant's agents, including its officers and directors, against any liability
asserted against them in such capacity or arising out of such agents' status as
such, whether or not such registrant would have the power to indemnify them
against such liability under applicable law. First Alliance Mortgage Company has
a general liability policy which insures its agents, including directors and
officers, for general liability exposures.
As permitted by the Employee Retirement Income Security Act of 1974,
First Alliance Mortgage Company has obtained insurance covering all employees
entrusted with fiduciary responsibilities under certain of its employee welfare
or benefit plans. The maximum coverage provided by this policy is an aggregate
of $5,000,000 per year, subject to a maximum $100,000 deductible amount with
respect to each claim.
II-ii
<PAGE>
Item 16. Exhibits.
<TABLE>
<S> <C>
1.1* -- Form of Underwriting Agreement.
3.1* -- Articles of Incorporation of First Alliance Mortgage Company.
3.2* -- Bylaws of First Alliance Mortgage Company.
4.1* -- Form of Pooling and Servicing Agreement.
4.2* -- Form of Indenture.
5.1* -- Opinion of Arter & Hadden LLP regarding the legality of the securities
(Asset Backed Certificates).
5.2* -- Opinion of Arter & Hadden LLP regarding the legality of the securities
(Asset Backed Notes).
8.1* -- Opinion of Arter & Hadden LLP regarding tax matters.
10.1* -- Form of Sale and Servicing Agreement.
10.2* -- Form of Trust Agreement.
23.1* -- Consent of Arter & Hadden LLP (included as part of Exhibit 5.1, 5.2 and 8.1).
24.1* -- Powers of Attorney (included on the signature page of this
Registration Statement).
25.1** -- Form T-1 Statement of Eligibility of the Indenture Trustee.
</TABLE>
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* Filed herewith.
** To be filed by amendment.
II-iii
<PAGE>
Item 17. Undertakings
A. Undertaking pursuant to Rule 415.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the
more recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this 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 is
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;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed or furnished to
the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the 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.
B. Undertaking pursuant to Securities Exchange Act of 1934.
The undersigned 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 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
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
II-iv
<PAGE>
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 for Equity Offerings.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each
purchaser.
D. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities Act of 1933 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 Securities Act of 1933 and will be governed
by the final adjudication of such issue.
E. Undertaking pursuant to Rule 430A.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(l) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
F. Undertaking pursuant to the Trust Indenture Act of 1939.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Indenture Trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act
("Act") in accordance with the rules and regulations prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Act.
[Remainder of Page Intentionally Left Blank]
II-v
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 14th day of
January, 1998.
FIRST ALLIANCE MORTGAGE COMPANY
By: /s/ Mark Mason
---------------------------------------
Name: Mark Mason
Title: Executive Vice President, Chief
Financial Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Mark Mason to
file one or more amendments (including post-effective amendments) to this
Registration Statement, which amendments may make such changes as any of such
persons deems appropriate, and each such person individually and in the capacity
stated below, hereby appoints each of such persons as attorney-in-fact to
execute in his name and on his behalf any such amendments to the Registration
Statement.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Brian Chisick President (Principal Executive Officer) January 14, 1998
- --------------------------- and Director
Brian Chisick
/s/ Mark Mason Executive Vice President, Chief Financial January 14, 1998
- --------------------------- Officer (Principal Financial Officer) and
Mark Mason Director
/s/ Jeffrey Smith Director January 14, 1998
- ---------------------------
Jeffrey Smith
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
- ------ ----------------------- ----------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of First Alliance
Mortgage Company
3.2 Bylaws of First Alliance Mortgage Company
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Indenture
5.1 Opinion of Arter & Hadden LLP regarding the
legality of the securities (Asset-Backed Certificates)
5.2 Opinion of Arter & Hadden LLP regarding the
legality of the securities (Asset-Backed Notes)
8.1 Opinion of Arter & Hadden LLP regarding tax
matters
10.1 Form of Sale and Servicing Agreement
10.2 Form of Trust Agreement
23.1 Consent of Arter & Hadden LLP (included as part
of Exhibit 5.1, 5.2 and 8.1)
24.1 Powers of Attorney (included on signature page)
</TABLE>
Exhbit 1.1
================================================================================
FIRST ALLIANCE MORTGAGE COMPANY
AND
-------------------------------------------,
AS REPRESENTATIVE OF THE SEVERAL UNDERWRITERS
UNDERWRITING AGREEMENT
FOR
FIRST ALLIANCE MORTGAGE LOAN TRUST 199_-_
MORTGAGE LOAN ASSET BACKED CERTIFICATES,
_______% CLASS A-1 FIXED RATE GROUP CERTIFICATES
_______% CLASS A-2 FIXED RATE GROUP CERTIFICATES
CLASS A-3 VARIABLE RATE GROUP CERTIFICATES
___________________ __, 199_
================================================================================
<PAGE>
___________________ __, 199_
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614
As Representative of the Several Underwriters
First Alliance Mortgage Company (the "Company" or the
"Sponsor") hereby confirms its agreement to sell certain mortgage loan asset
backed certificates to ____________________________ and
_____________________________ (collectively, the "Underwriters") as described
herein relating to the First Alliance Mortgage Loan Trust 199_-_ (the "Trust").
____________________________ will act as representative of the Underwriters (in
such capacity, the "Representative"). The certificates, together with certain
subordinate certificates to be issued by the Trust, will evidence in the
aggregate the entire beneficial interest in a trust estate (the "Trust Estate")
consisting of two segregated pools (the "Mortgage Pools") of closed-end mortgage
loans (the "Initial Mortgage Loans") and such amounts as may be held by the
Trustee in the Pre-Funding Account ("Pre-Funding Account"), the Capitalized
Interest Account (the "Capitalized Interest Account") and any other accounts
held by the Trustee for the Trust. The Initial Mortgage Loans shall have, as of
the close of business on ________________ __, 199_ (the "Cut-off Date"), an
aggregate principal balance of $____________. The certificates are to be issued
under a pooling and servicing agreement dated as of ________________ __, 199_
(the "Pooling and Servicing Agreement"), among the Company, in its individual
capacity and in its capacity as servicer (the "Servicer") and
____________________________, in its capacity as trustee (the "Trustee"). On the
Closing Date, approximately $___________ will be deposited in the name of the
Trustee in the Pre-Funding Account from the sale of the Certificates. It is
intended that additional Mortgage Loans satisfying the criteria specified in the
Pooling and Servicing Agreement (the "Subsequent Mortgage Loans") will be
purchased by the Trust for inclusion in both Group I and Group II from the
Company from time to time on or before ________________ __, 199_ from funds on
deposit in the Pre-Funding Account at the time of execution and delivery of each
Subsequent Transfer Agreement ("Subsequent Transfer Agreement"). Funds in the
Capitalized Interest Account will be applied by the Trustee to cover shortfalls
in interest during the Funding Period.
On or prior to the date of issuance of the Certificates, the
Company will obtain two certificate guaranty insurance policies (the "Policies")
issued by _____________________________ (the "Insurer")
<PAGE>
which will unconditionally and irrevocably guarantee to the Trustee for the
benefit of the holders of the Class A-1 Certificates, the Class A-2 Certificates
and the Class A-3 Certificates full and complete payment of all amounts payable
on the Class A-1 Certificates, the Class A-2 Certificates and the Class A-3
Certificates. All capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the form of Pooling and Servicing Agreement
heretofore delivered to the Underwriters.
1. Securities. The certificates will be issued in classes as
follows: (i) a senior class with respect to each Mortgage Loan Group consisting
of the Class A-1 Fixed Rate Group Certificates (the "Class A-1 Certificates"),
the Class A-2 Fixed Rate Group Certificates (the "Class A-2 Certificates") and
the Class A-3 Variable Rate Group Certificates (the "Class A-3 Certificates" and
collectively with the Class A-1 Certificates and the Class A-2 Certificates the
"Class A Certificates") and (ii) a residual class (the "Class R Certificates").
The Class A Certificates and the Class R Certificates are hereinafter referred
to as the "Certificates."
2. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants with, the Underwriters that:
A. The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement (No. _______________) on
Form S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of Mortgage Asset Backed Certificates (issuable in series), which
registration statement, as amended at the date hereof, has become effective.
Such registration statement, as amended to the date of this Agreement, meets the
requirements set forth in Rule 415(a)(1)(vii) under the Act and complies in all
other material respects with such Rule. The Company proposes to file with the
Commission pursuant to Rule 424(b)(5) under the Act a supplement dated
___________________ __, 199_ to the prospectus dated ________________ __, 199_
relating to the Certificates and the method of distribution thereof and has
previously advised the Underwriters of all further information (financial and
other) with respect to the Certificates to be set forth therein. Such
registration statement, including the exhibits thereto, as amended at the date
hereof, is hereinafter called the "Registration Statement"; such prospectus
dated ________________ __, 199_, in the form in which it will be filed with the
Commission pursuant to Rule 424(b)(5) under the Act is hereinafter called the
"Basic Prospectus"; such supplement dated ___________________ __, 199_ to the
Basic Prospectus, in the form in which it will be filed with the Commission
pursuant to Rule 424(b)(5) of the Act, is hereinafter called the "Prospectus
Supplement"; and the Basic Prospectus and the Prospectus Supplement together are
hereinafter called the "Prospectus." The Company will file with the Commission
(I) promptly after receipt from any Underwriter of any Computational Material
(as defined herein) a Form 8-K incorporating such Computational Materials and
(ii) within fifteen days of the issuance of the Certificates a report on Form
8-K setting forth specific information concerning the related Mortgage Loans
(the "8-K").
B. As of the date hereof, when the Registration Statement became
effective, when the Prospectus Supplement is first filed pursuant to Rule
424(b)(5) under the Act, and at the Closing Date, (I) the Registration
Statement, as amended as of any such time, and the Prospectus, as amended or
supplemented as of any such time, will comply in all material respects with the
applicable requirements of the Act and the rules thereunder and (ii) the
Registration Statement, as amended as of any such time, did not and will not
contain any untrue statement of a material fact and did not and will not omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as amended or supplemented
as of any such time, did not and will not contain an untrue statement of a
material fact and did not and will not omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company makes
no representations or warranties as to the information contained in or omitted
from the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with the information
furnished in writing to the Company by or on behalf of any
2
<PAGE>
Underwriter specifically for use in connection with the preparation of the
Registration Statement and the Prospectus.
C. The Company is duly organized, validly existing and in good
standing under the laws of the State of California, has full power and authority
(corporate and other) to own its properties and conduct its business as now
conducted by it, and as described in the Prospectus, and is duly qualified to do
business in each jurisdiction in which it owns or leases real property (to the
extent such qualification is required by applicable law) or in which the conduct
of its business requires such qualification except where the failure to be so
qualified does not involve (I) a material risk to, or a material adverse effect
on, the business, properties, financial position, operations or results of
operations of the Company or (ii) any risk whatsoever as to the enforceability
of any Mortgage Loan.
D. There are no actions, proceedings or investigations pending,
or, to the knowledge of the Company, threatened, before any court, governmental
agency or body or other tribunal (I) asserting the invalidity of this Agreement,
the Certificates, the Insurance Agreement, the Indemnification Agreement dated
___________________ __, 199_ (the "Indemnification Agreement") among the
Company, the Insurer and the Underwriters or of the Pooling and Servicing
Agreement, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement, the
Pooling and Servicing Agreement or any Subsequent Transfer Agreement, (iii)
which may, individually or in the aggregate, materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, this Agreement, the Certificates, the Pooling and Servicing
Agreement or any Subsequent Transfer Agreement, or (iv) which may affect
adversely the federal income tax attributes of the Certificates as described in
the Prospectus.
E. The execution and delivery by the Company of this Agreement,
the Indemnification Agreement, the Insurance Agreement and the Pooling and
Servicing Agreement, the issuance of the Certificates and the transfer and
delivery of the Mortgage Loans to the Trustee by the Company are within the
corporate power of the Company and have been, or will be, prior to the Closing
Date duly authorized by all necessary corporate action on the part of the
Company and the execution and delivery of such instruments, the consummation of
the transactions therein contemplated and compliance with the provisions thereof
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute or any agreement or instrument to
which the Company or any of its affiliates is a party or by which it or any of
them is bound or to which any of the property of the Company or any of its
affiliates is subject, the Company's charter or bylaws, or any order, rule or
regulation of any court, governmental agency or body or other tribunal having
jurisdiction over the Company, any of its affiliates or any of its or their
properties; and no consent, approval, authorization or order of, or filing with,
any court or governmental agency or body or other tribunal is required for the
consummation of the transactions contemplated by this Agreement or the
Prospectus in connection with the issuance and sale of the Certificates by the
Company except pursuant to the Act. Neither the Company nor any of its
affiliates is a party to, bound by or in breach or violation of any indenture or
other agreement or instrument, or subject to or in violation of any statute,
order, rule or regulation of any court, governmental agency or body or other
tribunal having jurisdiction over the Company or any of its affiliates, which
materially and adversely affects, or may in the future materially and adversely
affect, (I) the ability of the Company to perform its obligations under the
Pooling and Servicing Agreement, this Agreement, the Insurance Agreement, the
Indemnification Agreement and any Subsequent Transfer Agreement or (ii) the
business, operations, results of operations, financial position, income,
properties or assets of the Company, taken as a whole.
F. This Agreement and the Indemnification Agreement have been
duly executed and delivered by the Company, and the Pooling and Servicing
Agreement, the Insurance Agreement and any Subsequent Transfer Agreement will be
duly executed and delivered by the Company, and each constitutes and will
constitute the legal, valid and binding obligation of the Company enforceable in
accordance with
3
<PAGE>
their respective terms, except as enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or
other similar laws affecting the enforcement of the rights of creditors and (ii)
general principles of equity, whether enforcement is sought in a proceeding at
law or in equity.
G. The Certificates will conform in all material respects to the
description thereof to be contained in the Prospectus and will be duly and
validly authorized and, when duly and validly executed, authenticated, issued
and delivered in accordance with the Pooling and Servicing Agreement and sold to
the Underwriters as provided herein, will be validly issued and outstanding and
entitled to the benefits of the Pooling and Servicing Agreement.
H. At the Closing Date, the Initial Mortgage Loans will conform
in all material respects to the description thereof contained in the Prospectus
and the representations and warranties contained in this Agreement will be true
and correct in all material respects. The representations and warranties set out
in the Pooling and Servicing Agreement are hereby made to the Underwriters as
though set out herein, and at the dates specified in the Pooling and Servicing
Agreement, and any Subsequent Transfer Agreement, such representations and
warranties were or will be true and correct in all material respects.
I. The transfer of the Initial Mortgage Loans to the Trust at the
Closing Date will be treated by the Company for financial accounting and
reporting purposes as a sale of assets and not as a pledge of assets to secure
debt.
J. The Company possesses all material licenses, certificates,
permits or other authorizations issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by it and as described in the Prospectus and there are no proceedings,
pending or, to the best knowledge of the Company, threatened, relating to the
revocation or modification of any such license, certificate, permit or other
authorization which singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the business,
operations, results of operations, financial position, income, property or
assets of the Company taken as a whole.
K. Any taxes, fees and other governmental charges in connection
with the execution and delivery of this Agreement, the Insurance Agreement, the
Indemnification Agreement, and the Pooling and Servicing Agreement or the
execution and issuance of the Certificates have been or will be paid at or prior
to the Closing Date.
L. There has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company or its subsidiaries, taken as a whole, from ________________ __, 199_ to
the date hereof.
M. This Agreement and the Pooling and Servicing Agreement will
conform in all material respects to the descriptions thereof contained in the
Prospectus.
N. The Company is not aware of (i) any request by the Commission
for any further amendment of the Registration Statement or the Prospectus or for
any additional information, (ii) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose or (iii) any
notification with respect to the suspension of the qualification of the
Certificates for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose.
4
<PAGE>
O. Each assignment of Mortgages required to be prepared pursuant
to the Pooling and Servicing Agreement is based on forms recently utilized by
the Company with respect to mortgaged properties located in the appropriate
jurisdiction and used in the regular course of the Company's business. Based on
the Company's experience with such matters it is reasonable to believe that upon
execution each such assignment will be in recordable form and will be sufficient
to effect the assignment of the Mortgage to which it relates as provided in the
Pooling and Servicing Agreement.
P. The Company is current in all filings under the Securities
Exchange Act and is eligible to use the Registration Statement.
Any certificate signed by any officer of the Company and
delivered to the Representative in connection with the sale of the Certificates
hereunder shall be deemed a representation and warranty as to the matters
covered thereby by the Company to each person to whom the representations and
warranties in this Section 2 are made.
3. Agreements of the Representative. The Representative agrees
with the Company that upon the execution of this Agreement and authorization by
the Representative of the release of the Class A Certificates, the Underwriters
shall offer the Class A Certificates for sale upon the terms and conditions set
forth in the Prospectus as amended or supplemented.
4. Purchase, Sale and Delivery of the Certificates. The Company
hereby agrees, subject to the terms and conditions hereof, to sell the Class A
Certificates to the Underwriters, who, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
hereby agree to purchase the entire aggregate principal amount of the Class A
Certificates in the amounts specified in Schedule A hereto. At the time of
issuance of the Certificates, the Initial Mortgage Loans will be sold by the
Company to the Trust pursuant to the Pooling and Servicing Agreement. The
Subsequent Mortgage Loans will be purchased by the Trust for inclusion in both
Mortgage Loan Groups, from time to time on or before ________________ __, 199_.
The Company will be obligated, under the Pooling and Servicing Agreement, to
service the Mortgage Loans either directly or through sub-servicers.
The Class A Certificates to be purchased by the Underwriters will
be delivered by the Company to the Underwriters (which delivery shall be made
through the facilities of The Depository Trust Company ("DTC")) against payment
of the purchase price therefor, equal to _______% of the aggregate principal
amount of the Class A-1 Certificates, _______% of the aggregate principal amount
of the Class A-2 Certificates, and _______% of the aggregate principal amount of
the Class A-3 Certificates, plus interest accrued at the Class A-1 Pass-Through
Rate on the Class A-1 Certificates and at the Class A-2 Pass-Through Rate on the
Class A-2 Certificates, in both cases from ________________ __, 199_ to, but not
including, the settlement date, by a same day federal funds wire payable to the
order of the Company. No accrued interest will be payable on the Class A-3
Variable Rate Group Certificates, which shall be dated their date of delivery.
The Underwriter's fee shall be ___ basis points of each of the Class A
Certificates.
Settlement shall take place at the offices of Arter & Hadden LLP,
1801 K Street, N.W., Washington, D.C. 20006, at 10:00 a.m. (E.S.T.), on
________________ __, 199_, or at such other time thereafter as the
Representative and the Company determine (such time being herein referred to as
the "Closing Date"). The Class A Certificates will be prepared in definitive
form and in such authorized denominations as the Representative may request,
registered in the name of Cede & Co., as nominee of DTC.
The Company agrees to have the Certificates available for
inspection and review by the Representative in New York City not later than 1:00
p.m. (E.S.T.) on the business day prior to the Closing Date.
5
<PAGE>
5. Covenants of the Company. The Company covenants and agrees
with the Representative that:
A. The Company will promptly advise the Representative and its
counsel (i) when any amendment to the Registration Statement shall have become
effective, (ii) of any request by the Commission for any amendment to the
Registration Statement or the Prospectus or for any additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or threatening of
any proceeding for that purpose and (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Class A
Certificates for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company will not file any amendment to the
Registration Statement or supplement to the Prospectus after the date hereof and
prior to the Closing Date for the Certificates unless the Company has furnished
the Representative and its counsel copies of such amendment or supplement for
their review prior to filing and will not file any such proposed amendment or
supplement to which the Underwriter reasonably objects, unless such filing is
required by law. The Company will use its best efforts to prevent the issuance
of any stop order suspending the effectiveness of the Registration Statement
and, if issued, to obtain as soon as possible the withdrawal thereof.
B. If, at any time during the period in which the Prospectus is
required by law to be delivered, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the rules under the Act, the Company will
promptly prepare and file with the Commission, subject to Paragraph A of this
Section 5, an amendment or supplement that will correct such statement or
omission or an amendment that will effect such compliance and, if such amendment
or supplement is required to be contained in a post-effective amendment to the
Registration Statement, will use its best efforts to cause such amendment of the
Registration Statement to be made effective as soon as possible.
C. The Company will furnish to the Representative, without
charge, executed copies of the Registration Statement (including exhibits
thereto) and, so long as delivery of a Prospectus by the Underwriters or a
dealer may be required by the Act, as many copies of the Prospectus, as amended
or supplemented, and any amendments and supplements thereto as the Underwriters
may reasonably request. The Company will pay the expenses of printing (or
otherwise reproducing) all offering documents relating to the offering of the
Class A Certificates.
D. As soon as practicable, but not later than sixteen months
after the date hereof, the Company will cause the Trust to make generally
available to Certificate Owners of the Trust an earnings statement of the Trust
covering a period of at least 12 months beginning after the effective date of
the Registration Statement which will satisfy the provisions of Section 11(a) of
the Act and, at the option of the Company, will satisfy the requirements of Rule
158 under the Act.
E. During a period of 20 calendar days from the date as of which
this Agreement is executed, neither the Company nor any affiliate of the Company
will, without the Representative's prior written consent (which consent shall
not be unreasonably withheld), enter into any agreement to offer or sell
mortgage loan asset- backed certificates backed by mortgage loans, except
pursuant to this Agreement.
F. So long as any of the Class A Certificates are outstanding,
the Company will cause to be delivered to the Representative (i) all documents
required to be distributed to Certificate Owners of the Trust and (ii) from time
to time, any other information concerning the Trust filed with any government or
regulatory authority that is otherwise publicly available.
6
<PAGE>
G. The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay all expenses
in connection with the transactions contemplated herein, including, but not
limited to, the expenses of printing (or otherwise reproducing) all documents
relating to the offering, the reasonable fees and disbursements of its counsel
and expenses of the Representative incurred in connection with (i) the issuance
and delivery of the Certificates, (ii) preparation of all documents specified in
this Agreement, (iii) any fees and expenses of the Trustee, the Insurer and any
other credit support provider (including legal fees), accounting fees and
disbursements, and (iv) any fees charged by investment rating agencies for
rating the Class A Certificates.
H. The Company agrees that, so long as any of the Class A
Certificates shall be outstanding, it will deliver or cause to be delivered to
the Representative (i) the annual statement as to compliance delivered to the
Trustee pursuant to the Pooling and Servicing Agreement, (ii) the annual
statement of a firm of independent public accountants furnished to the Trustee
pursuant to the Pooling and Servicing Agreement as soon as such statement is
furnished to the Company and (iii) any information required to be delivered by
the Company or the Servicer to prepare the report by the Trustee pursuant to
Section 7.8 of the form of Pooling and Servicing Agreement heretofore delivered
to the Representative.
I. The Company will enter into the Pooling and Servicing
Agreement, the Insurance Agreement, and all related agreements on or prior to
the Closing Date.
J. The Company will endeavor to qualify the Class A Certificates
for sale to the extent necessary under any state securities or Blue Sky laws in
any jurisdictions as may be reasonably requested by the Representative, if any,
and will pay all expenses (including fees and disbursements of counsel) in
connection with such qualification and in connection with the determination of
the eligibility of the Class A Certificates for investment under the laws of
such jurisdictions as the Representative may reasonably designate, if any.
6. Conditions of the Underwriters' Obligation. The obligation of
the Underwriters to purchase and pay for the Class A Certificates as provided
herein and on Schedule A hereto shall be subject to the accuracy as of the date
hereof and the Closing Date (as if made at the Closing Date) of the
representations and warranties of the Company contained herein (including those
representations and warranties set forth in the Pooling and Servicing Agreement
and incorporated herein), to the accuracy of the statements of the Company made
in any certificate or other document delivered pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
A. The Registration Statement shall have become effective no
later than the date hereof, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened, and the Prospectus shall have
been filed pursuant to Rule 424(b).
B. The Representative shall have received the Pooling and
Servicing Agreement and the Class A Certificates in form and substance
satisfactory to the Representative, duly executed by all signatories required
pursuant to the respective terms thereof.
C.1. The Underwriters shall have received the favorable opinion
of the Vice President and General Counsel to the Company, with respect to
the following items, dated the Closing Date, to the effect that:
(a) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of California, and is qualified to do business in
7
<PAGE>
each state necessary to enable it to perform its obligations as
Servicer under the Pooling and Servicing Agreement. The Company
has the requisite power and authority to execute and deliver,
engage in the transactions contemplated by, and perform and
observe the conditions of, this Agreement, the Pooling and
Servicing Agreement, any Subsequent Transfer Agreement, the
Insurance Agreement and the Indemnification Agreement among the
Company, the Insurer and the Underwriters.
(b) This Agreement, the Certificates, the Pooling and
Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement have been duly and validly authorized,
executed and delivered by the Company, all requisite corporate
action having been taken with respect thereto, and each (other
than the Certificates) constitutes the valid, legal and binding
agreement of the Company enforceable against the Company in
accordance with its respective terms.
(c) Neither the transfer of the Initial Mortgage Loans to
the Trust, the issuance or sale of the Certificates nor the
execution, delivery or performance by the Company of the Pooling
and Servicing Agreement, this Agreement, any Subsequent Transfer
Agreement, the Insurance Agreement or the Indemnification
Agreement (A) conflicts or will conflict with or results or will
result in a breach of, or constitutes or will constitute a
default under, (i) any term or provision of the articles of
incorporation or bylaws of the Company; (ii) any term or
provision of any material agreement, contract, instrument or
indenture, to which the Company is a party or is bound; or (iii)
any order, judgment, writ, injunction or decree of any court or
governmental agency or body or other tribunal having jurisdiction
over the Company; or (B) results in, or will result in the
creation or imposition of any lien, charge or encumbrance upon
the Trust Estate or upon the Certificates, except as otherwise
contemplated by the Pooling and Servicing Agreement.
(d) The endorsement and delivery of each Note, and the
preparation, delivery and recording of an Assignment in
recordable form, with respect to each Mortgage (in the absence of
the delivery of the opinions described in Section 3.5(b)(ii)(y)
of the Pooling and Servicing Agreement), as and in the manner
contemplated by the Pooling and Servicing Agreement, is
sufficient fully to transfer to the Trustee for the benefit of
the Owners all right, title and interest of the Company in the
Note and Mortgage, as noteholder and mortgagee or assignee
thereof, and will be sufficient to permit the Trustee to avail
itself of all protection available under applicable law against
the claims of any present or future creditors of the Company and
to prevent any other sale, transfer, assignment, pledge or other
encumbrance of the Mortgage Loans by the Company from being
enforceable.
(e) No consent, approval, authorization or order of,
registration or filing with, or notice to, courts, governmental
agency or body or other tribunal is required under the laws of
the State of California, for the execution, delivery and
performance of the Pooling and Servicing Agreement, the Insurance
Agreement, this Agreement, the Indemnification Agreement or the
offer, issuance, sale or delivery of the Certificates or the
consummation of any other transaction contemplated thereby by the
Company, except such which have been obtained.
(f) There are no actions, proceedings or investigations
pending or, to such counsel's knowledge, threatened against the
Company before any court, governmental agency or body or other
tribunal (i) asserting the invalidity of the Pooling and
Servicing Agreement, the Insurance Agreement, this Agreement, the
Indemnification Agreement or the Certificates, (ii) seeking to
prevent the issuance of the Certificates or the consummation of
any of the
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transactions contemplated by the Pooling and Servicing
Agreement, the Indemnification Agreement, the Insurance Agreement
or this Agreement or (iii) which would materially and adversely
affect the performance by the Company of obligations under, or
the validity or enforceability of, the Pooling and Servicing
Agreement, the Certificates, the Indemnification Agreement, the
Insurance Agreement or this Agreement.
(g) To the best of such counsel's knowledge, the
Registration Statement, the Prospectus Supplement and the
Prospectus do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading
with respect to the statements set forth in the Prospectus under
the caption "Certain Legal Aspects of Mortgage Loans and Related
Matters".
2. The Underwriters shall have received the favorable opinion of
Arter & Hadden LLP, special counsel to the Company, dated the Closing
Date, to the effect that:
(a) The Certificates, assuming due execution and
authentication by the Trustee, and delivery and payment therefor
pursuant to this Agreement are validly issued and outstanding and
are entitled to the benefits of the Pooling and Servicing
Agreement.
(b) No consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental
authority or court is required under federal laws or the laws of
the State of New York, for the execution, delivery and
performance by the Company of the Pooling and Servicing
Agreement, this Agreement, any Subsequent Transfer Agreement, the
Indemnification Agreement, the Insurance Agreement or the offer,
issue, sale or delivery of the Certificates or the consummation
of any other transaction contemplated thereby by the Company,
except such which have been obtained.
(c) Neither the transfer of the Initial Mortgage Loans to
the Trustee, the issuance or sale of the Certificates, nor the
execution, delivery or performance by the Company of the Pooling
and Servicing Agreement, the Insurance Agreement, any Subsequent
Transfer Agreement, the Indemnification Agreement or this
Agreement will (a) conflict with or result in a breach of, or
constitute a default under any law, rule or regulation of the
State of New York or the federal government, or (b) to such
counsel's knowledge, without independent investigation, results
in, or will result in, the creation or imposition of any lien,
charge or encumbrance upon the Trust Estate or upon the
Certificates, except as otherwise contemplated by the Pooling and
Servicing Agreement.
(d) Each Subsequent Transfer Agreement at the time of its
execution and delivery will be sufficient to convey all of the
Company's right, title and interest in the Subsequent Mortgage
Loans to the Trustee and following the consummation of the
transaction contemplated by each Subsequent Transfer Agreement,
the transfer of the Subsequent Mortgage Loans by the Company to
the Trustee will be a sale thereof.
(e) The Registration Statement, the Prospectus and the
Prospectus Supplement (other than the financial and statistical
data included therein, as to which such counsel need express no
opinion), as of the date on which the Registration Statement was
declared effective and as of the date hereof, comply as to form
in all material respects with the requirements of the Act and the
rules and regulations thereunder, and such counsel does not know
of any amendment to the Registration Statement required to be
filed, or of any contracts, indentures or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
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Statement, the Prospectus or the Prospectus Supplement which has
not been filed or described as required.
(f) Neither the qualification of the Pooling and Servicing
Agreement under the Trust Indenture Act of 1939 nor the
registration of the Trust created by such Agreement under the
Investment Company Act of 1940 is presently required.
(g) The statements in the Prospectus set forth under the
captions "DESCRIPTION OF THE SECURITIES" and "THE POOLING AND
SERVICING AGREEMENT" and the statements in the Prospectus
Supplement set forth under the captions "DESCRIPTION OF THE
OFFERED CERTIFICATES" and "THE POOLING AND SERVICING AGREEMENT,"
to the extent such statements purport to summarize certain
provisions of the Certificates or of the Pooling and Servicing
Agreement, are fair and accurate in all material respects.
(h) Except as to any financial or statistical data
contained in the Registration Statement, the statements set forth
in the Prospectus under the caption "DESCRIPTION OF CREDIT
ENHANCEMENT," and in the Prospectus Supplement under the caption
"THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER,"
and any Computational Materials as to which no opinion or belief
need be expressed, to the best of such counsel's knowledge, the
Registration Statement does not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading.
(i) Upon receipt by the Trustee of the related Notes,
endorsed as described in the Pooling and Servicing Agreement, and
the receipt by the Company of the purchase price for the
Certificates and for so long as the Trustee maintains actual
physical possession of such Notes, (I) the Trustee shall be
vested with good and indefeasible title to, and shall be the sole
owner of, and shall obtain all right, title and interest of the
Company in, each Mortgage Loan, (ii) in the event that the sale
of the Mortgage Loans were to be recharacterized as a financing
secured by the Mortgage Loans, the Trustee has a first perfected
security interest in the Mortgage Loans and (iii) the recordation
of the assignments of the Mortgages is not required for the
Trustee to obtain such rights, as against creditors of, and
purported transferees of, the Company.
(j) To the best of the knowledge of such counsel, the
Commission has not issued any stop order suspending the
effectiveness of the Registration Statement or any order directed
to any prospectus relating to the Certificates (including the
Prospectus), and has not initiated or threatened any proceeding
for that purpose.
3. The Underwriters shall have received the favorable opinion of
Arter & Hadden LLP, special tax and bankruptcy counsel to the Company, dated the
Closing Date, to the effect that:
(a) Assuming the REMIC election is made in compliance with
the Pooling and Servicing Agreement, (I) the Trust, exclusive of
the Pre-Funding Account, the Group II Available Funds Cap
Carry-Forward Amount Account and the Capitalized Interest Account
(as defined in the Prospectus Supplement) will qualify as a real
estate mortgage investment conduit ("REMIC") (as defined in the
Internal Revenue Code of 1986, as amended (the "Code")) for
Federal income tax purposes and (ii) each Class of the Offered
Certificates (as defined in the Prospectus Supplement) will be
treated as "regular interests" in the REMIC and the R Class will
be treated as the sole "residual interest" in the REMIC.
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(b) To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending that would
adversely affect the Trust Estate (exclusive of the Pre-Funding
Account, the Group II Available Funds Cap Carry-Forward Amount
Account and the Capitalized Interest Account) as a real estate
mortgage investment conduit ("REMIC") as such term is defined in
the Code.
(c) The statements under the captions "SUMMARY OF
PROSPECTUS -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus and
under the captions "SUMMARY -- FEDERAL INCOME TAX ASPECTS" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus
Supplement as they relate to federal tax matters are true and
correct in all material respects.
(d) As a consequence of the qualification of the Trust
(exclusive of the Pre-Funding Account, the Group II Available
Funds Cap Carry-Forward Amount Account and the Capitalized
Interest Account) as a REMIC, the Class A Certificates will be
treated as "regular . . . interest(s) in a REMIC" under Section
7701(a)(19)(C) of the Code and "real estate assets" under Section
856(c) of the Code in the same proportion that the assets in the
Trust consist of qualifying assets under such Sections. In
addition, as a consequence of the qualification of the Trust
(exclusive of the Pre-Funding Account, the Group II Available
Funds Cap Carry-Forward Amount Account and the Capitalized
Interest Account) as a REMIC, interest on the Class A
Certificates will be treated as "interest on obligations secured
by mortgages on real property" under Section 856(c) of the Code
to the extent that such Class A Certificates are treated as "real
estate assets" under Section 856(c) of the Code.
(e) The Trust will not be subject to tax upon its income
or assets by the taxing authority of New York State or New York
City.
(f) The Trust will not be subject to the California state
income tax. While REMICs are subject to the California state
minimum franchise tax imposed under Article 2, Section 23153 of
the California Revenue and Taxation Code, such counsel does not
express an opinion as to whether the Trust is subject to such
tax.
(g) A court would hold that the conveyance by the Sponsor
of all right, title and interest in the Mortgage Loans to the
Trustee (except for the Sponsor's right, title and interest in
the principal and interest due on such Mortgage Loans on or prior
to the Cut-Off Date), constitutes a sale of the Mortgage Loans
and not a borrowing by the Sponsor secured by the pledge of the
Mortgage Loans. A court would find that, following such
conveyance, the Mortgage Loans and proceeds thereof (net of
payments of principal and interest due on such Mortgage Loans on
or prior to the Cut-Off Date) are not property of the estate of
the Sponsor within the meaning of Section 541 of the Bankruptcy
Code, and, further that the Trustee's rights with respect to the
Mortgage Loans and the proceeds thereof would not subject it to
the automatic stay provisions of Section 362 of the Bankruptcy
Code. Since the conveyance of the Mortgage Loans (net of payments
of scheduled principal due and interest accrued on or prior to
the Cut-Off Date) constitutes a sale of said Mortgage Loans then
the payments thereunder (net of payments of scheduled principal
due on and interest accrued on or prior to the Cut-Off Date) are
not property of the estate of the Sponsor and the distributions
of such payments by the Trustee to the Owners of the Certificates
are not preferential payments made by, for, or on behalf of the
Sponsor under the provisions of Section 547 of the Bankruptcy
Code.
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(h) If a court characterized the transfer of the Mortgage
Loans to the Trustee as a pledge of collateral rather than an
absolute sale or assignment, with respect to the Mortgage Loans
and other property included in the Trust on the date hereof, to
the extent governed by the laws of the State of New York, a valid
security interest has been created in favor of the Trustee, which
security interest of the Trustee will be perfected and will
constitute a first perfected security interest, with respect to
the Sponsor's right, title and interest in and to the Notes, upon
endorsement and delivery thereof to the Trustee. With respect to
the security interest of the Trustee in the Notes, New York law
would govern.
4. The Underwriters shall have received the favorable opinion of
_________________ ____________, special counsel to the Underwriters, dated
the Closing Date, to the effect that:
(a) The Certificates, assuming due execution and
authentication by the Trustee, and delivery and payment therefor
pursuant to this Agreement, are validly issued and outstanding
and are entitled to the benefits of the Pooling and Servicing
Agreement.
(b) No fact has come to such counsel's attention which
causes them to believe that the Prospectus (other than the
financial statement and other financial and statistical data
contained therein, as to which such counsel need express no
opinion), as of the date thereof, contained any untrue statement
of a material fact or omitted to state a material fact necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) Such other matters as the Underwriters may reasonably
request.
In rendering their opinions, the counsels described in this
Paragraph C may rely, as to matters of fact, on certificates of responsible
officers of the Company, the Trustee and public officials. Such opinions may
also assume the due authorization, execution and delivery of the instruments and
documents referred to therein by the parties thereto other than the Company.
D. The Underwriter shall have received a letter from
_____________________________, dated on or before the Closing Date, in form and
substance satisfactory to the Underwriters and counsel for the Underwriters, to
the effect that they have performed certain specified procedures requested by
the Underwriters with respect to the information set forth in the Prospectus and
certain matters relating to the Company.
E. The Class A Certificates shall have been rated in the highest
rating category by Moody's Investors Service, Inc., and by Standard & Poor's
Ratings Service, a division of The McGraw-Hill Companies, and such ratings shall
not have been rescinded. The Underwriters and counsel for the Underwriters shall
have received copies of any opinions of counsel supplied to the rating
organizations relating to any matters with respect to the Class A Certificates.
Any such opinions shall be dated the Closing Date and addressed to the
Underwriters or accompanied by reliance letters to the Underwriter or shall
state that the Underwriters may rely upon them.
F. The Underwriters shall have received from the Company a
certificate, signed by the president, a senior vice president or a vice
president of the Company, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Registration Statement, the
Pooling and Servicing Agreement and this Agreement and that, to the best of his
or her knowledge based upon reasonable investigation:
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1. the representations and warranties of the Company in this
Agreement, and in the Indemnification Agreement, as of the Closing Date,
in the Pooling and Servicing Agreement, in the Insurance Agreement and in
all related agreements, as of the date specified in such agreements, are
true and correct, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Date;
2. there are no actions, suits or proceedings pending, or to the
best of such officer's knowledge, threatened against or affecting the
Company which if adversely determined, individually or in the aggregate,
would be reasonably likely to adversely affect the Company's obligations
under the Pooling and Servicing Agreement, the Insurance Agreement, this
Agreement or under the Indemnification Agreement in any material way; and
no merger, liquidation, dissolution or bankruptcy of the Company is
pending or contemplated;
3. the information contained in the Registration Statement and
Prospectus relating to the Company, the Mortgage Loans or the servicing
procedures of it or its affiliates or the subservicer is true and accurate
in all material respects and nothing has come to his or her attention that
would lead such officer to believe that the Registration Statement and
Prospectus includes any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein not
misleading;
4. the information set forth in the Schedules of Mortgage Loans
required to be furnished pursuant to the Pooling and Servicing Agreement
is true and correct in all material respects;
5. there has been no amendment or other document filed affecting
the articles of incorporation or bylaws of the Company since_________ __,
199_, and no such amendment has been authorized. No event has occurred
since ________________ __, 199_, which has affected the good standing of
the Company under the laws of the State of California;
6. there has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
________________ __, 199_;
7. on or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or
potential downgrading or (B) any review or possible changes in rating, the
direction of which has not been indicated, in the rating, if any, accorded
the Company or in any rating accorded any securities of the Company, if
any, by any "nationally recognized statistical rating organization," as
such term is defined for purposes of the Act; and
8. each person who, as an officer or representative of the
Company, signed or signs the Registration Statement, the Pooling and
Servicing Agreement, this Agreement, the Indemnification Agreement, the
Insurance Agreement, or any other document delivered pursuant hereto, on
the date of such execution, or on the Closing Date, as the case may be, in
connection with the transactions described in the Pooling and Servicing
Agreement, the Indemnification Agreement, the Insurance Agreement and this
Agreement was, at the respective times of such signing and delivery, and
is now, duly elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
The Company shall attach to such certificate a true and correct
copy of its certificate or articles of incorporation, as appropriate, and bylaws
which are in full force and effect on the date of such certificate and a
certified true copy of the resolutions of its Board of Directors with respect to
the transactions contemplated herein.
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G. The Underwriters shall have received the favorable opinion of
counsel to the Trustee, dated the Closing Date and in form and substance
satisfactory to the Underwriters, to the effect that:
1. the Trustee is a banking corporation duly organized,
validly existing and in good standing under the laws of _____________ and
has the power and authority to enter into and to take all actions required
of it under the Pooling and Servicing Agreement;
2. the Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Trustee and the Pooling and
Servicing Agreement constitutes the legal, valid and binding obligation of
the Trustee, enforceable against the Trustee in accordance with its terms,
except as enforceability thereof may be limited by (A) bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally, as such laws would apply in the event of a
bankruptcy, insolvency or reorganization or similar occurrence affecting
the Trustee, and (B) general principles of equity regardless of whether
such enforcement is sought in a proceeding at law or in equity;
3. no consent, approval, authorization or other action by
any governmental agency or body or other tribunal is required on the part
of the Trustee in connection with its execution and delivery of the
Pooling and Servicing Agreement or the performance of its obligations
thereunder;
4. the Certificates have been duly executed, authenticated
and delivered by the Trustee;
5. the execution and delivery of, and performance by the
Trustee of its obligations under, the Pooling and Servicing Agreement do
not conflict with or result in a violation of any statute or regulation
applicable to the Trustee, or the articles or bylaws of the Trustee, or to
the best knowledge of such counsel, any governmental authority having
jurisdiction over the Trustee or the terms of any indenture or other
agreement or instrument to which the Trustee is a party or by which it is
bound; and
6. in the event that the Servicer defaults in its
obligation to make advances under the Pooling and Servicing Agreement, the
Trustee or any affiliate of the Trustee, is not prohibited by a provision
of its Articles of Incorporation or Bylaws or by any provision of the
banking and trust laws of the United States of America or the State of New
York, as the case may be (or any rule, regulation, decree or order
thereunder), from assuming its obligation to make such advances.
In rendering such opinion, such counsel may rely, as to matters
of fact, on certificates of responsible officers of the Company, the Trustee and
public officials. Such opinion may also assume the due authorization, execution
and delivery of the instruments and documents referred to therein by the parties
thereto other than the Trustee.
H. The Underwriters shall have received from the Trustee a
certificate, signed by the President, a senior vice president or an assistant
vice president of the Trustee, dated the Closing Date, to the effect that each
person who, as an officer or representative of the Trustee, signed or signs the
Certificates, the Pooling and Servicing Agreement or any other document
delivered pursuant hereto, on the date hereof or on the Closing Date, in
connection with the transactions described in the Pooling and Servicing
Agreement was, at the respective times of such signing and delivery, and is now,
duly elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such documents
are their genuine signatures.
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I. The Policies relating to the Class A Certificates shall have
been duly executed and issued at or prior to the Closing Date and shall conform
in all material respects to the description thereof in the Prospectus.
J. The Underwriters shall have received a favorable opinion of
_______________, counsel to the Insurer, dated the Closing Date and in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
1. The Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of ____________________.
The Insurer is validly licensed and authorized to issue the Policies and
perform its obligations under the Policies in accordance with the terms
thereof, under the laws of ____________________.
2. The execution and delivery by the Insurer of the
Policies, the Insurance Agreement and the Indemnification Agreement are
within the corporate power of the Insurer and have been authorized by all
necessary corporate action on the part of the Insurer; the Policies have
been duly executed and are the valid and binding obligations of the
Insurer enforceable in accordance with their terms except that the
enforcement of the Policies may be limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium, receivership and other similar
laws affecting creditors' rights generally and by general principles of
equity.
3. The Insurer is authorized to deliver the Insurance
Agreement, and the Indemnification Agreement, and the Insurance Agreement
and the Indemnification Agreement have been duly executed and are the
valid and binding obligations of the Insurer enforceable in accordance
with their terms except that the enforcement of the Insurance Agreement
and the Indemnification Agreement may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and other
similar laws affecting creditors' rights generally and by general
principles of equity and by public policy considerations relating to
indemnification for securities law violations.
4. No consent, approval, authorization or order of any
state or federal court or governmental agency or body is required on the
part of the Insurer, the lack of which would adversely affect the validity
or enforceability of the Policies; to the extent required by applicable
legal requirements that would adversely affect validity or enforceability
of the Policies, the form of each Policy has been filed with, and approved
by, all governmental authorities having jurisdiction over the Insurer in
connection with such Policy.
5. To the extent the Policies constitute securities within
the meaning of Section 2(1) of the Act, they are securities that are
exempt from the registration requirements of the Act.
6. The information set forth under the caption "THE
CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER" in the
Prospectus Supplement dated ___________________ __, 199_, insofar as such
statements constitute a description of the Policies, accurately summarizes
the Policies.
In rendering this opinion, such counsel may rely, as to matters
of fact, on certificates of responsible officers of the Company, the Trustee,
the Insurer and public officials. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Insurer.
K. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or potential
downgrading or (B) any review or possible changes in rating, the
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<PAGE>
direction of which has not been indicated, in the rating, if any, accorded the
Company or in any rating accorded any securities of the Company, if any, by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of the Act.
L. On or prior to the Closing Date there shall not have occurred
any downgrading, nor shall any notice have been given of (A) any intended or
potential downgrading or (B) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the Insurer's
claims paying ability by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the Act.
M. There has not occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, since ________________ __, 199_, of (A)
the Company, its subsidiaries and affiliates or since ___________ __, 199_, of
(B) the Insurer, that is in the Underwriters' judgment material and adverse and
that makes it in the Underwriter's judgment impracticable to market the Class A
Certificates on the terms and in the manner contemplated in the Prospectus.
N. The Underwriters shall have received from the Insurer a
certificate, signed by the President, a senior vice president or a vice
president of the Insurer, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Policies, the Insurance
Agreement, the Indemnification Agreement and the related documents and that, to
the best of his or her knowledge based on reasonable investigation:
1. each person who as an officer or representative of the
Insurer, signed or signs the Policies, the Insurance Agreement, the
Indemnification Agreement or any other document delivered pursuant hereto,
on the date thereof, or on the Closing Date, in connection with the
transactions described in this Agreement was, at the respective times of
such signing and delivery, and is now a duly authorized representative of
the Insurer and is authorized to execute and deliver this certificate.
2. The financial data presented in the table set forth
under the heading "THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE
INSURER" in the Prospectus Supplement presents fairly the financial
position of the Insurer as of ________________ __, 199_ and
________________ __, 199_, respectively, and to the best of the Insurer's
knowledge since such date, no material and adverse change has occurred in
the financial position of the Insurer other than as set forth in the
Prospectus Supplement.
3. The audited financial statements dated as of
________________ __, 199_ and the unaudited financial statements dated as
of ________________ __, 199_ incorporated by reference into the Prospectus
Supplement are true and accurate.
4. The information which relates to the Insurer or the
Policies under the caption titled "THE CERTIFICATE INSURANCE POLICIES AND
THE CERTIFICATE INSURER" in the Prospectus Supplement is true and correct
in all material respects.
5. There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or operations or which would materially and
adversely affect its ability to perform its obligations under the Policies
or the Insurance Agreement dated as of ________________ __, 199_ (the
"Insurance Agreement") among the Insurer,
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First Alliance Mortgage Company, as Company, First Alliance Mortgage
Company, as Servicer, and ____________________________, as Trustee.
6. The execution and delivery of the Insurance Agreement
and the Policies and the compliance with the terms and provisions thereof
will not conflict with, result in a breach of, or constitute a default
under any of the terms, provisions or conditions of the Restated Charter
or By-Laws of the Insurer or of any agreement, indenture or instrument to
which the Insurer is a party.
7. The issuance of the Policies and the execution,
delivery and performance of the Insurance Agreement have been duly
authorized by all necessary corporate proceedings. No further approvals or
filings of any kind, including, without limitation, any further approvals
or further filing with any governmental agency or other governmental
authority, or any approval of the Insurer's board of directors or
stockholders, are necessary for the Policies and the Insurance Agreement
to constitute the legal, valid and binding obligations of the Insurer.
The officer of the Insurer certifying to items 2 and 3 shall be
an officer in charge of a principal financial function.
The Insurer shall attach to such certificate a true and correct
copy of its certificate or articles of incorporation, as appropriate, and its
bylaws, all of which are in full force and effect on the date of such
certificate.
O. The Underwriters shall have received from
_____________________________, special counsel to the Underwriters, such opinion
or opinions, dated the Closing Date, with respect to the issuance and sale of
the Certificates, the Prospectus and such other related matters as the
Underwriters shall reasonably require.
P. The Underwriters and counsel for the Underwriters shall have
received copies of any opinions of counsel to the Company or the Insurer
supplied to the Trustee relating to matters with respect to the Certificates or
the Policies. Any such opinions shall be dated the Closing Date and addressed to
the Underwriter or accompanied by reliance letters to the Underwriters or shall
state that the Underwriters may rely thereon.
Q. The Underwriters shall have received such further information,
certificates and documents as the Underwriters may reasonably have requested not
fewer than three (3) full business days prior to the Closing Date.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all respects when and as provided in this Agreement, if
the Company is in breach of any covenants or agreements contained herein or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriters and counsel to the Underwriters, this
Agreement and all obligations of the Underwriters hereunder, may be canceled on,
or at any time prior to, the Closing Date by the Underwriters. Notice of such
cancellation shall be given to the Company in writing, or by telephone or
telegraph confirmed in writing.
7. Expenses. If the sale of the Class A Certificates
provided for herein is not consummated by reason of a default by the Company in
its obligations hereunder, then the Company will reimburse the Underwriters,
upon demand, for all reasonable out-of-pocket expenses (including, but not
limited to, the reasonable fees and expenses of _____________________________)
that shall have been incurred by each of them in connection with their
investigation with regard to the Company and the Class A Certificates and the
proposed purchase and sale of the Class A Certificates.
17
<PAGE>
8. Indemnification and Contribution. A. Regardless of
whether any Class A Certificates are sold, the Company will indemnify and hold
harmless each Underwriter, each of its respective officers and directors and
each person who controls such Underwriter within the meaning of the Act or the
Securities Exchange Act of 1934 (the "1934 Act"), against any and all losses,
claims, damages, or liabilities (including the cost of any investigation, legal
and other expenses incurred in connection with any amounts paid in settlement of
any action, suit, proceeding or claim asserted), joint or several, to which they
may become subject, under the Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained (i) in
the Registration Statement, or any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary to make the statements therein, not misleading or (ii)
in the Basic Prospectus or the Prospectus Supplement or any amendment thereto or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and will reimburse each such indemnified party for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending against such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of an Underwriter specifically for use
in connection with the preparation thereof.
B. Regardless of whether any Class A Certificates are sold, each
Underwriter severally agrees to indemnify and hold harmless the Company, each of
its officers and directors and each person, if any, who controls the Company
within the meaning of the Act or the 1934 Act against any losses, claims,
damages or liabilities to which they or any of them become subject under the
Act, the 1934 Act or other federal or state law or regulation, at common law or
otherwise, to the same extent as the foregoing indemnity, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in (i) the Registration Statement, or any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary to make the
statements therein not misleading or in (ii) the Basic Prospectus or the
Prospectus Supplement or any amendment thereto or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Underwriter specifically for use in the preparation thereof and so
acknowledged in writing, and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending against such loss, claim, damage, liability or action.
C. In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Paragraphs A and B above such person
(hereinafter called the indemnified party) shall promptly notify the person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing thereof; but the omission to notify the indemnifying party
shall not relieve such indemnifying party from any liability which it may have
to any indemnified party otherwise than under such Paragraph. The indemnifying
party, upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding any indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the
18
<PAGE>
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm for all such indemnified parties, and that all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by the Underwriters in the case of parties indemnified
pursuant to Paragraph A and by the Company in the case of parties indemnified
pursuant to Paragraph B. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there is a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated above, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
D. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages or
liabilities referred to herein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the related Underwriters from the sale of
the Certificates or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only relative benefits referred to in clause (i) above but also the relative
fault of the Company and of the related Underwriters in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the related
Underwriters shall be deemed to be in such proportion so that the related
Underwriter is responsible for that portion determined by multiplying the
total amount of such losses, claims, damages and liabilities, including legal
and other expenses, by a fraction, the numerator of which is (x) the excess of
the Aggregate Resale Price of the Class A Certificates purchased by such
Underwriter over the aggregate purchase price of the Class A Certificates
specified in Section 4 of this Agreement and the denominator of which is (y) the
Aggregate Resale Price of the Class A Certificates purchased by such Underwriter
and the Company is responsible for the balance, provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of the immediately
preceding sentence, the "Aggregate Resale Price" of the Class A Certificates at
the time of any determination shall be the weighted average of the purchase
prices (in each case expressed as a percentage of the aggregate principal amount
of the Class A Certificates so purchased), determined on the basis of such
principal amounts, paid to the related Underwriter by all subsequent purchasers
that purchased the Class A Certificates on or prior to such date of
determination. The relative fault of the Company and the related Underwriter
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
19
<PAGE>
to state a material fact relates to information supplied by the Company or by
the related Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
E. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Paragraph D. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Paragraph D shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, the Underwriters shall not be required to contribute any amount in
excess of the amount by which the Aggregate Resale Price exceeds the amount of
any damages that the Underwriters have otherwise been required to pay by reason
of any untrue or alleged untrue statement or omission or alleged omission.
F. Each Underwriter agrees to provide the Company no later than
two Business Days prior to the day on which such materials are required to be
filed with a copy of any Computational Materials (as defined below) produced by
such Underwriter for filing with the Commission on Form 8-K.
G. Each Underwriter severally agrees, assuming all information
provided to it by the Company is accurate and complete in all material respects,
to indemnify and hold harmless the Company, each of the Company's officers and
directors and each person who controls the Company within the meaning of Section
15 of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of a material fact contained in the Computational Materials
provided by such Underwriter and agrees to reimburse each such indemnified party
for any legal or other expenses reasonably incurred by him, her or it in
connection with investigating or defending or preparing to defend any such loss,
claim, damage, liability or action as such expenses are incurred. The
obligations of an Underwriter under this Section 8(G) shall be in addition to
any liability which such Underwriter may otherwise have.
H. The Company and each Underwriter each expressly waive, and
agree not to assert, any defense to their respective indemnification and
contribution obligations under this Section 8 which they might otherwise assert
based upon any claim that such obligations are unenforceable under federal or
state securities laws or by reasons of public policy.
I. The obligations of the Company under this Section 8 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
each Underwriter within the meaning of the Act or the 1934 Act; and the
obligations of each Underwriter under this Section 8 shall be in addition to any
liability that such Underwriter may otherwise have and shall extend, upon the
same terms and conditions, to each director of the Company and to each person,
if any, who controls the Company within the meaning of the Act or the 1934 Act;
provided, however, that in no event shall the Company or any Underwriter be
liable for double indemnification.
9. Information Supplied by the Underwriters. The
statements set forth in the last paragraph on the front cover page of the
Prospectus regarding market-making and under the heading "Underwriting" in the
Supplement (to the extent such statements relate to the Underwriters), together
with the Computational Materials, constitute the only information furnished by
the Underwriter to the Company for the purposes of Sections 2(B) and 8(A)
hereof. The Underwriters confirm that such statements (to such extent) are
correct.
20
<PAGE>
The Company will cause any Computational Materials (as defined
below) with respect to the Class A Certificates which are delivered by any
Underwriter to the Company to be filed with the Commission on a Current Report
on Form 8-K (the "Form 8-K -- Computational Materials") not later than the date
on which such materials are required to be filed pursuant to the Kidder/PSA
Letters (as defined below), provided, however, that the Company shall have no
obligation to file any materials which, in the reasonable determination of the
Company after consultation with such Underwriter, (i) are not required to be
filed pursuant to the Kidder/PSA Letters or (ii) contain any erroneous
information or untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; it being understood, however, that the Company shall have no
obligation to review or pass upon the accuracy or adequacy of, or to correct,
any Computational Materials provided by any Underwriter to the Depositor as
aforesaid. For purposes hereof, as to each Underwriter, the term "Computational
Materials" shall mean those materials delivered by an Underwriter to the Company
within the meaning of the no-action letter dated May 20, 1994 issued by the
Division of Corporation Finance of the Commission to Kidder, Peabody Acceptance
Corporation I and certain affiliates, the no-action letter dated May 27, 1994
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association and the no-action letter of February 17, 1995 issued by
the Commission to the Public Securities Association (together, the "Kidder/PSA
Letters") for which the filing of such material is a condition of the relief
granted in such letters.
10. Notices. All communications hereunder shall be in
writing and, if sent to the Representative, shall be mailed or delivered or
telecopied and confirmed in writing to the Representative at
_________________________________________________________, Attention:
_______________, and, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed in writing to the Company at the address set forth
above, Attention: Director of Secondary Marketing.
11. Survival. All representations, warranties, covenants
and agreements of the Company contained herein or in agreements or certificates
delivered pursuant hereto, the agreements of the Underwriters and the Company
contained in Section 8 hereof, and the representations, warranties and
agreements of the Underwriters contained in Section 3 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriters or any controlling persons, or any subsequent
purchaser or the Company or any of its officers, directors or any controlling
persons, and shall survive delivery of and payment for the Certificates. The
provisions of Sections 5, 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
12. Termination. The Underwriters shall have the right to
terminate this Agreement by giving notice as hereinafter specified at any time
at or prior to the Closing Date if (a) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (b) trading of any securities
of the Company shall have been suspended on any exchange or in any
over-the-counter market, (c) a general moratorium on commercial banking
activities shall have been declared by either federal or New York State
authorities, (d) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis which,
in the Representative's reasonable judgment, is material and adverse, and, in
the case of any of the events specified in clauses (a) through (d), such event
singly or together with any other such event makes it in the Representative's
reasonable judgment impractical to market the Class A Certificates. Any such
termination shall be without liability of any other party except that the
provisions of Paragraph G of Section 5 (except with respect to expenses of the
Underwriters) and Sections 7 and 8 hereof shall at all times be effective. If
the Underwriters elect to terminate this Agreement as provided in this Section
12, the Company shall be notified promptly by the Underwriters by telephone,
telegram or facsimile transmission, in any case, confirmed by letter.
21
<PAGE>
13. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns (which successors and assigns do not include any person purchasing a
Certificate from the Underwriters), and the officers and directors and
controlling persons referred to in Section 8 hereof and their respective
successors and assigns, and no other persons will have any right or obligations
hereunder.
14. Applicable Law; Venue. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York. Any action or proceeding brought to enforce or arising out of any
provision of this Agreement shall be brought only in a state or federal court
located in the Borough of Manhattan, New York City, New York, and the parties
hereto expressly consent to the jurisdiction of such courts and agree to waive
any defense or claim of forum non conveniens they may have with respect to any
such action or proceeding brought.
15. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall together constitute but one and the
same instrument.
16. Amendments and Waivers. This Agreement may be amended,
modified, altered or terminated, and any of its provisions waived, only in a
writing signed on behalf of the parties hereto.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto hereby execute this Underwriting
Agreement, as of the day and year first above written.
FIRST ALLIANCE MORTGAGE COMPANY
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
---------------------------------------------
As Representative of the Several Underwriters
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
{UNDERWRITING AGREEMENT SIGNATURE PAGE}
<PAGE>
Schedule A
CLASS A-1 CERTIFICATES (1)
<TABLE>
<CAPTION>
Underwriters Principal Purchase Price
- ----------- --------- --------------
<S> <C> <C>
- ---------------------------- $------------ $------------
- ---------------------------- $------------ $------------
Total $____________ $____________
CLASS A-2 CERTIFICATES (2)
<CAPTION>
Underwriters Principal Purchase Price
- ------------ --------- --------------
<S> <C> <C>
- ---------------------------- $------------ $------------
- ---------------------------- $------------ $------------
Total $____________ $____________
CLASS A-3 CERTIFICATES
<CAPTION>
Underwriters Principal Purchase Price
- ------------ --------- --------------
<S> <C> <C>
- ---------------------------- $------------ $------------
- ---------------------------- $------------ $------------
Total $____________ $____________
</TABLE>
(1) Plus accrued interest from ________________ __, 199_ to (but not
including) ________________ __, 199_ at the Class A-1 Pass-Through Rate.
(2) Plus accrued interest from ________________ __, 199_ to (but not
including) ________________ __, 199_ at the Class A-2 Pass-Through Rate.
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
FIRST ALLIANCE MORTGAGE COMPANY
FIRST: The name of this corporation shall be First Alliance Mortgage
Company.
SECOND: The purposes for which this corporation is formed are:
(a) To engage primarily in the specific business of mortgage financing.
(b) To place, sell and service loans on real property.
(c) To purchase, lease, exchange or otherwise acquire, own, deal in,
sell, mortgage or otherwise encumber real property and personal property and any
and all rights thereto and interests therein.
(d) To acquire, hold, use, sell, assign, lease, grant, mortgage,
license, or otherwise dispose of letters-patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyright, trademarks and trade names relating to or
useful in connection with any business of this corporation.
(e) To acquire and pay for in cash, stocks, or bonds of this
corporation, or otherwise, the goodwill, rights, assets, and property, and to
undertake or assume the whole or any part of the obligations or liabilities of
any person, firm, association, or corporation.
(f) To acquire, subscribe for, hold, own, pledge, or otherwise dispose
of and vote shares of stock, bonds, and securities of any corporation, domestic
or foreign.
(g) To borrow money and issue bonds, debentures, notes, and evidence of
indebtedness, and to secure the payment on performance of its obligations by
mortgage, deeds of trust, pledge, or otherwise.
(h) To lend money on the security of mortgages, deeds of trust,
pledges, or other hypothecations of real and personal property, or without
security.
(i) To draw, make, accept, endorse, discount, execute or issue
promissory notes, drafts, bills of exchange, warrants, and other negotiable or
transferable instruments.
(j) To purchase, hold, sell, and transfer the shares of its own stock
so far as may be permitted by the laws of the State of California.
(k) To enter into and make, perform, and carry out contracts of every
kind and description made for any lawful purpose, without limit as to amount,
with any person, firm, association, or corporation, either public or private.
(l) To have one or more offices and to carry on all or any of the
objects and purposes herein enumerated, and to conduct the business of the
corporation in all of the states of the United States of America, the District
of Columbia, the territories of the United States, and foreign countries.
1
<PAGE>
(m) To do business under fictitious names; to act as agent or
principal; to become a member of a joint venture, associations, general and
limited partnerships, trusts, and any other form of business organization, by
purchase, investment, affiliation, or otherwise.
(n) In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of the
State of California upon corporations performed under the laws of the State of
California.
The foregoing clauses shall be construed both as objects and powers,
and it is hereby expressly provided that the foregoing enumeration of specific
powers shall not be held to limit or restrict in any manner the powers of the
corporation.
THIRD: The county in the State of California where the principal office
for the transaction of business of this corporation is located is Orange County.
FOURTH: (a) The number of directors of the corporation is three (3).
(b) The names and addresses of the persons who are appointed to act
as the first directors of this corporation are:
NAME
----
BRIAN CHISICK 2108 Harriet Lane
Anaheim, California 92804
SARAH CHISICK 2108 Harriet Lane
Anaheim, California 92804
SHELDON S. GOODMAN 2333 N. Broadway, Ste. 440
Santa Ana, California 92706
FIFTH: The total number of shares which this corporation shall have the
authority to issue is one million shares, all of one class. The aggregate par
value of all of said shares is One Million dollars, and the par value of each
such share is $1.00.
SIXTH: Authority is hereby granted to the holders of shares of this
corporation entitled to vote to change from Lime to time the authorized number
of directors of this corporation.
SEVENTH: All shares issued by the corporation shall be fully paid and
nonassessable and shall not be subject to assessment for the debts and
liabilities of the corporation.
EIGHTH: Each shareholder of this corporation shall be entitled to full
preemptive or preferential rights as such rights are defined by law, to
subscribe for or purchase his proportional part of any shares which may be
issued at any time by this corporation.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned who are the incorporators and the
above-named first directors of this corporation have executed these Articles of
Incorporation this 25th day of April, 1975.
/s/ Brian Chisick
----------------------------
BRIAN CHISICK
/s/ Sarah Chisick
----------------------------
SARAH CHISICK
/s/ Sheldon S. Goodman
----------------------------
SHELDON S. GOODMAN
3
<PAGE>
STATE OF CALIFORNIA )
) ss:
COUNTY OF ORANGE )
On this 25th day of April, 1975, before me, a Notary Public in and for
said State, appeared BRIAN CHISICK, SARAH CHISICK, and SHELDON S. GOODMAN known
to me to be the persons whose names are subscribed to the foregoing Articles of
Incorporation, and acknowledged to me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the day and year first above written.
/s/ B. Jean Marshall
----------------------------
NOTARY PUBLIC
SEAL
4
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
FIRST ALLIANCE MORTGAGE COMPANY
Brian Chisick and Mark K. Mason certify that:
1. They are the President and the Chief Financial Officer,
respectively, of First Alliance Mortgage Company.
2. The name of the corporation is First Alliance Mortgage
Company, and it is a California corporation.
3. The instrument being corrected is entitled "Certificate of
Amendment of Articles of Incorporation" of First Alliance
Mortgage Company, and said instrument was filed with the
Secretary of State of the State of California on May 14, 1996.
4. Paragraph "2" of said Certificate of Amendment, as corrected,
should read as follows:
This Corporation is authorized to issue only one
class of shares of stock. The total number of shares
that this Corporation is authorized to issue is
fifteen million shares of common stock, $.01 par
value per share.
On the effective date of this amendment, each
outstanding share of the Corporation's common stock
shall be converted into and shall become 709.5
shares of the Corporation's common stock.
5. Paragraph "4" of said Certificate of Amendment, as corrected,
should read as follows:
The foregoing amendment of the Articles of
Incorporation of this corporation has been duly
approved by the required vote of shareholders in
accordance with Section 902 of the California
Corporations Code. The total number of outstanding
shares of the corporation is 15,000. The number of
shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote
required was more than 50%.
6. Paragraph "2", as corrected, conforms the wording of the
amended article to that adopted by the board of directors and
shareholders.
5
<PAGE>
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: July 13, 1996
/s/ Brian Chisick
----------------------------
Brian Chisick, President
/s/ Mark Mason
----------------------------
Mark Mason, Chief Financial Officer
6
Exhibit 3.2
BY-LAWS OF
FIRST ALLIANCE MORTGAGE COMPANY
ARTICLE I
SHAREHOLDERS MEETING
Section 1. PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the office
of the corporation in the State of California, as may be designated for that
purpose from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS.
The annual meeting of the shareholders shall be held on the
first day of July in each year, if not a legal holiday, and if a legal holiday,
then on the next succeeding business day, at the hour of 9:30 o clock A. M., at
which time the shareholders shall elect by plurality vote a Board of Directors,
consider reports of the affairs of the Corporation, and transact such other
business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or
purposes whatsoever, may be called at any time by the President, or by the Board
of Directors, or by any two or more members thereof, or by one or more
shareholders holding not less than one fifth (1/5) of the voting power of the
corporation.
Section 4. NOTICE OF MEETINGS.
Notices of meetings, annual or special, shall be given in
writing to shareholders entitled to vote by the Secretary or the Assistant
Secretary, or if there be no such officer, or in case of his neglect or refusal,
by any director or shareholder.
Such notices shall be sent to the shareholder's address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice, not less than seven days before such meeting.
Notice of any meeting of shareholders shall specify the place,
the day and the hour of meeting, and in case of special meeting, as provided by
the Corporations Code of California, the general nature of the business to be
transacted.
When a meeting is adjourned for thirty days or more, notice of
the adjourned meeting shall be given as in case of an original meeting. Save, as
aforesaid, it shall not be necessary to give
1
<PAGE>
any notice of the adjournment or of the business to be transacted at an
adjourned meeting other than by announcement at the meeting at which such
adjournment is taken.
Section 5. CONSENT TO SHAREHOLDERS MEETINGS.
The transactions of any meeting of shareholders, however
called and noticed, shall be valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the shareholders entitled to
vote, not present in person or by proxy, sign a written waiver of notice, or a
consent to the holding of such meeting, or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Any action which may be taken at a meeting of the
shareholders, may be taken without a meeting if authorized by a writing signed
by all of the holders of shares who would be entitled to vote at a meeting for
such purpose, and filed with the Secretary of the corporation.
Section 6. QUORUM.
The holders of a majority of the shares entitled to vote
thereat, present in person, or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by law, by the Articles of
Incorporation, or by these By-Laws. If, however, such majority shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person, or by proxy, shall have power to
adjourn the meeting from time to time, until the requisite amount of voting
shares shall be present. At such adjourned meeting at which the requisite
amount of voting shares shall be represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 7. VOTING RIGHTS; CUMULATIVE VOTING.
Only persons in whose names shares entitled to vote stand on
the stock records of the corporation on the day of any meeting of shareholders,
unless some other day be fixed by the Board of Directors for the determination
of shareholders of record, then on such other day, shall be entitled to vote at
such meeting.
Every shareholder entitled to vote shall be entitled to one
vote for each of said shares and shall have the right to accumulate his votes as
provided in Section 2235 Corporations Code of California.
Section 8. PROXIES.
Every shareholder entitled to vote, or to execute consents,
may do so, either in person or by written proxy, executed in accordance with the
provisions of Section 2225 of the Corporations
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Code of California and filed with the Secretary of the corporation.
ARTICLE II
DIRECTORS; MANAGEMENT
Section 1. POWERS.
Subject to the limitation of the Articles of Incorporation, of
the By-Laws and of the Laws of the State of California as to actions to be
authorized or approved by the shareholders, all corporate powers shall be
exercised by or under authority of, and the business and affairs of this
corporation shall be controlled by, a Board of Directors.
Section 2. NUMBER AND QUALIFICATION.
The authorized number of directors of the corporation shall be
three (3), until changed by amendment to the Articles of Incorporation or by an
amendment to this Section 2, Article II of these By-Laws adopted by the vote or
written assent of the shareholders entitled to exercise the majority of the
voting power of the corporation.
Section 3. ELECTION AND TENURE OF OFFICE.
The directors shall be elected by ballot at the annual meeting
of the shareholders, to serve for one year and until their successors are
elected and have qualified. Their term of office shall begin immediately after
election.
Section 4. VACANCIES
Vacancies in the Board of Directors may be filled by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until his
successor is elected at an annual meeting of shareholders or at a special
meeting called for that purpose.
The shareholders may at any time elect a director to fill any
vacancy not filled by the directors, and may elect the additional directors at
the meeting at which an amendment of the By-Laws is voted authorizing an
increase in the number of directors.
A vacancy or vacancies shall be deemed to exist in case of the
death, resignation or removal of any director, or if the shareholders shall
increase the authorized number of directors but shall fail at the meeting at
which such increase is authorized, or at an adjournment thereof, to elect the
additional director so provided for, or in case the shareholders fail at any
time to elect the full number of authorized directors.
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If the Board of Directors accepts the resignation of a
Director tendered to take effect at a future time, The Board, or the
shareholders, shall have power to elect a successor to take office when the
resignation shall become effective.
No reduction of the number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
Section 5. REMOVAL OF DIRECTORS.
The entire Board of Directors or any individual director may
be removed from office as provided by Sections 807, 810 and 811 of the
Corporations Code of the State of California.
Section 6. PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the Office
of the corporation in the State of California, as designated for that purpose,
from time to time, by resolution of the Board of Directors or written consent of
all of the Members of the Board. Any meeting shall be valid, wherever held, if
held by the written consent of all Members of the Board of Directors, given
either before or after the meeting and filed with the Secretary of the
corporation.
Section 7. ORGANIZATION MEETINGS.
The organization meetings of the Board of Directors shall be
held immediately following the adjournment of the annual meetings of the
shareholders.
Section 8. OTHER REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held on
the first day of each month.
If said day shall fall upon a holiday, such meetings shall be
held on the next succeeding business day thereafter. No notice need be given of
such regular meetings.
Section 9. SPECIAL MEETINGS -- NOTICES.
Special meetings of the Board of Directors for any purpose or
purposes shall be called at any time by the President or if he is absent or
unable or refuses to act, by any Vice-President or by any two directors.
Written notice of the time and place of special meeting shall
be delivered personally to the directors or sent to each director by letter or
by telegram, charges prepaid, addressed to him at his address as it is shown
upon the records of the corporation, or if it is not so shown on such records or
is not readily ascertainable, at the place in which the meetings of the
directors are
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regularly held. In case such notice is mailed or telegraphed, it shall be
deposited in the United States mail or delivered to the telegraph company in the
place in which the principal office of the corporation is located at least
forty-eight (48) hours prior to the time of the holding of the meeting. In case
such notice is delivered as above provided; it shall be so delivered at least
twenty-four (24) hours prior to the time of the holding of the meeting. Such
mailing, telegraphing or delivery as above provided shall be due, legal and
personal notice to such director.
Section 10. WAIVER OF NOTICE.
When all the directors are present at any directors' meeting,
however called or noticed, and sign a written consent thereto on the records of
such meeting, or, if a majority of the directors are present, and if those not
present sign in writing a waiver of notice of such meeting, whether prior to or
after the holding of such meeting, which said waiver shall be filed with the
Secretary of the corporation, the transactions thereof are as valid as if had at
a meeting regularly called and noticed.
Section 11. ACTION BY DIRECTORS WITHOUT A MEETING.
Any action required or permitted to be taken by the Board of
Directors under the By-Laws or Articles may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the Minutes of
the proceedings of the board. Such action by written consent shall have the same
force and effect as a unanimous vote of such Directors. Any certificate or other
document filed under any provision of this division which relates to action so
taken shall state that the action was taken by unanimous written consent of the
Board of Directors without a meeting.
Section 12. NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting
need not be given to absent directors if the time and place be fixed at the
meeting adjourned.
Section 13. QUORUM.
A majority of the number of directors as fixed by the articles
or By-Laws shall be necessary to constitute a quorum for the transaction of
business, and the action of a majority of the directors present at any meeting
at which there is a quorum, when duly assembled, is valid as a corporate act;
provided that a minority of the directors, in the absence of a quorum, may
adjourn from time to time, but may not transact any business.
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ARTICLE III
OFFICERS
Section 1. OFFICERS.
The officers shall be a President, one or more
Vice-Presidents, a Secretary and a Treasurer, which officers shall be elected
by, and hold office at the pleasure of, the Board of Directors.
Section 2. ELECTION.
After their election the directors shall meet and organize by
electing a President from their own number, and one or more Vice-Presidents, a
Secretary and a Treasurer, who may, but need not be, members of the Board of
Directors. Any two or more of such offices except those of President and
Secretary, may be held by the same person.
Section 3. COMPENSATION AND TENURE OF OFFICE.
The compensation and tenure of office of all the officers of
the corporation shall be fixed by the Board of Directors.
Section 4. REMOVAL AND RESIGNATION.
Any officer may be removed, either with or without cause, by a
majority of the directors at the time in office, at any regular or special
meeting of the Board, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors or to the President, or to the Secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. VACANCIES.
A vacancy in any office because of death, designation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the By-Laws for regular appointments to such office.
Section 6. PRESIDENT.
The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the
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business and affairs of the corporation. He shall preside at all meetings of the
shareholders and of the Board of Directors. He shall be ex-officio a member of
all the standing committees, including the executive committee, if any, and
shall have the general power and duties of management usually vested in the
office of President of a corporation, and shall have such other powers and
duties as may be prescribed by the Board of Directors or the By-Laws.
Section 7. VICE-PRESIDENTS.
The Vice-Presidents shall, in the order designated by the
Board of Directors, in the absence or disability of the President, perform the
duties and exercise the powers of the President, and shall perform such other
duties as the Board of Directors shall prescribe.
Section 8. SECRETARY.
The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, and
number of shares present or represented at shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses; the number and classes of shares held by each; the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board of Directors required by the
By-Laws or by law to be given; he shall keep the seal of the corporation and
affix said seal to all documents requiring a seal, and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or the By-Laws.
Section 9. TREASURER.
The Treasurer shall receive and keep all the funds of the
corporation, and pay them out only on the check of the corporation, signed in
the manner authorized by the Board of Directors.
Section 10. ASSISTANTS.
Any Assistant Secretary or Assistant Treasurer, respectively,
may exercise any of the powers of Secretary or Treasurer, respectively, as
provided in these By-Laws or as directed by the Board of Directors, and shall
perform such other duties as are imposed upon them by the By-Laws or the Board
of Directors.
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Section 11. SUBORDINATE OFFICERS.
The Board of Directors may from time to time appoint such
subordinate officers or agents as the business of the corporation may require,
fix their tenure of office and allow them suitable compensation.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEE
The Board of Directors may appoint an executive committee, and such
other committees as may be necessary from time to time consisting of such number
of its members and with such powers as it may designate, consistent with the
Articles of Incorporation and By-Laws and the General Corporation Laws of the
State of California. Such committees shall hold office at the pleasure of the
board.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
Section 1. RECORDS
The corporation shall maintain adequate and correct accounts,
books and records of its business and properties. All of such books, records and
accounts shall be kept at its principal place of business in the State of
California, as fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS.
All books and records provided for in Sections 3003 and 3004
of the Corporations Code of California shall be open to inspection of the
directors and shareholders from time to time and in the manner provided in said
Sections 3003 and 3004.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS.
The original or a copy of these By-Laws, as amended or
otherwise altered to date, certified by the Secretary, shall be open to
inspection by the shareholder of the company, as provided in Section 502 of the
Corporations Code of California
Section 4. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes
or other evidences of indebtedness, issued in the name of or payable to the
corporation, shall be signed or endorsed by such person or persons and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
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Section 5. CONTRACTS, ETC. -- HOW EXECUTED.
The Board of Directors, except as in the By-Laws otherwise
provided, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authority may be general or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent or employee
shall have any power or authority to bind the corporation by any contract or
engagement, or to pledge its credit, or to render it liable for any purpose or
to any amount.
Section 6. ANNUAL REPORTS.
The annual report to shareholders referred to in Section 3006
of the Corporations Code of the State of California is expressly dispensed with,
but nothing herein shall be interpreted as prohibiting the Board of Directors
from issuing such reports or as affecting the rights of shareholders to obtain
special financial statements as provided by Section 3011 of the Corporations
Code.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES.
Section 1. CERTIFICATES FOR SHARES.
Certificates for shares shall be of such form and device as
the Board of Directors may designate and shall state the name of the record
holder of the shares represented there by its number; date of issuance; the
number of shares for which it is issued; the par value; if any, of a statement
that such shares are without par value; a statement of the right, privileges,
preferences and restrictions, if any; a statement as to the redemption or
conversion, if any; a statement of liens or restrictions upon transfer or
voting, if any; if the shares be assessable, or, if assessments are collectible
by personal action, a plain statement of such facts.
Every certificate for shares must be signed by the President
or a Vice President and the Secretary or an Assistant Secretary or must be
authenticated by facsimiles of the signature of the President and Secretary or
by a facsimile of the signature of its President and the written signature of
its Secretary or an Assistant Secretary. Before it becomes effective every
certificate for shares authenticated by a facsimile of a signature must be
countersigned by a transfer agent or transfer clerk and must be registered by an
incorporated bank or trust company, either domestic or foreign as registrar of
transfers.
Section 2. TRANSFER ON THE BOOKS.
Upon surrender to the Secretary or transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority
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to transfer. it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES.
Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and shall if the
directors so require give the corporation a bond of indemnity, in form and with
one or more sureties satisfactory to the Board, in at least double the value of
the stock represented by said certificate, whereupon a new certificate may be
issued of the same tenor and for the same number of shares as the one alleged to
be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents
or transfer clerks, and one or more registrars, which shall be an incorporated
bank or trust company -- either domestic or foreign, who shall be appointed at
such times and places as the requirements of the corporation may necessitate and
the Board of Directors may designate.
Section 5. CLOSING STOCK TRANSFER BOOKS.
The Board of Directors may close the transfer books in their
discretion for a period not exceeding thirty days preceding any meeting, annual
or special, of the shareholders, or the day appointed for the payment of a
dividend.
ARTICLE VII
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
California.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. BY SHAREHOLDERS.
New By-Laws may be adopted or these By-Laws may be repealed
or amended at their annual meeting, or at any other meeting of the shareholders
called for that purpose, by a vote of shareholders entitled to exercise a
majority of the voting power of the corporation, or by written assent of such
shareholders.
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Section 2. POWERS OF DIRECTORS.
Subject to the right of the shareholders to adopt, amend or
repeal By-Laws, as provided in Section 1 of this Article VIII, the Board of
Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or
amendment thereof changing the authorized number of directors.
Section 3. RECORD OF AMENDMENTS.
Whenever an amendment or new By-Law is adopted, it shall be
copied in the Book of By-Laws with the original By-Laws, in the appropriate
plate. If any By-Law is repealed, the fact of repeal with the date of the
meeting at which the repeal was enacted or written assent was filed shall be
stated in said book.
ARTICLE IX
GENERAL CORPORATE MATTERS
Section 1. DISALLOWED DEDUCTIONS.
If the Internal Revenue Service or the appropriate state
taxing authority disallows as a business deduction to the corporation any part
of the salary or other compensation, interest, rent, or entertainment expense
paid by it to any officer, director, or employee, that part disallowed shall be
repaid to the corporation by the officer, director, or employee. It shall be the
duty of the directors, as a Board, to enforce payment of each such amount
disallowed.
Section 2. INDEMNITY OF OFFICERS AND DIRECTORS.
Every person who serves as a director, officer, or employee of
the corporation, and every person who serves at the written request of the
corporation (or at its oral request subsequently confirmed in writing), as a
director, officer, or employee of another business, whether or not incorporated,
in which the corporation owns capital stock or other proprietary interest, or of
which the corporation is a creditor, may in the discretion of the Board of
Directors be indemnified and held harmless by the corporation from and against
any loss, cost, liability, or expense that may be imposed on or incurred by him
in connection with or resulting from any claim, action, suit, or proceeding,
civil or criminal, in which he may become a party or otherwise involved because
of his being or having been a director, officer, or employee of the corporation,
or of the other business in which the corporation may own capital stock or other
proprietary interest, or of which the corporation is a creditor, whether or not
he has this relationship when the loss, cost, liability, or expense was imposed
or incurred. The phrase "loss, cost, liability, or expense" shall include all
expenses incurred in defense of the claim, action, suit, or proceedings and the
amounts of judgments, fines, or penalties levied or rendered against the
indemnified person, provided that no person shall be entitled to indemnity under
this section unless the Board of Directors determines in good faith
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that he was acting in good faith and within what he reasonably believed to be
the scope of his employment or authority and for a purpose that he reasonably
believed to be in the corporation's or shareholders' best interests. Payments
authorized under this section shall include amounts paid and expenses incurred
in settling the claim, action, suit or proceeding, and expenses incurred in
settling the claim, action, suit or proceeding, whether actually begun or only
threatened. Expenses incurred with respect to a claim, action, suit, or
proceeding indemnified against under this section may be advanced by the
corporation before final disposition of the matter on receipt of an undertaking
by or on behalf of the recipient to repay this amount if it is ultimately
determined that he is not entitled to indemnification. This undertaking shall be
satisfactory in form and amount to the Board of Directors. This right of
indemnification shall not affect any other rights to which any person may
otherwise be entitled by law or contract.
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AMENDMENT TO THE BYLAWS
OF
FIRST ALLIANCE MORTGAGE COMPANY
Amending Article II: Directors;Management, Section 8: Other Regular Meetings
Section 8: OTHER REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held at
least once a year on the 1st day of July at 9:45 a.m.
If said day shall fall upon a holiday or weekend, such
meetings shall be held on the next succeeding business day thereafter. No notice
need be given of such regular meetings.
The above amendment to the bylaws is effective immediately upon
adoption by the shareholders on July 1, 1985.
13
Exhibit 4.1
POOLING AND SERVICING AGREEMENT
Relating to
FIRST ALLIANCE MORTGAGE LOAN TRUST
199_-_
Among
FIRST ALLIANCE MORTGAGE COMPANY,
as Company
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
and
--------------------------,
as Trustee
Dated as of __________________ __, 199_
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................1
1.1. Definitions................................................1
1.2. Use of Words and Phrases..................................28
1.3. Captions; Table of Contents...............................28
1.4. Opinions..................................................28
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST........................28
2.1. Establishment of the Trust................................28
2.2. Office....................................................28
2.3. Purposes and Powers.......................................29
2.4. Appointment of the Trustee; Declaration of Trust..........29
2.5. Expenses of Trustee.......................................29
2.6. Ownership of the Trust....................................29
2.7. Situs of the Trust........................................29
2.8. Miscellaneous REMIC Provisions............................29
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND THE SERVICER;
COVENANT OF COMPANY TO CONVEY MORTGAGE LOANS.......................30
3.1. Representations and Warranties of the Company.............30
3.2. Representations and Warranties of the Servicer............32
3.3. Representations and Warranties of the Company with
Respect to the Mortgage Loans.............................35
3.4. Covenants of the Company to Take Certain Actions with
Respect to the Mortgage Loans In Certain Situations.......37
3.5. Conveyance of the Mortgage Loans..........................38
3.6. Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee..................42
3.7. Cooperation Procedures....................................43
3.8. Conveyance of the Subsequent Mortgage Loans...............43
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES..................................45
4.1. Issuance of Certificates..................................45
4.2. Sale of Certificates......................................45
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ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS.............................46
5.1. Terms.....................................................46
5.2. Forms.....................................................46
5.3. Execution, Authentication and Delivery....................46
5.4. Registration and Transfer of Certificates.................47
5.5. Mutilated, Destroyed, Lost or Stolen Certificates.........48
5.6. Persons Deemed Owners.....................................49
5.7. Cancellation..............................................49
5.8. Limitation on Transfer of Ownership Rights................49
5.9. Assignment of Rights......................................50
ARTICLE VI
COVENANTS..........................................................50
6.1. Distributions.............................................50
6.2. Money for Distributions to be Held in Trust; Withholding..50
6.3. Protection of Trust Estate................................51
6.4. Performance of Obligations................................51
6.5. Negative Covenants........................................52
6.6. No Other Powers...........................................52
6.7. Limitation of Suits.......................................52
6.8. Unconditional Rights of Owners to Receive Distributions...53
6.9. Rights and Remedies Cumulative............................53
6.10. Delay or Omission Not Waiver..............................53
6.11. Control by Owners.........................................53
6.12. Access to Owners of Certificates' Names and Addresses.....54
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES...............................54
7.1. Collection of Money.......................................54
7.2. Establishment of Accounts.................................54
7.3. The Certificate Insurance Policies........................54
7.4. Pre-Funding Account and Capitalized Interest Account......56
7.5. Flow of Funds.............................................57
7.6. Investment of Accounts....................................60
7.7. Eligible Investments......................................61
7.8. Reports by Trustee........................................62
7.9. Additional Reports by Trustee.............................64
7.10. Group II Available Funds Cap Trust........................64
ARTICLE VIII
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS.....................64
8.1. Servicer and Sub-Servicers................................64
8.2. Collection of Certain Mortgage Loan Payments..............66
8.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers.............................................66
8.4. Successor Sub-Servicers...................................66
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8.5. Liability of Servicer.....................................67
8.6. No Contractual Relationship Between Sub-Servicer and
Trustee or the Owners.....................................67
8.7. Assumption or Termination of Sub-Servicing Agreement
by Trustee................................................67
8.8. Principal and Interest Account............................67
8.9. Delinquency Advances, Compensating Interest and
Servicing Advances........................................68
8.10. Purchase of Mortgage Loans................................69
8.11. Maintenance of Insurance..................................70
8.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements................................................70
8.13. Realization Upon Defaulted Mortgage Loans.................71
8.14. Trustee to Cooperate; Release of Files....................72
8.15. Servicing Compensation....................................73
8.16. Annual Statement as to Compliance.........................73
8.17. Annual Independent Certified Public Accountants'
Reports...................................................73
8.18. Access to Certain Documentation and Information
Regarding the Mortgage Loans..............................73
8.19. Assignment of Agreement...................................74
8.20. Events of Servicing Termination...........................74
8.21. Resignation of Servicer and Appointment of Successor......76
8.22. Waiver of Past Events of Servicing Termination............79
8.23. Inspections by Certificate Insurer; Errors and
Omissions Insurance.......................................79
8.24. Merger, Conversion, Consolidation or Succession to
Business of Servicer......................................79
8.25. Notices of Material Events................................79
8.26. Monthly Servicing Report and Servicing Certificate........80
8.27. Indemnification by the Company............................82
8.28. Indemnification by the Servicer...........................82
ARTICLE IX
TERMINATION OF TRUST...............................................83
9.1. Termination of Trust......................................83
9.2. Termination Upon Option of Servicer.......................83
9.3. Termination Upon Loss of REMIC Status.....................84
9.4. Disposition of Proceeds...................................85
9.5. Netting of Amounts........................................85
ARTICLE X
THE TRUSTEE........................................................85
10.1. Certain Duties and Responsibilities.......................85
10.2. Removal of Trustee for Cause..............................87
10.3. Certain Rights of the Trustee.............................88
10.4. Not Responsible for Recitals or Issuance of
Certificates..............................................90
10.5. May Hold Certificates.....................................90
10.6. Money Held in Trust.......................................90
10.7. No Lien for Fees..........................................90
10.8. Corporate Trustee Required; Eligibility...................90
10.9. Resignation and Removal; Appointment of Successor.........90
10.10. Acceptance of Appointment by Successor Trustee............91
10.11. Merger, Conversion, Consolidation or Succession to
Business of the Trustee...................................92
10.12. Reporting; Withholding....................................92
10.13. Liability of the Trustee..................................92
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10.14. Appointment of Co-Trustee or Separate Trustee.............93
10.15. Reserved..................................................94
ARTICLE XI
MISCELLANEOUS......................................................94
11.1. Compliance Certificates and Opinions......................94
11.2. Form of Documents Delivered to the Trustee................94
11.3. Acts of Owners............................................95
11.4. Notices, etc. to Trustee..................................95
11.5. Notices and Reports to Owners; Waiver of Notices..........96
11.6. Rules by Trustee and the Company..........................96
11.7. Successors and Assigns....................................96
11.8. Severability..............................................96
11.9. Benefits of Agreement.....................................96
11.10. Legal Holidays............................................96
11.11. Governing Law.............................................97
11.12. Counterparts..............................................97
11.13. Usury.....................................................97
11.14. Amendment.................................................97
11.15. REMIC Status; Taxes.......................................98
11.16. Additional Limitation on Action and Imposition of
Tax.......................................................99
11.17. Appointment of Tax Matters Person........................100
11.18. The Certificate Insurer..................................100
11.19. Maintenance of Records...................................100
11.20. Notices..................................................100
iv
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EXHIBIT A-1 -- Form of Class A-1 Certificate
EXHIBIT A-2 -- Form of Class A-2 Certificate
EXHIBIT A-3 -- Form of Class A-3 Certificate
EXHIBIT B -- Mortgage Loan Schedule
EXHIBIT C -- Form of Class R Certificate
EXHIBIT D -- Form of Certificate Re: Mortgage Loans Prepaid
in full After the Cut-Off Date
EXHIBIT E -- Form of Initial Certification
EXHIBIT F -- Form of Final Certification
EXHIBIT G -- Form of Delivery Order
EXHIBIT H -- Form of Class R Tax Matters Transfer Certificate
EXHIBIT I -- Form of Notice for Certificate Insurance Policy
EXHIBIT J -- Form of Monthly Report
EXHIBIT K -- Form of Request for Release
EXHIBIT L -- Form of Subsequent Transfer Agreement
v
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POOLING AND SERVICING AGREEMENT, relating to FIRST ALLIANCE
MORTGAGE LOAN TRUST 199_-_, dated as of __________________ __, 199_, by and
among FIRST ALLIANCE MORTGAGE COMPANY, a California corporation (the "Company"),
the Company in its fiduciary capacity as servicer of the Trust (the "Servicer"),
and ________________________, a ___________ banking corporation, in its capacity
as trustee (the "Trustee").
WHEREAS, the Company wishes to establish (x) the Trust and two
subtrusts and (y) the Group II Available Funds Cap Trust and provide for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution thereof;
WHEREAS, the Servicer has agreed to service the Mortgage
Loans, which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee, valid instruments, and to make this
Agreement a valid agreement, in accordance with their and its terms, have been
done;
WHEREAS, ________________________ is willing to serve in the
capacity of Trustee hereunder; and
WHEREAS, ___________________________ (the "Certificate
Insurer") is intended to be a third party beneficiary of this Agreement and is
hereby recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Company, the Servicer and the Trustee
hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. Definitions. For all purposes of this Agreement,
the following terms shall have the meanings set forth below, unless the context
clearly indicates otherwise:
"Account": Any account established in accordance with Section
7.2, 7.10(a) or 8.8 hereof.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust for inclusion in Group I or Group II pursuant to
Section 3.8 hereof, notice given not less than three Business Days prior to the
related Subsequent Transfer Date of the Company's designation of Subsequent
Mortgage Loans to be sold to the Trust for inclusion in Group I or Group II and
the aggregate Loan Balance of such Subsequent Mortgage Loans to be delivered for
inclusion in each such Group.
"Agreement": This Pooling and Servicing Agreement, as it may
be amended from time to time, and including the Exhibits hereto.
"Appraised Value": The appraised value of any Property based
upon the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value.
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"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Company
and the Servicer, initially including those individuals whose names appear on
the lists of Authorized Officers delivered on the Startup Day, and with respect
to the Trustee, any Vice President, Assistant Vice President, Assistant
Treasurer or Assistant Secretary of the Trustee.
"Available Funds": With respect to Group I, the Group I
Available Funds and with respect to Group II, the Group II Available Funds.
"Available Funds Shortfall": Any of the Group I Available
Funds Shortfall or the Group II Available Funds Shortfall.
"Balloon Loan": Any Mortgage Loan which has an amortization
schedule which extends beyond its maturity date, resulting in an unamortized
principal balance due in a single payment at maturity.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the States of New York and
California or in the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest
Account established in accordance with Section 7.2(b) hereof and maintained by
the Trustee.
"Certificate": Any one of the Class A Certificates or the
Class R Certificates, each representing the interests and the rights described
in this Agreement.
"Certificate Account": The Certificate Account established in
accordance with Section 7.2(a) hereof and maintained by the Trustee; provided
that the funds in such account shall not be commingled with any other funds held
by the Trustee.
"Certificate Insurance Policies": The Fixed Rate Certificate
Insurance Policy and the Variable Rate Certificate Insurance Policy.
"Certificate Insurer": ___________________________ or any
successor thereto, as issuer of the Certificate Insurance Policies.
"Certificate Insurer Default": The existence and continuance
of any of the following:
(a) the Certificate Insurer fails to make a payment required
under the Certificate Insurance Policies in accordance with their terms; or
(b)(i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Certificate
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law or (B) a decree or order adjudging the Certificate Insurer as
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition of or in
respect of the Certificate Insurer under any applicable United States, federal
or state law, or appointing a custodian, receiver, liquidator, rehabilitator,
assignee, trustee, sequestrator or other similar official of any substantial
part of the Certificate Insurer's property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for a period of
90 consecutive days; or
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(ii) the commencement by the Certificate Insurer of a
voluntary case or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Certificate Insurer, or the filing by the Certificate
Insurer to the filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Certificate Insurer of any substantial part of its
property, or the failure of the Certificate Insurer to pay debts generally as
they become due, or the admission by the Certificate Insurer in writing of its
inability to pay its debts generally as they become due.
"Certificate Principal Balance": As to the Class A-1
Certificates, the Class A-1 Certificate Principal Balance, as to the Class A-2
Certificates, the Class A-2 Certificate Principal Balance and as to the Class
A-3 Certificates, the Class A-3 Certificate Principal Balance. The Class R
Certificates do not have a "Certificate Principal Balance".
"Class": All of the Class A-1 Certificates, all of the Class
A-2 Certificates, all of the Class A-3 Certificates or all of the Class R
Certificates.
"Class A Certificate": Any one of the Class A-1 Certificates,
the Class A-2 Certificates or the Class A-3 Certificates.
"Class A Distribution Amount": Any of the Class A-1
Distribution Amount, the Class A-2 Distribution Amount or the Class A-3
Distribution Amount.
"Class A-1 Carry-Forward Amount": With respect to any Payment
Date, the sum of (i) the amount, if any, by which (x) the Class A-1 Distribution
Amount as of the immediately preceding Payment Date exceeded (y) the amount of
the actual distribution made to the Owners of the Class A-1 Certificates on such
immediately preceding Payment Date and (ii) 30 days' interest on the interest
portion of such amount at the Class A-1 Pass-Through Rate.
"Class A-1 Certificate": Any Certificate designated as a
"Class A-1 Certificate" on the face thereof, in the form of Exhibit A-1 hereto,
representing the right to distributions as set forth herein. The Class A-1
Certificates shall be issued with an initial aggregate Certificate Principal
Balance equal to the Original Certificate Principal Balance therefor.
"Class A-1 Certificate Principal Balance": As of any time of
determination, the Original Certificate Principal Balance of the Class A-1
Certificates less any amounts actually distributed on account of the Class A-1
Principal Distribution Amount pursuant to Section 7.5(d)(iv)(B)(1) hereof with
respect to principal thereon on all prior Payment Dates.
"Class A-1 Certificate Termination Date": The Payment Date on
which the Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With respect to interest
accruing after the Cut-Off Date and as of any Payment Date, the aggregate amount
of interest accrued on the Class A-1 Certificate Principal Balance immediately
prior to such Payment Date during the related Interest Accrual Period at the
Class A-1 Pass-Through Rate.
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"Class A-1 Distribution Amount": The sum of (x) the Group I
Principal Distribution Amount payable to the Owners of the Class A-1
Certificates pursuant to Section 7.5(d)(iv)(B)(1) and (y) the Class A-1 Current
Interest.
"Class A-1 Pass-Through Rate": ______% per annum.
"Class A-2 Carry-Forward Amount": With respect to any Payment
Date, the sum of (i) the amount, if any, by which (x) the Class A-2 Distribution
Amount as of the immediately preceding Payment Date exceeded (y) the amount of
the actual distribution made to the Owners of the Class A-2 Certificates on such
immediately preceding Payment Date and (ii) 30 days' interest on the interest
portion of such amount at the Class A-2 Pass-Through Rate.
"Class A-2 Certificate": Any Certificate designated as a
"Class A-2 Certificate" on the face thereof, in the form of Exhibit A-2 hereto
representing the right to distributions as set forth herein. The Class A-2
Certificates shall be issued with an initial aggregate Certificate Principal
Balance equal to the Original Certificate Principal Balance therefor.
"Class A-2 Certificate Principal Balance": As of any time of
determination, the Original Certificate Principal Balance of the Class A-2
Certificates less any amounts actually distributed on account of the Class A-2
Distribution Amount pursuant to Section 7.5(d)(iv)(B)(2) hereof made with
respect to principal thereon on all prior Payment Dates.
"Class A-2 Certificate Termination Date": The Payment Date on
which the Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to interest
accruing after the Cut-Off Date and as of any Payment Date, the aggregate amount
of interest accrued on the Class A-2 Certificate Principal Balance immediately
prior to such Payment Date during the related Interest Accrual Period at the
Class A-2 Pass-Through Rate.
"Class A-2 Distribution Amount": The sum of (x) the Group I
Principal Distribution Amount payable to the Owners of the Class A-2
Certificates pursuant to Section 7.5(d)(iv)(B)(2) hereof and (y) the Class A-2
Current Interest.
"Class A-2 Pass-Through Rate": ______% per annum; provided
that on any Payment Date after the Clean-Up Call Date, the Class A-2
Pass-Through Rate shall be the lesser of (x) ______% and (y) the Group I
Available Funds Cap.
"Class A-3 Carry-Forward Amount": With respect to any Payment
Date, the sum of (i) the amount, if any, by which (x) the Class A-3 Distribution
Amount as of the immediately preceding Payment Date exceeded (y) the amount of
the actual distribution made to the Owners of the Class A-3 Certificates on such
immediately preceding Payment Date and (ii) 30 days' interest on the interest
portion of such amount at the Class A-3 Pass-Through Rate.
"Class A-3 Certificate": Any Certificate designated as a
"Class A-3 Certificate" on the face thereof, in the form of Exhibit A-3 hereto,
representing the right to distributions as set forth herein. The Class A-3
Certificates shall be issued with an initial aggregate Certificate Principal
Balance equal to the Original Certificate Principal Balance therefor.
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"Class A-3 Certificate Principal Balance": As of any time of
determination, the Original Certificate Principal Balance of the Class A-3
Certificates less any amounts actually distributed on account of the Class A-3
Principal Distribution Amount pursuant to Section 7.5(d)(iv)(D) hereof with
respect to principal thereon on all prior Payment Dates.
"Class A-3 Certificate Termination Date": The Payment Date on
which the Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to interest
accruing after the Cut-Off Date and as of any Payment Date, the aggregate amount
of interest accrued on the Class A-3 Certificate Principal Balance immediately
prior to such Payment Date during the related Interest Accrual Period at the
Class A-3 Pass-Through Rate.
"Class A-3 Distribution Amount": The sum of (x) the Group II
Principal Distribution Amount payable to the Owners of the Class A-3
Certificates pursuant to Section 7.5(d)(iv)(D) hereof and (y) the Class A-3
Current Interest.
"Class A-3 Formula Pass-Through Rate": The rate determined by
clause (x) of the definition of "Class A-3 Pass-Through Rate."
"Class A-3 Pass-Through Rate": For the initial Payment Date,
______%. As of any Payment Date thereafter, the lesser of (x) LIBOR plus, in the
case of any Payment Date on or prior to the Clean-Up Call Date, ______% per
annum, or in the case of any Payment Date thereafter, ______% per annum and (y)
the Group II Available Funds Cap for such Payment Date.
"Class A-3 Termination Date": _______________.
"Class R Certificate": Any of those Certificates representing
certain residual rights to distributions from the REMIC, designated as a "Class
R Certificate" on the face thereof, in the form of Exhibit C hereto and
evidencing an interest designated as the "residual interest" in the Trust for
purposes of the REMIC Provisions.
"Clean-Up Call Date": The date on which the outstanding
aggregate Loan Balance of the Mortgage Loans in the Trust has declined to 10% or
less of the Maximum Collateral Amount.
"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
"Combined Loan-to-Value Ratio": With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Property and with
respect to any Second Mortgage Loan, the percentage equal to (a) the sum of (i)
the remaining principal balance, as of origination of the Second Mortgage Loan
of the Senior Lien note(s) relating to such Second Mortgage Loan and (ii) the
Original Principal Amount of the Note relating to such Second Mortgage Loan
divided by (b) the Appraised Value of the related Property.
"Compensating Interest": As defined in Section 8.9(b) hereof.
"Corporate Trust Office": The principal office of the Trustee
at _______________ _______________, attention: First Alliance Mortgage Loan
Trust 199_-_ or any other office of the Trustee designated as such hereunder.
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"Coupon Rate": The rate of interest borne by each Note.
"Current Interest": As of any Payment Date, the sum of the
Class A-1 Current Interest, the Class A-2 Current Interest and the Class A-3
Current Interest.
"Curtailment": With respect to a Mortgage Loan, any payment of
principal received during a Remittance Period as part of a payment that is in
excess of the amount of the monthly payment due for such Remittance Period and
which is not a Paid-in-Full Mortgage Loan, nor is intended to cure a
delinquency.
"Cut-Off Date": __________________ __, 199_.
"Delinquency Advance": As defined in Section 8.9(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days Delinquent" if such payment has
not been received by the close of business on the second day of the month
immediately succeeding the month in which such payment was due. Similarly for
"60 days Delinquent," "90 days Delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as
Exhibit G hereto and delivered by the Company to the Trustee on the Startup Day
pursuant to Section 4.1 hereof.
"Depository": The Depository Trust Company, 7 Hanover Square,
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to the
Principal and Interest Account or the Certificate Account, an institution whose
deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, the long-term deposits of which shall be rated (x) A
or better by Standard & Poor's and (y) A2 or better by Moody's and in one of the
highest short-term rating categories, unless otherwise approved in writing by
the Certificate Insurer and each of Moody's and Standard & Poor's, and which is
any of the following: (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Certificate Insurer, Moody's and Standard & Poor's and, in each
case acting or designated by the Servicer as the depository institution for the
Principal and Interest Account; provided, however, that any such institution or
association shall have combined capital, surplus and undivided profits of at
least $100,000,000. Notwithstanding the foregoing, the Principal and Interest
Account or the Certificate Account may be held by (a) the Trustee or (b) an
institution otherwise meeting the preceding requirements except that the only
applicable rating requirement shall be that the unsecured and uncollateralized
debt obligations thereof shall be rated Baa3 or better by Moody's if such
institution has trust powers and the Principal and Interest Account is held by
such institution in its trust capacity and not in its commercial capacity.
"Determination Date": As to each Remittance Date, the 12th day
of each month, or if such day is not a Business Day, the next succeeding
Business Day.
"Direct Participant" or "DTC Participant": Any broker-dealer,
bank or other financial institution for which the Depository holds Class A
Certificates from time to time as a securities depository.
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"Disqualified Organization": "Disqualified Organization" shall
have the meaning set forth from time to time in the definition thereof at
Section 860E(e)(5) of the Code (or any successor statute thereto) and
applicable to the Trust.
"Due Date": The first day of the month of the related Payment
Date.
"Due Period": With respect to any Payment Date, the period
commencing on the second day of the month preceding the month of such Payment
Date (or, with respect to the first Due Period, the day following the Cut-Off
Date) and ending on the related Due Date.
"Eligible Investments": Those investments so designated
pursuant to Section 7.7 hereof.
"Event of Default": Any event described in clauses (a) or (b)
of Section 8.20 hereof.
"Event of Servicing Termination": Any event as described in
Section 8.20 hereof.
"Excess Subordinated Amount": With respect to any Mortgage
Loan Group and Payment Date, the excess, if any, of (x) the Subordinated Amount
that would apply to the related Mortgage Loan Group on such Payment Date after
taking into account the payment of the related Class A Distribution Amounts on
such Payment Date (except for any distributions of related Subordination
Reduction Amounts on such Payment Date) over (y) the related Specified
Subordinated Amount for such Payment Date.
"Fannie Mae": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to
Section 3.5 hereof pertaining to a particular Mortgage Loan and any additional
documents required to be added to the mortgage file pursuant to this Agreement.
"Final Certification": The final certification in the form set
forth as Exhibit F hereto and delivered by the Trustee to the Company within 90
days after the Startup Day pursuant to Section 3.6 hereof.
"Final Determination": As defined in Section 9.3(a) hereof.
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Property.
"Fixed Rate Certificate": Any of the Class A-1 Certificates or
the Class A-2 Certificates.
"Fixed Rate Certificate Carry-Forward Amount": With respect to
any Payment Date, the sum of the Class A-1 Carry-Forward Amount and the Class
A-2 Carry-Forward Amount.
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"Fixed Rate Certificate Insurance Policy": The certificate
guaranty insurance policy (number _________) dated _______________ __, 199_
issued by the Certificate Insurer to the Trustee for the benefit of the Owners
of the Fixed Rate Certificates.
"Fixed Rate Certificate Current Interest": The sum of the
Class A-1 Current Interest and the Class A-2 Current Interest.
"Fixed Rate Certificate Principal Balance": As of any time of
determination, the sum of the Class A-1 Certificate Principal Balance and the
Class A-2 Certificate Principal Balance.
"Fixed Rate Distribution Amount": The sum of the Class A-1
Distribution Amount and the Class A-2 Distribution Amount.
"Funding Period": With respect to each of Group I and Group
II, the period commencing on the Startup Day and ending on the earliest to occur
of (i) the date on which the amount on deposit in the Pre-Funding Account with
respect to such Group (exclusive of any Pre-Funding Account Earnings with
respect to such Group) is less than $100,000, (ii) the date on which the
Servicer may be removed pursuant to Section 8.20(a) or (b) hereof and (iii)
_______________ __, 199_.
"Group I": The pool of Mortgage Loans identified in the
related Schedules of Mortgage Loans as having been assigned to Group I,
including any Qualified Replacement Mortgages delivered in replacement thereof
and each Subsequent Mortgage Loan delivered to the Trust for inclusion therein.
"Group I Amortized Subordinated Amount Requirement": As of any
date of determination, the product of (x) ____% and (y) the Group I Maximum
Collateral Amount.
"Group I Available Funds": As defined in Section 7.3(a)(i)
hereof.
"Group I Available Funds Cap": The weighted average of the
Coupon Rates on the Mortgage Loans in Group I less the sum of the rates at which
(i) the Group I Servicing Fee, (ii) the Group I Trustee Fee and (iii) the Group
I Premium Amount are calculated.
"Group I Available Funds Shortfall": As defined in Section
7.5(d)(ii)(A).
"Group I Capitalized Interest Requirement": $_______________.
"Group I Initial Specified Subordinated Amount":
$_______________.
"Group I Insured Payment": As defined in the Fixed Rate
Certificate Insurance Policy.
"Group I Interest Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) all scheduled interest collected by
the Servicer during the related Due Period, with respect to the Mortgage Loans
in Group I, (ii) all Delinquency Advances relating to interest made by the
Servicer on such Remittance Date with respect to Group I and (iii) all
Compensating Interest paid by the Servicer on such Remittance Date with respect
to Group I.
"Group I Maximum Collateral Amount": $_______________.
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"Group I Monthly Remittance Amount": As of any Remittance
Date, the sum of (i) the Group I Interest Remittance Amount for such Remittance
Date and (ii) the Group I Principal Remittance Amount for such Remittance Date.
"Group I Original Aggregate Loan Balance": The aggregate Loan
Balances of all Initial Mortgage Loans in Group I as of the Cut-Off Date, i.e.,
$_______________.
"Group I Preference Amount": As defined in the Fixed Rate
Certificate Insurance Policy.
"Group I Premium Amount": As to any Payment Date beginning
with the third Payment Date, the product of _____% of (x) the Group I Premium
Percentage and (y) the Fixed Rate Certificate Principal Balance on such Payment
Date (before taking into account any distributions of principal to be made to
the Owners of the Fixed Rate Certificates on such Payment Date).
"Group I Premium Percentage": As defined in the Insurance
Agreement.
"Group I Principal Distribution Amount": With respect to the
Fixed Rate Certificates on the first Payment Date, the Group I Initial Specified
Subordinated Amount, if any and for the first Payment Date and for any Payment
Date thereafter, the lesser of:
(x) the Group I Total Available Funds plus any Group I Insured
Payment minus the Fixed Rate Certificates Current Interest for
such Payment Date; and
(y) the excess, if any, of (i) the sum, without duplication of:
(a) the Fixed Rate Certificate Carry-Forward
Amount,
(b) the principal portion of all scheduled
monthly payments on the Mortgage Loans in
Group I due on or prior to the related Due
Date during the related Due Period, to the
extent actually received by the Trustee on
or prior to the related Remittance Date or
to the extent advanced by the Servicer on or
prior to the related Remittance Date and any
Prepayments made by the respective
Mortgagors during the related Remittance
Period,
(c) the Loan Balance of each Mortgage Loan in
Group I that either was repurchased by the
Company or an Originator or purchased by the
Servicer on the related Remittance Date, to
the extent such Loan Balance is actually
received by the Trustee on or prior to the
related Remittance Date,
(d) any Substitution Amounts delivered by the
Company or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in Group I
(to the extent such Substitution Amounts
relate to principal), to the extent such
Substitution Amounts are actually received
by the Trustee on or prior to the related
Remittance Date,
(e) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Mortgage Loans in Group I during the
related Remittance Period (to the extent
such Net Liquidation Proceeds relate to
principal) to the extent actually received
by the Trustee on or prior to the related
Remittance Date,
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(f) the amount of any Group I Subordination
Deficit for such Payment Date,
(g) the proceeds received by the Trustee of any
termination as set forth in Article IX
hereof of Group I (to the extent such
proceeds related to principal),
(h) any moneys released from the Pre-Funding
Account as a prepayment of the Fixed Rate
Certificates on the Payment Date which
immediately follows the end of the Funding
Period, and
(i) the amount of any Subordination Increase
Amount with respect to Group I for such
Payment Date, to the extent of any Net
Monthly Excess Cashflow available for such
purpose;
over
(ii) the amount of any Subordination Reduction Amount with
respect to Group I for such Payment Date.
"Group I Principal Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) the scheduled principal actually
collected by the Servicer with respect to Mortgage Loans in Group I during the
related Due Period, (ii) Prepayments collected in the related Remittance Period,
(iii) the Loan Balance of each such Mortgage Loan in Group I that either was
repurchased by an Originator or by the Company or purchased by the Servicer on
such Remittance Date, to the extent such Loan Balance was actually deposited in
the Principal and Interest Account, (iv) any Substitution Amounts delivered by
the Company in connection with a substitution of a Mortgage Loan in Group I, to
the extent such Substitution Amounts were actually deposited in the Principal
and Interest Account on such Remittance Date, (v) all Net Liquidation Proceeds
actually collected by the Servicer with respect to such Mortgage Loans in Group
I during the related Due Period (to the extent such Liquidation Proceeds related
to principal), (vi) all Delinquency Advances relating to principal made by the
Servicer on such Remittance Date with respect to Group I and (vii) the amount of
any investment losses required to be deposited by the Company or the Servicer
pursuant to Sections 7.6(e) or 8.8(b).
"Group I Projected Net Monthly Excess Cashflow": As of any
date of calculation, Net Monthly Excess Cashflow relating to Group I (other than
any Subordination Reduction Amount included therein), as calculated pursuant to
Section 7.5(d)(iii) hereof on the Payment Date immediately preceding such date
of calculation.
"Group I Reimbursement Amount": As of any Payment Date, the
sum of (x)(i) all Group I Insured Payments previously received by the Trustee
and not previously repaid to the Certificate Insurer pursuant to Section
7.5(d)(ii)(C) or Section 7.5(d)(ii)(D) hereof plus (ii) interest accrued on each
such Group I Insured Payment not previously repaid calculated at the Late
Payment Rate from the date the Trustee received the related Group I Insured
Payment to, but not including, such Payment Date and (y)(i) any amounts then due
and owing to the Certificate Insurer relating to Group I under the Insurance
Agreement plus (ii) interest on such amounts at the Late Payment Rate. The
Certificate Insurer shall notify the Trustee and the Company of the amount of
any Group I Reimbursement Amount.
"Group I Servicing Fee": With respect to Group I, as to any
Payment Date, the product of (x) __________% and (y) the aggregate Loan Balances
of the Mortgage Loans in Group I as of the opening of business on the first day
of the related Remittance Period. Such Servicing Fee is retained by the Servicer
pursuant to Sections 8.8(c)(i) and 8.15 hereof.
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"Group I Specified Subordinated Amount": Means (a) for any
Payment Date occurring during the period commencing on the Startup Day and
ending on the later of (i) the date upon which principal equal to one-half of
the Group I Maximum Collateral Amount has been received and (ii) the 30th
Payment Date following the Startup Day, the greater of (A) the Group I Amortized
Subordinated Amount Requirement and (B) two (2) times the excess of (x) one-half
of the aggregate Loan Balances of all Mortgage Loans in Group I which are 90 or
more days Delinquent (including REO Properties) over (y) five times the Group I
Projected Net Monthly Excess Cashflow as of such Payment Date; and (b) for any
Payment Date occurring after the end of the period in clause (a) above, the
greatest of (i) the lesser of (A) the Group I Amortized Subordinated Amount
Requirement and (B) two (2) times the Group I Amortized Subordinated Amount
Requirement stated as a percentage of the Original Certificate Principal Balance
of the Fixed Rate Certificates times the current Fixed Rate Certificate
Principal Balance, (ii) two (2) times the excess of (A) one-half of the
aggregate Loan Balances of all Mortgage Loans in Group I which are 90 or more
days Delinquent (including REO Properties) over (B) three times the Group I
Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an
amount equal to _____% of the Group I Maximum Collateral Amount; provided,
however, notwithstanding the above, in the event that any Group I Insured
Payment or Group II Insured Payment is made by the Certificate Insurer, the
amount described in this clause (b) shall remain equal to the Group I Amortized
Subordinated Amount Requirement. The Specified Subordinated Amount may be
reduced or eliminated by the Certificate Insurer in its sole discretion. Prior
to any such reduction or elimination, the Servicer and the Certificate Insurer
shall give written notice to the Rating Agencies.
"Group I Subordinated Amount": As of any Payment Date, the
difference, if any, between (x) the sum of (i) the aggregate Loan Balances of
the Mortgage Loans in Group I as of the close of business on the last day of the
related Remittance Period and (ii) any amount on deposit in the Pre-Funding
Account at such time exclusive of any Pre-Funding Account Earnings related to
Group I and (y) the Fixed Rate Certificate Principal Balance as of such Payment
Date (after taking into account the payment of the Fixed Rate Distribution
Amount (except for any portion thereof related to an Insured Payment) on such
Payment Date).
"Group I Subordination Deficit": With respect to Group I and
any Payment Date, the amount, if any, by which (x) the Fixed Rate Certificate
Principal Balance, after taking into account the payment of the Group I
Principal Distribution Amount on such Payment Date (except any payment to be
made as to principal from the proceeds of the Fixed Rate Certificate Insurance
Policy), exceeds (y) the sum of (a) the aggregate Loan Balances of the Mortgage
Loans in Group I as of the close of business on the last day of the related Due
Period and (b) the amount, if any, on deposit in the Pre-Funding Account
exclusive of any Pre-Funding Account Earnings related to Group I as of the close
of business on the last day of the related Remittance Period; provided that for
the purpose of calculating Loan Balances to determine if a Subordination Deficit
exists, the aggregate amount of the principal component of all unreimbursed
Delinquency Advances shall be deducted from the related actual Loan Balances.
"Group I Total Available Funds": As defined in Section
7.3(a)(i) hereof.
"Group I Total Available Funds Shortfall": As defined in
Section 7.3(b) hereof.
"Group I Total Monthly Excess Spread": With respect to Group I
and any Payment Date, the difference between (i) the interest which is collected
on the Mortgage Loans in Group I during the related Remittance Period, less the
Group I Servicing Fee plus the interest portion of any Delinquency Advances and
Compensating Interest paid by the Servicer with respect to Group I for such
Remittance Period and (ii) the sum of (x) the interest due on the Fixed Rate
Certificates on such Payment Date and (y) the Group I Premium Amount and the
Group I Trustee Fee, if any, for such Payment Date.
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"Group I Trustee Fee": The amount payable monthly to the
Trustee on each Payment Date, in an amount equal to the product of (x) _______%
and (y) the Fixed Rate Certificate Principal Balance as of the opening of
business on the first day of the preceding Remittance Period.
"Group II": The pool of Mortgage Loans identified in the
related Schedules of Mortgage Loans as having been assigned to Group II,
including any Qualified Replacement Mortgages delivered in replacement thereof
and each Subsequent Mortgage Loan delivered to the Trust for inclusion therein.
"Group II Amortized Subordinated Amount Requirement": As of
any date of determination, the product of (x) ____% and (y) the Group II Maximum
Collateral Amount.
"Group II Available Funds": As defined in Section 7.3(a)
hereof.
"Group II Available Funds Cap": As of any Payment Date, the
weighted average of the Coupon Rates on the Mortgage Loans in Group II less the
sum of (a) the rates of which (i) the Group II Servicing Fee, (ii) the Group II
Trustee Fee, (iii) beginning on the third Payment Date, the Group II Premium
Amount are determined and (b) beginning on the seventh Payment Date, ____% per
annum expressed as a percentage of the Mortgage Loans in Group II.
"Group II Available Funds Cap Carry-Forward Amortization
Amount": As of any Payment Date, any amount distributed from the Group II
Available Funds Cap Carry-Forward Amount Account on such Payment Date pursuant
to Section 7.5(e) hereof.
"Group II Available Funds Cap Carry-Forward Amount": As of any
Payment Date, the excess, if any, of (x) the sum of (i) the excess, if any,
equal to (a) the aggregate amount of interest due on the Class A-3 Certificates
on all prior Payment Dates, calculated at the Class A-3 Formula Pass-Through
Rate applicable to each such Payment Date over (b) the aggregate amount of
interest due on the Class A-3 Certificates on all prior Payment Dates,
calculated at the Class A-3 Pass-Through Rate applicable to each such Payment
Date, (ii) the amount, if any, described in clause (iii) hereof as of the
immediately preceding Payment Date and (iii) the product of (a) ______% of the
Class A-3 Formula Pass-Through Rate on such Payment Date and (b) the sum of the
amounts described in clauses (i) and (ii) preceding over (y) all Group II
Available Funds Cap Carry-Forward Amortization Amounts actually funded on all
prior Payment Dates.
"Group II Available Funds Cap Carry-Forward Amount Account":
The Available Funds Cap Carry-Forward Amount Account established in accordance
with Section 7.10 hereof and maintained by the Trustee.
"Group II Available Funds Cap Trust": The First Alliance
Available Funds Cap Trust 199_-_ created pursuant to Section 7.10(a) hereof.
"Group II Available Funds Shortfall": As defined in Section
7.5(d)(ii)(A).
"Group II Capitalized Interest Requirement": $_______________.
"Group II Initial Specified Subordinated Amount":
$_______________.
"Group II Insured Payment": As defined in the Variable Rate
Certificate Insurance Policy.
"Group II Interest Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) all scheduled interest collected by
the Servicer during the related Due Period with respect
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to the Mortgage Loans in Group II, (ii) all Delinquency Advances relating to
interest made by the Servicer on such Remittance Date with respect to Group II,
and (iii) all Compensating Interest paid by the Servicer on such Remittance Date
with respect to Group II.
"Group II Maximum Collateral Amount": $_______________.
"Group II Monthly Remittance Amount": As of any Remittance
Date, the sum of (i) the Group II Interest Remittance Amount for such Remittance
Date and (ii) the Group II Principal Remittance Amount for such Remittance Date.
"Group II Original Aggregate Loan Balance": The aggregate Loan
Balances of all Initial Mortgage Loans in Group II as of the Cut-Off Date, i.e.,
$_______________.
"Group II Preference Amount": As defined in the Variable Rate
Certificate Insurance Policy.
"Group II Premium Amount": As to any Payment Date on or after
the third Payment Date, the product of _____% of (x) the Group II Premium
Percentage and (y) the Class A-3 Certificate Principal Balance on such Payment
Date (before taking into account any distributions of principal to be made to
the Owners of Class A-3 Certificates on such Payment Date).
"Group II Premium Percentage": As defined in the Insurance
Agreement.
"Group II Principal Distribution Amount": With respect to the
Class A-3 Certificates on the first Payment Date, the Group II Initial Specified
Subordinated Amount, if any, and for the first Payment Date and for any Payment
Date thereafter, the lesser of:
(x) the Group II Total Available Funds plus any Group II Insured
Payment minus the Class A-3 Current Interest for such Payment
Date; and
(y) the excess, if any, of (i) the sum, without any duplication
of:
(a) the Class A-3 Carry-Forward Amount,
(b) the principal portion of all scheduled
monthly payments on the Mortgage Loans in
Group II due on or prior to the related Due
Date during the related Due Period, to the
extent actually received by the Trustee on
or prior to the related Remittance Date or
to the extent advanced by the Servicer on or
prior to the related Remittance Date and any
Prepayments made by the respective
Mortgagors during the related Remittance
Period,
(c) the Loan Balance of each Mortgage Loan in
Group II that either was repurchased by the
Company or an Originator or purchased by the
Servicer on the related Remittance Date, to
the extent such Loan Balance is actually
received by the Trustee, on or prior to the
related Remittance Date,
(d) any Substitution Amounts delivered by the
Company or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in Group II
(to the extent such Substitution Amounts
relate to
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principal), to the extent such Substitution
Amounts are actually received by the
Trustee, on or prior to the related
Remittance Date,
(e) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Mortgage Loans in Group II during the
related Remittance Period (to the extent
such Net Liquidation Proceeds relate to
principal) to the extent actually received
by the Trustee, on or prior to the related
Remittance Date,
(f) the amount of any Group II Subordination
Deficit for such Payment Date,
(g) the proceeds received by the Trustee of any
termination as set forth in Article IX
hereto of Group II (to the extent such
proceeds related to principal),
(h) any moneys released from the Pre-Funding
Account as a prepayment of the Class A-3
Certificates on the Payment Date which
immediately follows the end of the Funding
Period, and
(i) the amount of any Subordination Increase
Amount with respect to Group II for such
Payment Date, to the extent of any Net
Monthly Excess Cashflow available for such
purpose;
over
(ii) the amount of any Subordination Reduction
Amount with respect to Group II for such
Payment Date.
"Group II Principal Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) the scheduled principal actually
collected by the Servicer with respect to Mortgage Loans in Group II during the
related Due Period, (ii) the Prepayments collected in the related Remittance
Period, (iii) the Loan Balance of each such Mortgage Loan in Group II that
either was repurchased by an Originator or by the Company or purchased by the
Servicer on such Remittance Date, to the extent such Loan Balance was actually
deposited in the Principal and Interest Account, (iv) any Substitution Amounts
delivered by the Company in connection with a substitution of a Mortgage Loan in
Group II, to the extent such Substitution Amounts were actually deposited in the
Principal and Interest Account on such Remittance Date, (v) all Net Liquidation
Proceeds actually collected by the Servicer with respect to such Mortgage Loans
in Group II during the related Due Period (to the extent such Liquidation
Proceeds related to principal), (vi) all Delinquency Advances relating to
principal made by the Servicer on such Remittance Date with respect to Group II
and (vii) the amount of any investment losses required to be deposited by the
Company or the Servicer pursuant to Sections 7.6(e) and 8.8(b) hereof.
"Group II Projected Net Monthly Excess Cashflow": As of any
date of calculation, Net Monthly Excess Cashflow relating to Group II (other
than any Subordination Reduction Amount included therein), as calculated
pursuant to Section 7.5(d)(iii) hereof on the Payment Date immediately preceding
such date of calculation.
"Group II Reimbursement Amount": As of any Payment Date, the
sum of (x)(i) all Group II Insured Payments previously received by the Trustee
and not previously repaid to the Certificate Insurer pursuant to Sections
7.5(d)(ii)(C) and 7.5(d)(ii)(D) hereof plus (ii) interest accrued on each such
Group II Insured Payment not previously repaid calculated at the Late Payment
Rate from the date the Trustee
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received the related Group II Insured Payment to, but not including, such
Payment Date and (y)(i) any amounts then due and owing to the Certificate
Insurer relating to Group II under the Insurance Agreement plus (ii) interest on
such amounts at the Late Payment Rate. The Certificate Insurer shall notify the
Trustee and the Company of the amount of any Group II Reimbursement Amount.
"Group II Servicing Fee": With respect to Group II, as to any
Payment Date, the product of (x) ____% and (y) the aggregate Loan Balances of
the Mortgage Loans in Group II as of the opening of business on the first day of
the related Remittance Period. Such Servicing Fee is retained by the Servicer
pursuant to Sections 8.8(c)(i) and 8.15 hereof.
"Group II Specified Subordinated Amount": Means (a) for any
Payment Date occurring during the period commencing on the Startup Day and
ending on the later of (i) the date upon which principal equal to one-half of
the Group II Maximum Collateral Amount has been received and (ii) the 30th
Payment Date following the Startup Day, the greater of (A) the Group II
Amortized Subordinated Amount Requirement and (B) two times the excess of (x)
one-half of the aggregate Loan Balances of all Mortgage Loans in Group II which
are 90 or more days Delinquent (including REO Properties) over (y) five times
the Group II Projected Net Monthly Excess Cashflow as of such Payment Date; and
(b) for any Payment Date occurring after the end of the period in clause (a)
above, the greatest of (i) the lesser of (A) the Group II Amortized Subordinated
Amount Requirement and (B) two (2) times the Group II Amortized Subordinated
Amount Requirement stated as a percentage of the Original Certificate Principal
Balance of the Class A-3 Certificates times the current Class A-3 Certificate
Principal Balance, (ii) two (2) time the excess of (A) one-half of the aggregate
Loan Balances of all Mortgage Loans in Group II which are 90 or more days
Delinquent (including REO Properties) over (B) three times the Group II
Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an
amount equal to____ % of the Group II Maximum Collateral Amount; provided,
however, notwithstanding the above, in the event that any Group I Insured
Payment or Group II Insured Payment is made by the Certificate Insurer, the
Group II Specified Subordinated Amount shall remain equal to the Group II
Amortized Subordinated Amount Requirement.
"Group II Subordinated Amount": As of any Payment Date, the
difference, if any, between (x) the sum of (i) the aggregate Loan Balances of
the Mortgage Loans in Group II as of the close of business on the last day of
the related Remittance Period and (ii) any amount on deposit in the Pre-Funding
Account at such time exclusive of any Pre-Funding Account Earnings related to
Group II and (y) the Class A-3 Certificate Principal Balance as of such Payment
Date (after taking into account the payment of the Class A-3 Distribution Amount
(except for any portion thereof related to an Insured Payment) on such Payment
Date).
"Group II Subordination Deficit": With respect to Group II and
any Payment Date, the amount, if any, by which (x) the Class A-3 Certificate
Principal Balance, after taking into account the payment of the Group II
Principal Distribution Amount on such Payment Date (except any payment to be
made as to principal from the proceeds of the Variable Rate Certificate
Insurance Policy), exceeds (y) the sum of (a) the aggregate Loan Balances of the
Mortgage Loans in Group II as of the close of business on the last day of the
related Due Period and (b) the amount, if any, on deposit in the Pre-Funding
Account exclusive of any Pre-Funding Account Earnings related to Group II as of
the close of business on the last day of the related Remittance Period; provided
that for the purpose of calculating Loan Balances to determine if a
Subordination Deficit exists, the aggregate amount of the principal component of
all unreimbursed Delinquency Advances shall be deducted from the related actual
Loan Balances.
"Group II Total Available Funds": As defined in Section
7.3(a)(ii) hereof.
"Group II Total Available Funds Shortfall": As defined in
Section 7.3(b) hereof.
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"Group II Total Monthly Excess Spread": With respect to Group
II and any Payment Date, the difference between (i) the interest which is
collected on the Mortgage Loans in Group II during the related Remittance
Period, less the Group II Servicing Fee for such Remittance Period plus the
interest portion of any Delinquency Advances and Compensating Interest paid by
the Servicer with respect to Group II for such
Remittance Period and (ii) the sum of (x) the interest due on the Class A-3
Certificates on such Payment Date and (y) the Group II Premium Amount, and the
Group II Trustee Fee, if any, for such Payment Date.
"Group II Trustee Fee": The amount payable monthly to the
Trustee on each Payment Date, in an amount equal to the product of (x) ________%
and (y) the Class A-2 Certificate Principal Balance as of the opening of
business on the first day of the related Remittance Period.
"Highest Lawful Rate": As defined in Section 11.13.
"Indemnification Agreement": The Indemnification Agreement
dated as of _______________ __, 199_, among the Certificate Insurer, the Company
and the Underwriters.
"Indirect Participant": Any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Initial Certification": The initial certification in the form
set forth as Exhibit E hereto and delivered by the Trustee to the Company on the
Startup Day pursuant to Section 3.6 hereof.
"Initial Mortgage Loans": The Mortgage Loans to be conveyed to
the Trust by the Company on the Startup Day.
"Initial Premiums": The initial premium (covering three
months) for Group I and Group II payable by the Company on behalf of the Trust
to the Certificate Insurer in consideration of the delivery to the Trustee of
each of the Certificate Insurance Policies.
"Insurance Agreement": The Insurance Agreement dated as of
__________________ __, 199_, among the Company, the Servicer, the Trustee and
the Certificate Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary
mortgage insurance policy relating to a Mortgage Loan.
"Insured Payment": A Group I Insured Payment or a Group II
Insured Payment.
"Interest Accrual Period": With respect to the Fixed Rate
Certificates and any Payment Date, the calendar month immediately preceding such
Payment Date. A "Calendar Month" shall be deemed to be 30 days. With respect to
the Class A-3 Certificates and any Payment Date, the period commencing on the
immediately preceding Payment Date (or in the case of the first Payment Date,
the Startup Day) and ending on the day immediately preceding the current Payment
Date. All calculations of interest on the Fixed Rate Certificates will be made
on the basis of a 360-day year assumed to consist of twelve 30-day months and
all calculations of interest on the Class A-3 Certificates will be made on the
basis of the actual number of days elapsed in the related Interest Accrual
Period and in a year of 360 days.
"Interest Determination Date": With respect to any Interest
Accrual Period for the Class A-3 Certificates, the second London Business Day
preceding such Interest Accrual Period.
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"Late Payment Rate": For any Payment Date, the rate of
interest, as it is publicly announced by Citibank, N.A. at its principal office
in New York, New York as its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by Citibank, N.A.)
plus 3%. The Late Payment Rate shall be computed on the basis of a year of 365
days calculating the actual number of days elapsed. In no event shall the Late
Payment Rate exceed the maximum rate permissible under any applicable law
limiting interest rates.
"Latest Termination Date": The later to occur of (i) the Class
A-2 Certificate Termination Date and (ii) the Class A-3 Certificate Termination
Date.
"LIBOR": With respect to any Interest Accrual Period for the
Class A-3 Certificates, the rate determined by the Trustee on the related
Interest Determination Date on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as such rates appear on Telerate Page
3750, as of 11:00 a.m. (London time) on such Interest Determination Date. On
each Interest Determination Date, LIBOR for the related Interest Accrual Period
will be established by the Trustee as follows:
(i) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the
nearest whole multiple of 0.0625%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, LIBOR for the
related Interest Accrual Period shall be the higher of (i)
LIBOR as determined on the previous Interest Determination
Date and (ii) the Reserve Interest Rate.
"Liquidated Loan": As defined in Section 8.13(b) hereof. A
Mortgage Loan which is purchased from the Trust pursuant to Section 3.4, 3.6 or
8.10 hereof is not a "Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the
Servicer in connection with the liquidation of any defaulted Mortgage Loan, such
expenses, including, without limitation, legal fees and expenses, and any
unreimbursed Servicing Advances expended by the Servicer pursuant to Sections
8.9(c) and 8.13 with respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan,
any amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Initial Mortgage Loan,
the principal balance thereof on the Cut-Off Date, and with respect to each
Subsequent Mortgage Loan, the principal balance thereof on the relevant
Subsequent Cut-Off Date less, in either case, any related Principal Remittance
Amounts relating to such Mortgage Loan included in previous related Monthly
Remittance Amounts that were received by the Servicer or any Sub-Servicer
whether or not delivered to the Trustee, however, that the Loan Balance for any
Mortgage Loan which has become a Liquidated Loan shall be zero as of the first
day of the Remittance Period following the Remittance Period in which such
Mortgage Loan becomes a Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan
purchased from the Trust on a Remittance Date pursuant to Section 3.4, 3.6 or
8.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan as of the
date of purchase, plus one month's interest on the outstanding Loan Balance
thereof
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as of the beginning of the preceding Remittance Period computed at the Coupon
Rate less the Servicing Fee (expressed as an annual percentage rate), if any,
together with, without duplication, the aggregate amount of (i) all delinquent
interest, all Delinquency Advances and Servicing Advances theretofore made with
respect to such Mortgage Loan and not subsequently recovered from the related
Mortgage Loan and (ii) all Delinquency Advances which the Servicer or any
Sub-Servicer has theretofore failed to remit with respect to such Mortgage Loan.
"London Business Day": A day on which banks are open for
dealing in foreign currency and exchange in London and New York City.
"Maximum Collateral Amount": $_______________.
"Monthly Exception Report": The monthly report delivered by
the Servicer to the Trustee on each Determination Date, commencing with the
Determination Date in ____________________, pursuant to Section 8.8(d)(ii). Each
Monthly Exception Report shall cover the immediately preceding Remittance Period
and shall consist of (i) an activity report of the Mortgage Loans setting forth
the Loan Balance of Mortgage Loans as of the first day of the related Remittance
Period, scheduled payments due, Prepayments, Liquidated Loan balances, and the
resulting Loan Balance of the Mortgage Loans as of the last day of the related
Remittance Period and (ii) separate reports of (a) payoffs, Curtailments,
foreclosures and bankruptcies such reports to provide the payment details for
each Mortgage Loan covering the immediately preceding Remittance Period and any
Prepayments not previously reported from a prior Remittance Period, and (b)
Prepayments and delinquencies, such reports to reflect the current status of
each Mortgage Loan with payment details as of the last day of the related
Remittance Period.
"Monthly Remittance Amount": With respect to Group I, the
Group I Monthly Remittance Amount and with respect to Group II, the Group II
Monthly Remittance Amount.
"Monthly Servicing Report": As defined in Section 8.26.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Note.
"Mortgage Loans": Such of the mortgage loans (including
Initial Mortgage Loans and Subsequent Mortgage Loans) transferred and assigned
to the Trust pursuant to Section 3.5(a) and Section 3.8 hereof, together with
any Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
Mortgage Loans originally so held being identified in the Schedules of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan" and
"Second Mortgage Loan." The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Property which is REO Property prior to such Property's disposition by the
Trust. Any mortgage loan which, although intended by the parties hereto to have
been, and which purportedly was, transferred and assigned to the Trust by the
Company, in fact was not transferred and assigned to the Trust for any reason
whatsoever shall nevertheless be considered a "Mortgage Loan" for all purposes
of this Agreement.
"Mortgage Loan Group": Either Group I or Group II. References
herein to the related Class of Class A Certificates, when used with respect to a
Mortgage Loan Group, shall mean (A) in the case of Group I, the Fixed Rate
Certificates and (B) in the case of Group II, the Class A-3 Certificates.
"Mortgagor": The obligor on a Note.
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"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued
and unpaid Servicing Fees through the date of liquidation relating to such
Liquidated Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": As defined in Section
7.5(d)(iii) hereof.
"Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any
Authorized Officer of any Person delivering such certificate and delivered to
the Trustee.
"Operative Documents": Collectively, this Agreement, the
Certificate Insurance Policies, the Certificates, the Insurance Agreement, the
Underwriting Agreement, any Sub-Servicing Agreement, the Registration Statement
and the Indemnification Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances
of all Initial Mortgage Loans as of the Cut-Off Date, i.e., $_______________.
"Original Certificate Principal Balance": As of the Startup
Day and as to each Class of Class A Certificates, the original Certificate
Principal Balances thereof, as follows:
Class A-1 Certificates $_______________
Class A-2 Certificates $_______________
Class A-3 Certificates $_______________
The Class R Certificates do not have an Original Certificate
Principal Balance.
"Original Group I Pre-Funded Amount": $_______________.
"Original Group II Pre-Funded Amount": $_______________.
"Original Pre-Funded Amount": The amount deposited in the
Pre-Funding Account on the Startup Day from the proceeds of the sale of the
Certificates, which amount is $_______________.
"Original Principal Amount": With respect to each Note, the
principal amount of such Note on the date of origination thereof.
"Originator": The Company and any entity from which the
Company acquires Mortgage Loans.
"Outstanding": With respect to all Certificates of a Class, as
of any date of determination, all such Certificates theretofore executed and
delivered hereunder except:
(i) Certificates theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
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(ii) Certificates or portions thereof for which full and
final payment of money in the necessary amount has been theretofore
deposited with the Trustee in trust for the Owners of such
Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this
Agreement, unless proof satisfactory to the Trustee is presented that
any such Certificates are held by a bona fide purchaser; and
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.5 hereof.
(v) Certificates as to which the Trustee has made the
final distribution thereon, whether or not such Certificates have been
returned to the Trustee.
"Overfunded Interest Amount": With respect to each Subsequent
Transfer Date, the sum, if any, of (A) with respect to the Fixed Rate
Certificates, the excess of (i) the product of (x) a fraction, the numerator of
which is the aggregate Loan Balances of the Subsequent Mortgage Loans related to
Group I acquired by the Trust on such Subsequent Transfer Date and the
denominator of which is the Original Group I Pre-Funded Amount and (y) the
amount related to Group I in the Capitalized Interest Account on such Subsequent
Transfer Date over (ii) the Group I Capitalized Interest Requirement after
taking into account any transfers described in Section 7.4(e) hereof and (B)
with respect to the Class A-3 Certificates, the excess of (i) the product of (x)
a fraction, the numerator of which is the aggregate Loan Balances of the
Subsequent Mortgage Loans related to Group II acquired by the Trust on such
Subsequent Transfer Date and the denominator of which is the Original Group II
Pre-Funded Amount and (y) the amount related to Group II in the Capitalized
Interest Account on such Subsequent Transfer Date over (ii) the Group II
Capitalized Interest Requirement after taking into account any transfers
described in Section 7.4(e) hereof.
"Owner": The Person in whose name a Certificate is registered
in the Register, to the extent described in Section 5.6.
"Paid-in-Full Mortgage Loan": With respect to any Payment
Date, a Mortgage Loan on which the entire obligation of the related Mortgagor
has been satisfied and the lien on the property may be removed during the
related Remittance Period.
"Pass-Through Rate": As to the Class A-1 Certificates, the
Class A-1 Pass-Through Rate and as to the Class A-2 Certificates, the Class A-2
Pass-Through Rate and as to the Class A-3 Certificates, the Class A-3
Pass-Through Rate.
"Payment Date": Any date on which the Trustee is required to
make distributions to the Owners, which shall be the 20th day of each month, or
if such day is not a Business Day, the next succeeding Business Day, commencing
in the month following the Startup Day.
"Percentage Interest": As to any Class A Certificate, that
percentage, expressed as a fraction, the numerator of which is the Certificate
Principal Balance set forth on such Certificate as of the Cut-Off Date and the
denominator of which is the Original Certificate Principal Balance of all Class
A Certificates of the same Class as of the Cut-Off Date; and as to any Class R
Certificate, that Percentage Interest set forth on such Class R Certificate.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Pool Cumulative Expected Losses": With respect to any period,
the sum of (i) all Realized Losses with respect to the Mortgage Loans
experienced during such period and (ii) the product of (A) ____ and (B) with
respect to any date of determination, the sum of (x) ___% of the Loan Balances
of all Mortgage Loans which are greater than 30 days Delinquent and less than 60
days Delinquent, (y) ____% of the Loan Balances of all Mortgage Loans which are
greater than 60 days Delinquent and less than 90 days Delinquent, and (z) ____%
of the Loan Balances of all Mortgage Loans which are greater than 90 days
Delinquent (including REO Properties).
"Pool Cumulative Realized Losses": With respect to any period,
the sum of all Realized Losses experienced since the Startup Date with respect
to the Mortgage Loans.
"Pool Delinquency Rate": With respect to any Remittance
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
principal balances of all Mortgage Loans 90 or more days Delinquent (including
foreclosures and REO Properties) as of the close of business on the last day of
such Remittance Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Remittance Period.
"Pool Principal Balance": The aggregate principal balances of
the Group I Mortgage Loans and the Group II Mortgage Loans.
"Pool Rolling Three Month Delinquency Rate": As of any Payment
Date, the fraction, expressed as a percentage, equal to the average of the Pool
Delinquency Rates for each of the three (or one and two, in the case of the
first and second Payment Dates) immediately preceding Remittance Periods.
"Preference Amount": Either of the Group I Preference Amount
or the Group II Preference Amount.
"Pre-Funded Amount": With respect to any Determination Date,
the amount remaining on deposit in the Pre-Funding Account.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 7.2(b) hereof and maintained by the Trustee.
"Pre-Funding Account Earnings": With respect to the initial
Payment Date, the actual investment earnings earned during the period from the
Startup Day through _______________ __, 199_ (inclusive) on the Pre-Funding
Account during such period as calculated by the Trustee pursuant to Section
3.8(e) hereof.
"Premium Amount": As to any Payment Date beginning on the
third Payment Date, the Group I Premium Amount and the Group II Premium Amount.
"Premium Percentage": The Group I Premium Percentage or the
Group II Premium Percentage.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received by the Servicer
prior to the scheduled due date for such installment, intended by the Mortgagor
as an early payment thereof and not as a Prepayment with respect to such
Mortgage Loan.
"Prepayment": A Curtailment or a Paid-in-Full Mortgage Loan.
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"Preservation Expenses": Expenditures made by the Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal and Interest Account": Collectively, each principal
and interest account created by the Servicer pursuant to Section 8.8(a) hereof,
or pursuant to any Sub-Servicing Agreement.
"Principal Remittance Amount": As applicable, the Group I
Principal Remittance Amount or the Group II Principal Remittance Amount.
"Prohibited Transaction": The meaning set forth from time to
time in the definition thereof at Section 860F(a)(2) of the Code (or any
successor statute thereto) and applicable to the Trust.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": The Company's Prospectus dated _______________,
199_.
"Prospectus Supplement": The First Alliance Mortgage Loan
Trust 199_-_ Prospectus Supplement dated _______________ __, 199_ to the
Prospectus.
"Qualified Liquidation": The meaning set forth from time to
time in the definition thereof at Section 860F(a)(4) of the Code (or any
successor statute thereto) and applicable to the Trust and the Trust Estate.
"Qualified Mortgage": The meaning set forth from time to time
in the definition thereof at Section 860G(a)(4) of the Code (or any successor
statute thereto) and applicable to the Trust and the Mortgage Loan Groups.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
for another pursuant to Section 3.4 or 3.6 hereof, which (i) bears a fixed rate
of interest if the Mortgage Loan to be substituted for is in Group I or bears a
variable rate of interest if the Mortgage Loan to be substituted for is in Group
II, (ii) has a Coupon Rate at least equal to the Coupon Rate of the Mortgage
Loan being replaced (which, in the case of a Mortgage Loan in Group II, shall
mean a Mortgage Loan having the same interest rate index, a margin over such
index and a maximum interest rate at least equal to those applicable to the
Mortgage Loan being replaced), (iii) is of the same or better property type and
the same or better occupancy status as the replaced Mortgage Loan, (iv) shall be
of the same or better credit quality classification (determined in accordance
with the Originators' credit underwriting guidelines) as the Mortgage Loan being
replaced, (v) shall mature no later than _______________ for Group I and
_______________ for Group II, (vi) has a Combined Loan-to-Value Ratio as of the
Cut-Off Date, no higher than the Combined Loan-to-Value Ratio of the replaced
Mortgage Loan at such time, (vii) has a Loan Balance as of the related
Replacement Cut-Off Date equal to or less than the Loan Balance of the replaced
Mortgage Loan as of such Replacement Cut-Off Date, (viii) satisfies the criteria
set forth from time to time in the definition thereof at Section 860G(a)(4) of
the Code (or any successor statute thereto) and applicable to the Trust, all as
evidenced by an Officer's Certificate of the Company delivered to the Trustee
and the Certificate Insurer prior to any such substitution, (ix) is of the same
lien status or better lien status (x) is not Delinquent, (xi) meets the
representations and warranties set out in Section 3.3 hereof and (xii) a valid
fixed rate Mortgage Loan, if the Mortgage Loan to be substituted for is in Group
I, and is a valid variable rate Mortgage Loan, if the Mortgage Loan to be
substituted for is in Group II. In the event that one or more mortgage loans are
proposed to be substituted for one or more mortgage loans, the Certificate
Insurer may allow the foregoing tests to be met on a weighted average basis or
other aggregate basis acceptable to the Certificate Insurer, as evidenced by a
written approval delivered
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to the Trustee by the Certificate Insurer, except that the requirement of
clauses (vi) and (viii) hereof must be satisfied as to each Qualified
Replacement Mortgage.
"Rating Agencies": Moody's and Standard & Poor's or any
successors thereto.
"Realized Loss": As to any Liquidated Loan, the amount, if
any, by which the Loan Balance thereof as of the date of liquidation is in
excess of Net Liquidation Proceeds realized thereon.
"Record Date": With respect to each Payment Date, the last
Business Day of the calendar month immediately preceding the calendar month in
which such Payment Date occurs.
"Reference Banks": _____________________, _________________
and _____________________________; provided that if any of the foregoing banks
are not suitable to serve as a Reference Bank, then any leading banks selected
by the Trustee which are engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) not controlling, under the control of or under common control with
the Company or any affiliate thereof, (iii) whose quotations appear on the
Telerate Page 3750 on the relevant Interest Determination Date and (iv) which
have been designated as such by the Trustee.
"Register": The register maintained by the Trustee in
accordance with Section 5.4 hereof, in which the names of the Owners are set
forth.
"Registrar": The Trustee, acting in its capacity as Trustee
appointed pursuant to Section 5.4 hereof, or any duly appointed and eligible
successor thereto.
"Registration Statement": The Registration Statement filed by
the Company with the Securities and Exchange Commission, including all
amendments thereto and including the Prospectus and Prospectus Supplement
constituting a part thereof.
"Reimbursement Amount": A Group I Reimbursement Amount or a
Group II Reimbursement Amount.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
"Remittance Date": Any date on which the Servicer is required
to remit moneys on deposit in the Principal and Interest Account to the
Certificate Account, which shall be the day two Business Days prior to the
related Payment Date, commencing two days prior to the first Payment Date.
"Remittance Period": The period (inclusive) beginning on the
first day of the calendar month immediately preceding the month in which a
Remittance Date occurs and ending on the last day of such immediately preceding
calendar month.
"REO Property": A Property acquired by the Servicer or any
Sub-Servicer on behalf of the Trust through foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.
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"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Register under the nominee name of the
Depository.
"Request for Release": The request for release in the form set
forth as Exhibit K hereto.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of ______%) of the one-month U.S. dollar lending rates which New York
City banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residual Net Monthly Excess Cashflow": With respect to any
Payment Date, the aggregate Net Monthly Excess Cashflow, if any, remaining with
respect to each of the Mortgage Loan Groups after the making of all applications
described in Sections 7.5(d)(i), 7.5(d)(ii), 7.5(d)(iii) and 7.5(d)(iv) hereof.
"Responsible Officer": When used with respect to the Trustee,
any officer assigned to the corporate trust group (or any successor thereto),
including any vice president, assistant vice president, trust officer, any
assistant secretary, any assistant treasurer, any trust officer or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Agreement.
"Schedules of Mortgage Loans": The Schedules of Mortgage
Loans, separated by Mortgage Loan Group, with respect to the Mortgage Loans
listing each Initial Mortgage Loan in the related Group to be conveyed on the
Startup Day and with respect to Subsequent Mortgage Loans listing each
Subsequent Mortgage Loan conveyed to the Trust for inclusion in Group I or Group
II as of each Subsequent Transfer Date in accordance with Sections 3.5(a) and
3.8 hereof. Such Schedules of Mortgage Loans shall identify each Mortgage Loan
by the Servicer's loan number and address (including the state) of the Property
and shall set forth as to each Mortgage Loan the lien status, the Combined
Loan-to-Value Ratio, the Loan Balance as of the Cut-Off Date or Subsequent
Cut-Off Date, as the case may be, the Coupon Rate thereof (or, with respect to
Mortgage Loans in Group II, the index, the margin) the current scheduled monthly
payment of principal and interest and the maturity of the related Note, the
property type, occupancy status, Appraised Value and the Originator of the
Mortgage Loan, all as delivered to the Trustee in physical and computer readable
form and delivered to the Certificate Insurer in physical form.
"Second Mortgage Loan": A Mortgage Loan which constitutes a
second priority mortgage lien with respect to the related Property.
"Securities Act": The Securities Act of 1933, as amended.
"Senior Lien": With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Property having a first priority
lien.
"Servicer": First Alliance Mortgage Company, a California
corporation, and its permitted successors and assigns.
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"Servicer Affiliate": A Person (i) controlling, controlled by
or under common control with the Servicer and (ii) which is qualified to service
residential mortgage loans.
"Servicing Advance": As defined in Section 8.9(c) and Section
8.13 hereof.
"Servicing Certificate": A certificate completed by and
executed by an Authorized Officer of the Trustee as attached hereto in the form
of Exhibit J.
"Six Month LIBOR Loans": Mortgage Loans whose interest rates
adjust semi-annually based on the London interbank offered rate for six-month
United States Dollar deposits in the London Market and as published in The Wall
Street Journal.
"Specified Subordinated Amount": As applicable, the Group I
Specified Subordinated Amount or the Group II Specified Subordinated Amount.
"Standard & Poor's": Standard & Poor's Rating Services, a
Division of The McGraw-Hill Companies.
"Startup Day": _______________ __, 199_.
"Subordinated Amount": As applicable, the Group I Subordinated
Amount or the Group II Subordinated Amount.
"Subordination Deficiency Amount": With respect to any
Mortgage Loan Group and Payment Date, the excess, if any, of (i) the Specified
Subordinated Amount applicable to such Mortgage Loan Group and Payment Date over
(ii) the Subordinated Amount applicable to such Mortgage Loan Group and Payment
Date prior to taking into account the payment of any related Subordination
Increase Amounts on such Payment Date.
"Subordination Deficit": As applicable, the Group I
Subordination Deficit or the Group II Subordination Deficit.
"Subordination Increase Amount": With respect to any Mortgage
Loan Group and Payment Date, the lesser of (i) the Subordination Deficiency
Amount as of such Payment Date (after taking into account the payment of the
related Class A Distribution Amount on such Payment Date (except for any
Subordination Increase Amount)) and (ii) the aggregate amount of Net Monthly
Excess Cashflow to be allocated to such Mortgage Loan Group pursuant to Sections
7.5(d)(iii)(A) and 7.5(d)(iii)(B) on such Payment Date.
"Subordination Reduction Amount": With respect to any Mortgage
Loan Group and Payment Date, an amount equal to the lesser of (x) the Excess
Subordinated Amount for such Mortgage Loan Group and Payment Date and (y) the
Principal Remittance Amount with respect to such Mortgage Loan Group for the
related Remittance Period.
"Subsequent Cut-Off Date": The beginning of business on the
date specified in a Subsequent Transfer Agreement with respect to those
Subsequent Mortgage Loans which are transferred and assigned to the Trust
pursuant to the related Subsequent Transfer Agreement.
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"Subsequent Mortgage Loans": The Mortgage Loans sold to the
Trust for inclusion in Group I or Group II pursuant to Section 3.8 hereof, which
shall be listed on the Schedules of Mortgage Loans attached to a Subsequent
Transfer Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Trustee and the
Company substantially in the form of Exhibit L hereto, by which Subsequent
Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": The date so specified in each
Subsequent Transfer Agreement.
"Sub-Servicer": Any Person with whom the Servicer has entered
into a Sub-Servicing Agreement and who satisfies any requirements set forth in
Section 8.3 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the
Servicer and any Sub-Servicer relating to servicing and/or administration of
certain Mortgage Loans as permitted by Section 8.3.
"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such difference together with
accrued and unpaid interest on such amount calculated at the Coupon Rate net of
the Servicing Fee of the Mortgage Loan being replaced.
"Tax Matters Person": The Tax Matters Person appointed
pursuant to Section 11.17 hereof.
"Telerate Page 3750": The display designated as page "3750" on
the Dow Jones Telerate Capital Markets Report (or such other page as may replace
page 3750 on that report for the purpose of displaying London interbank offered
rates of major banks).
"Termination Notice": As defined in Section 9.3(b) hereof.
"Termination Price": As defined in Section 9.2(a) hereof.
"Total Monthly Excess Cashflow": As defined in Section
7.5(d)(ii) hereof.
"Total Monthly Excess Spread": As applicable, the Group I
Total Monthly Excess Spread or the Group II Total Monthly Excess Spread.
"Trust": First Alliance Mortgage Loan Trust 199_-_, the trust
created under this Agreement.
"Trust Estate": Collectively, all money, instruments and other
property, to the extent such money, instruments and other property are subject
or intended to be held in trust, and in the subtrusts, for the benefit of the
Owners, including all proceeds thereof, including, without limitation, (i) the
Mortgage Loans, (ii) such amounts, including Eligible Investments, as from time
to time may be held in all Accounts (except as otherwise provided herein), (iii)
any Property, the ownership of which has been effected on behalf of the Trust as
a result of foreclosure or acceptance by the Servicer of a deed in lieu of
foreclosure and that has not been withdrawn from the Trust, (iv) any Insurance
Policies relating to the Mortgage Loans and any rights of the Company under such
Insurance Policies, (v) Net Liquidation Proceeds with respect to any Liquidated
Loan, (vi) the Certificate Insurance Policies and (vii) the proceeds of any of
the above.
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"Trustee": ________________________ located on the date of
execution of this Agreement at_______________ _______________, not in its
individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee Fee": The fee payable monthly to the Trustee equal to
the sum of the Group I Trustee Fee and the Group II Trustee Fee.
"Underwriters": ____________________ and ____________________.
"Underwriting Agreement": The Underwriting Agreement dated as
of ________________ __, 199_ between the Underwriters and the Company.
"Variable Rate Certificate Insurance Policy": The certificate
guaranty insurance policy (number ________) dated ________________ __, 199_
issued by the Certificate Insurer to the Trustee for the benefit of the Owners
of the Class A-3 Certificates.
Section 1.2. Use of Words and Phrases. "Herein", "hereby",
"hereunder", "hereof", "hereinbefore", "hereinafter" and other equivalent words
refer to this Agreement as a whole and not solely to the particular section of
this Agreement in which any such word is used. The definitions set forth in
Section 1.1 hereof include both the singular and the plural. Whenever used in
this Agreement, any pronoun shall be deemed to include both singular and plural
and to cover all genders.
Section 1.3. Captions; Table of Contents. The captions or
headings in this Agreement and the Table of Contents are for convenience only
and in no way define, limit or describe the scope and intent of any provisions
of this Agreement.
Section 1.4. Opinions. Each opinion with respect to the
validity, binding nature and enforceability of documents or Certificates may be
qualified to the extent that the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law) and may state
that no opinion is expressed on the availability of the remedy of specific
enforcement, injunctive relief or any other equitable remedy. Any opinion
required to be furnished by any Person hereunder must be delivered by counsel
upon whose opinion the addressee of such opinion may reasonably rely, and such
opinion may state that it is given in reasonable reliance upon an opinion of
another, a copy of which must be attached, concerning the laws of a foreign
jurisdiction.
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.1. Establishment of the Trust. The parties hereto do
hereby create and establish, pursuant to the laws of the State of New York and
this Agreement, the Trust, which, for convenience, shall be known as "First
Alliance Mortgage Loan Trust 199_-_" and which shall contain two subtrusts.
Section 2.2. Office. The office of the Trust shall be in care
of the Trustee, at _______________ _______________, or at such other address as
the Trustee may designate by notice to the Company, the Servicer, the Owners and
the Certificate Insurer.
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Section 2.3. Purposes and Powers. The purpose of the Trust is
to engage in the following activities and only such activities: (i) the issuance
of the Certificates and the acquiring, owning and holding of Mortgage Loans and
the Trust Estate in connection therewith; (ii) activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith, including the investment of moneys in accordance with this
Agreement; and (iii) such other activities as may be required in connection with
conservation of the Trust Estate and distributions to the Owners; provided,
however, that nothing contained herein shall permit the Trustee to take any
action which would result in the loss of REMIC status for the Trust.
Section 2.4. Appointment of the Trustee; Declaration of Trust.
The Company hereby appoints the Trustee as trustee of the Trust effective as of
the Startup Day, to have all the rights, powers and duties set forth herein. The
Trustee hereby acknowledges and accepts such appointment, represents and
warrants its eligibility as of the Startup Day to serve as Trustee pursuant to
Section 10.8 hereof and declares that it will hold the Trust Estate in trust
upon and subject to the conditions set forth herein for the benefit of the
Owners and the Certificate Insurer, as their interests may appear.
Section 2.5. Expenses of Trustee. The expenses of the Trust,
including (i) any portion of the Trustee Fee not paid pursuant to Section
7.5(d)(i) hereof, (ii) any reasonable expenses of the Trustee, and (iii) any
other expenses of the Trust that have been reviewed by the Servicer, which
review shall not be required in connection with the enforcement of a remedy by
the Trustee resulting from a default under this Agreement, shall be paid
directly by the Servicer. The Servicer shall pay directly the reasonable fees
and expenses of counsel to the Trustee. The reasonable fees and expenses of the
Trustee's counsel in connection with the review and delivery of this Agreement
and related documentation shall be paid by the Servicer on the Startup Day.
Section 2.6. Ownership of the Trust. On the Startup Day the
ownership interests in the Trust and the subtrusts shall be transferred as set
forth in Section 4.2 hereof, such transfer to be evidenced by sale of the
Certificates as described therein. Thereafter, transfer of any ownership
interest shall be governed by Sections 5.4 and 5.8 hereof.
Section 2.7. Situs of the Trust. It is the intention of the
parties hereto that the Trust constitute a trust under the laws of the State of
New York. The Trust will be created and administered in, the State of New York.
The Trust's only office will be at the office of the Trustee as set forth in
Section 2.2 hereof.
Section 2.8. Miscellaneous REMIC Provisions. (a) The Trust
(other than the Pre-Funding Account, the Group II Available Funds Cap
Carry-Forward Amount Account and the Capitalized Interest Account) shall elect
to be treated as a REMIC under Section 860D of the Code, as described in Section
11.15. Any inconsistencies or ambiguities in this Agreement or in the
administration of the Trust shall be resolved in a manner that preserves the
validity of the election of the Trust (other than the Pre-Funding Account and
the Capitalized Interest Account) to be treated as a REMIC.
(b) The Class A Certificates are hereby designated as "regular
interests" in the REMIC and the Class R Certificates are hereby designated as
the "residual interest" in the REMIC, as defined in Section 860G(a) of the Code.
(c) The Startup Day is hereby designated as the "startup day"
of the REMIC within the meaning of Section 860G(a)(9) of the Code.
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(d) The final scheduled Payment Date for any Class of
Certificates is hereby set to be the Payment Date succeeding by one year the
latest maturity date of any Mortgage Loan in the related Mortgage Loan Group, as
follows:
Class Final Scheduled Payment Date
Class A-1 Certificates _______________
Class A-2 Certificates _______________
Class A-3 Certificates _______________
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND THE SERVICER;
COVENANT OF COMPANY TO CONVEY MORTGAGE LOANS
Section 3.1. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California
and is in good standing as a foreign corporation in each jurisdiction
in which the nature of its business, or the properties owned or leased
by it, make such qualification necessary. The Company has all requisite
corporate power and authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be
conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which the Company is a party by the Company and
its performance and compliance with the terms of this Agreement and of
the other Operative Documents to which it is a party have been duly
authorized by all necessary corporate action on the part of the Company
and will not violate the Company's Articles of Incorporation or Bylaws
or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the
breach of, any material contract, agreement or other instrument to
which the Company is a party or by which the Company is bound, or
violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over
the Company or any of its properties.
(c) This Agreement and the other Operative Documents to which
the Company is a party, assuming due authorization, execution and
delivery by the other parties hereto and thereto, each constitutes a
valid, legal and binding obligation of the Company, enforceable against
it in accordance with the terms hereof and thereof, except as the
enforcement hereof and thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
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(d) The Company is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Company or its properties or might have
consequences that would materially and adversely affect its performance
hereunder or under the other Operative Documents to which it is a
party.
(e) No action, suit, proceeding or investigation is pending
or, to the best of the Company's knowledge, threatened against the
Company which, individually or in the aggregate, might have
consequences that would prohibit the Company from entering into this
Agreement or any other Operative Document to which it is a party or
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Company or its properties or might have
consequences that would materially and adversely affect the validity or
enforceability of Mortgage Loans or the Company's performance hereunder
or under the other Operative Documents to which it is a party.
(f) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Company
contains any untrue statement of a material fact or omits to state any
material fact necessary to make the certificate, statement or report
not misleading.
(g) The statements contained in the Registration Statement
which describe the Company or matters or activities for which the
Company is responsible in accordance with the Operative Documents or
which are attributed to the Company therein are true and correct in all
material respects, and the Registration Statement does not contain any
untrue statement of a material fact with respect to the Company or omit
to state a material fact required to be stated therein or necessary in
order to make the statements contained therein with respect to the
Company not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Company's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact required to be stated
therein or omit to state any material fact required to be stated
therein or necessary to make the statements contained therein not
misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state
securities laws, real estate syndication or "Blue Sky" statutes, as to
which the Company makes no such representation or warranty), that are
necessary or advisable in connection with the purchase and sale of the
Certificates and the execution and delivery by the Company of the
Operative Documents to which it is a party, have been duly taken, given
or obtained, as the case may be, are in full force and effect on the
Startup Day, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within
which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative
Documents on the part of the Company and the performance by the Company
of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Company.
(j) The Company received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans evidenced by the Certificates.
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(k) The Company did not sell any interest in any Mortgage Loan
evidenced by the Certificates with any intent to hinder, delay or
defraud any of its creditors.
(l) The Company is solvent and the Company will not be
rendered insolvent as a result of the sale of the Mortgage Loans to the
Trust or the sale of the Certificates.
(m) On the Startup Day, the Trustee will have good title on
behalf of the Trust to each Initial Mortgage Loan and such other items
comprising the corpus of the Trust Estate free and clear of any lien.
(n) There has been no material adverse change in any
information submitted by the Company in writing to the Certificate
Insurer.
(o) To the best knowledge of the Company, no event has
occurred which would allow any purchaser of the Class A Certificates
not to be required to purchase the Class A Certificates on the Startup
Day.
(p) To the best knowledge of the Company, no document
submitted by or on behalf of the Company to the Certificate Insurer
contains any untrue or misleading statement of a material fact or fails
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
(q) To the best knowledge of the Company, no material adverse
change affecting any security for the Class A Certificates has occurred
prior to delivery of and payment for the Class A Certificates.
(r) The Company is not in default under any agreement
involving financial obligations or on any outstanding obligation which
would materially adversely impact the financial condition or operations
of the Company or legal documents associated with the transaction
contemplated in this Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the Mortgage
Loans to the Trustee.
Section 3.2. Representations and Warranties of the Servicer.
The Servicer hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. The Servicer is in compliance with the laws of each state
in which any Property is located to the extent necessary to enable it
to perform its obligations hereunder and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business, or the properties owned or leased by it, make such
qualification necessary. The Servicer has all requisite corporate power
and authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to
enter into and discharge its obligations under this Agreement and the
other Operative Documents to which it is a party. The Servicer has
equity of at least $20,000,000, as determined in accordance with
generally accepted accounting principles.
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(b) The execution and delivery of this Agreement by
the Servicer and its performance and compliance with the terms of this
Agreement and the other Operative Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of
the Servicer and will not violate the Servicer's Articles of
Incorporation or Bylaws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or
other instrument to which the Servicer is a party or by which the
Servicer is bound or violate any statute or any order, rule or
regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Servicer or any of its properties.
(c) This Agreement and the other Operative Documents
to which the Servicer is a party, assuming due authorization, execution
and delivery by the other parties hereto and thereto, each constitutes
a valid, legal and binding obligation of the Servicer, enforceable
against it in accordance with the terms hereof and thereof, except as
the enforcement hereof and thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of
equity (whether considered in a proceeding or action in equity or at
law).
(d) The Servicer is not in default with respect to
any order or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency which might have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its
properties or might have consequences that would materially and
adversely affect its performance hereunder or under the other Operative
Documents to which the Servicer is a party.
(e) No action, suit, proceeding or investigation is
pending or, to the best of the Servicer's knowledge, threatened against
the Servicer which, individually or in the aggregate, might have
consequences that would prohibit its entering into this Agreement or
any other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Servicer or its properties or might have
consequences that would materially and adversely affect the validity or
the enforceability of the Mortgage Loans or the Servicer's performance
hereunder or under the other Operative Documents to which the Servicer
is a party.
(f) No certificate of an officer, statement furnished
in writing or report delivered pursuant to the terms hereof by the
Servicer contains any untrue statement of a material fact or omits to
state any material fact necessary to make the certificate, statement or
report not misleading.
(g) The statements contained in the Registration
Statement which describe the Servicer or matters or activities for
which the Servicer is responsible in accordance with the Operative
Documents or which are attributed to the Servicer therein are true and
correct in all material respects, and the Registration Statement does
not contain any untrue statement of a material fact with respect to the
Servicer or omit to state a material fact required to be stated therein
or necessary to make the statements contained therein with respect to
the Servicer not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Servicer's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements contained therein not misleading.
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(h) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency (other than any such actions, approvals, etc. under
any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or
warranty), that are necessary or advisable in connection with the
execution and delivery by the Servicer of the Operative Documents to
which it is a party, have been duly taken, given or obtained, as the
case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review
thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this
Agreement and the other Operative Documents on the part of the Servicer
and the performance by the Servicer of its obligations under this
Agreement and such of the other Operative Documents to which it is a
party.
(i) The collection practices used by the Servicer
with respect to the Mortgage Loans directly serviced by it have been,
and are in all material respects, legal, proper, prudent and customary
in the mortgage loan servicing business.
(j) The transactions contemplated by this Agreement
are in the ordinary course of business of the Servicer.
(k) There are no Sub-Servicers as of the Startup Day.
(l) The Servicer covenants that it will terminate any
Sub-Servicer within ninety (90) days after being directed by the
Certificate Insurer to do so.
(m) There has been no material adverse change in any
information submitted by the Servicer in writing to the Certificate
Insurer.
(n) To the best knowledge of the Servicer, no event has
occurred which would allow any purchaser of the Class A Certificates
not to be required to purchase the Class A Certificates on the Startup
Day.
(o) To the best knowledge of the Servicer, no document
submitted by or on behalf of the Servicer to the Certificate Insurer
contains any untrue or misleading statement of a material fact or fails
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
(p) To the best knowledge of the Servicer, no material adverse
change affecting any security for the Class A Certificates has occurred
prior to delivery of and payment for the Class A Certificates.
(q) The Servicer is not in default under any agreement
involving financial obligations or on any outstanding obligation which
would materially and adversely impact the financial condition or
operations of the Servicer or legal documents associated with the
transaction contemplated in this Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 3.2 shall survive delivery of the Mortgage
Loans to the Trustee.
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Upon discovery by any of the Originators, the Servicer, the
Company, any Sub-Servicer, the Certificate Insurer or the Trustee of a breach of
any of the representations and warranties set forth in this Section 3.2 or in
Section 3.1 hereof which materially and adversely affects the interests of the
Owners or of the Certificate Insurer, without regard to any limitation set forth
in such representation or warranty concerning the knowledge of the party making
such representation or warranty as to the facts stated therein, the party
discovering such breach shall give prompt written notice to the other parties
hereto and the Certificate Insurer. Within 30 days of its discovery or its
receipt of notice of breach, the breaching party shall cure such breach in all
material respects and, if such breaching party is the Servicer and upon the
Servicer's continued failure to cure such breach, the Servicer may be removed by
the Trustee or the Certificate Insurer pursuant to Section 8.20 hereof;
provided, however, that if the Servicer can demonstrate to the reasonable
satisfaction of the Certificate Insurer that it is diligently pursuing remedial
action, then the cure period may be extended with the written approval of the
Certificate Insurer.
Section 3.3. Representations and Warranties of the Company
with Respect to the Mortgage Loans. (a) The Company makes the following
representations and warranties as to the Mortgage Loans on which the Certificate
Insurer relies in issuing the Certificate Insurance Policies. Such
representations and warranties speak as of the Startup Day (with respect to the
Initial Mortgage Loans) and as of the respective Subsequent Transfer Date (with
respect to the Subsequent Mortgage Loans) but shall survive the sale, transfer,
and assignment of the related Mortgage Loans to the Trust:
(i) The information with respect to each Initial
Mortgage Loan and Subsequent Mortgage Loan set forth in the related
Schedule of Mortgage Loans is true and correct as of the Cut-Off Date
(or in the case of the Subsequent Mortgage Loans, on the related
Subsequent Transfer Date); the Group I Original Aggregate Loan Balance
in the Trust as of the Cut-Off Date is $_______________ and the Group
II Original Aggregate Loan Balance in the Trust as of the Cut-Off Date
is $_____________.
(ii) All of the original or certified documentation set
forth in Section 3.5 (including all material documents related thereto)
with respect to each Initial Mortgage Loan has been or will be
delivered to the Trustee on the Startup Day (or in the case of the
Subsequent Mortgage Loans, on the related Subsequent Transfer Date) or
as otherwise provided in Section 3.5;
(iii) Each Mortgage Loan is being serviced by the
Servicer or a Servicer Affiliate;
(iv) The Note related to each Initial Mortgage Loan in
Group I bears a fixed Coupon Rate of at least ______% per annum and the
Note related to each Mortgage Loan in Group II bears a current Coupon
Rate of at least ______% per annum;
(v) No more than ______% of the Mortgage Loans were 30
or more days Delinquent;
(vi) As of the Cut-Off Date, no more than ______% of
the Original Aggregate Loan Balance of the Initial Mortgage Loans is
secured by Properties located within any single zip code area;
(vii) Each Mortgage Loan conforms, and all such
Mortgage Loans in the aggregate conform, in all material respects, to
the description thereof set forth in the Registration Statement;
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(viii) As of the Cut-Off Date, no more than ______% and
______% of the Group I Original Aggregate Loan Balance and the Group II
Original Aggregate Loan Balance, respectively, are secured by
condominiums, townhouses, or planned unit developments;
(ix) As of the Cut-Off Date, no more than ______% and
______% of the Group I Original Aggregate Loan Balance and the Group II
Original Aggregate Loan Balance, respectively, are secured by
investor-owned Properties;
(x) The credit underwriting guidelines applicable to
each Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus;
(xi) No funds provided to borrower from a Second
Mortgage Loan originated by the Company were concurrently used as a
down payment for a First Mortgage Loan originated by the Company;
(xii) All of the Notes in Group I and Group II are
actuarial loans;
(xiii) No more than ______% of the Original Aggregate
Loan Balance, is secured by Second Mortgage Loans;
(xiv) As of the Cut-Off Date, ______% of the Mortgage
Loans in Group II had interest rates which were not fully indexed;
(xv) The gross margin range for Six Month LIBOR Loans
is ______% to ______% and, the gross margin for all Six Month LIBOR
Loans when added to the current index, creates the fully-indexed
range;
(xvi) No Mortgage Loan has a remaining term in excess
of ____ months;
(xvii) With respect to each Mortgage Loan in Group II,
each Mortgagor's debt-to-income ratio will qualify for the related
Originator's underwriting guidelines for a similar credit grade
borrower when the related Mortgage Loan in Group II is at a rate equal
to the applicable initial Coupon Rate plus ____________% ;
(xviii) There is no proceeding pending or to the best
of the Company's knowledge threatened for the total or partial
condemnation of any Property. No Property is damaged by waste, fire,
earthquake or earth movement, windstorm, flood, other types of water
damage, tornado, or other casualty so as to affect adversely the value
of such Property as security for the Mortgage Loans or the use for
which the premises were intended and each Property is in good repair;
(xix) Each Mortgage Loan complies in all material
respects with all applicable federal and state laws including without
limitation the Truth-in-Lending Act, as amended;
(xx) Each Mortgage Loan is secured by a Property having
an appraised value of less than $_____________.
(xxi) The first Due Date of each Initial Mortgage Loan
is no later than ________________ __, 199_;
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(xxii) On the Startup Day with respect to each Initial
Mortgage Loan and on the related Subsequent Transfer Date with respect
to each Subsequent Mortgage Loan, the Trustee will have good title on
behalf of the Trust to each Mortgage Loan transferred on such date; and
(xxiii) Each Mortgage Loan constitutes a qualified
mortgage under Section 860G(a)(3)(A) of the Code and Treasury
Regulations Section 1-860G-2(a)(1).
(b) Upon the discovery by the Company, the Servicer, the
Certificate Insurer or the Trustee of a breach of any of the representations and
warranties made herein in respect of any Mortgage Loan, without regard to any
limitation set forth in such representation or warranty concerning the knowledge
of the Company or any related Originator as to the facts stated therein, which
materially and adversely affects the interests of the Owners or of the
Certificate Insurer in such Mortgage Loan the party discovering such breach
shall give prompt written notice to the other parties hereto and the Certificate
Insurer, as their interests may appear. The Servicer shall promptly notify the
related Originator of such breach and request that such Originator cure such
breach or take the actions described in Section 3.4(b) hereof within the time
periods required thereby, and if such Originator does not cure such breach in
all material respects, the Company shall cure such breach or take such actions.
Except as set forth in Section 3.4, the obligations of the Company or Servicer,
as the case may be, shall be limited to the remedies for cure set forth in
Section 3.4 with respect to any Mortgage Loan as to which such a breach has
occurred and is continuing; the remedies set forth in Section 3.4 shall
constitute the sole remedy with respect to such breach available to the Owners,
the Trustee and the Certificate Insurer.
The Company acknowledges that a breach of any representation
or warranty (x) relating to marketability of title sufficient to transfer
unencumbered title to a Mortgage Loan and (y) relating to enforceability of the
Mortgage Loan against the related Mortgagor or Property is a priori the breach
of a representation or warranty which "materially and adversely affects the
interests of the Owners or of the Certificate Insurer" in such Mortgage Loan.
Section 3.4. Covenants of the Company to Take Certain Actions
with Respect to the Mortgage Loans In Certain Situations. (a) With the provisos
and limitations as to remedies set forth in this Section 3.4, upon the discovery
by any Originator, the Company, the Servicer, the Certificate Insurer, any
Sub-Servicer or the Trustee that the representations and warranties set forth in
Section 3.3 of this Agreement were untrue in any material respect as of the
Startup Day (or in the case of the Subsequent Mortgage Loans, as of the
respective Subsequent Transfer Date), and that such breach of the
representations and warranties materially and adversely affects the interests of
the Owners or of the Certificate Insurer, the party discovering such breach
shall give prompt written notice to the other parties hereto and to the
Certificate Insurer.
(b) Upon the earliest to occur of the Company's discovery, its
receipt of notice of breach from any one of the other parties hereto or from the
Certificate Insurer or such time as a breach of any representation and warranty
materially and adversely affects the interests of the Owners or of the
Certificate Insurer as set forth above, the Company hereby covenants and
warrants that it shall promptly cure such breach in all material respects or it
shall (or shall cause an affiliate of the Company to or an Originator to),
subject to the further requirements of this paragraph, on the second Remittance
Date next succeeding such discovery, receipt of notice or such other time (i)
substitute in lieu of each Mortgage Loan in the related Mortgage Loan Group
which has given rise to the requirement for action by the Company a Qualified
Replacement Mortgage and deliver the Substitution Amount applicable thereto,
together with the aggregate amount of all Delinquency Advances and Servicing
Advances theretofore made with respect to such Mortgage Loan, to the Servicer
for deposit in the Principal and Interest Account or (ii) purchase such Mortgage
Loan from the Trust at a purchase price equal to the Loan Purchase Price
thereof, which purchase
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price shall be delivered to the Servicer for deposit in the Principal and
Interest Account. In connection with any such proposed purchase or substitution,
the Company, at its expense, shall cause to be delivered to the Trustee and to
the Certificate Insurer an opinion of counsel experienced in federal income tax
matters stating whether or not such a proposed purchase or substitution would
constitute a Prohibited Transaction for the Trust or would jeopardize the status
of the Trust as a REMIC, and the Company shall only be required to take either
such action to the extent such action would not constitute a Prohibited
Transaction for the Trust or would not jeopardize the status of the Trust as a
REMIC. Any required purchase or substitution, if delayed by the absence of such
opinion shall nonetheless occur upon the earlier of (i) the occurrence of a
default or imminent default with respect to the Mortgage Loan or (ii) the
delivery of such opinion. It is understood and agreed that the obligation of the
Company to cure the defect, or substitute for or purchase any Mortgage Loan as
to which a representation or warranty is untrue in any material respect and has
not been remedied shall constitute the sole remedy available to the Owners, the
Trustee and the Certificate Insurer.
(c) In the event that any Qualified Replacement Mortgage is
delivered by an Originator or by the Company to the Trust pursuant to this
Section 3.4 or Section 3.6 hereof, the related Originator and the Company shall
be obligated to take the actions described in Section 3.4(b) with respect to
such Qualified Replacement Mortgage upon the discovery by any of the Owners, the
Company, the Servicer, the Certificate Insurer, any Sub-Servicer or the Trustee
that any of the representations and warranties set forth in Section 3.3 above
are untrue in any material respect on the date such Qualified Replacement
Mortgage is conveyed to the Trust such that the interests of the Owners or the
Certificate Insurer in the related Qualified Replacement Mortgage are materially
and adversely affected; provided, however, that for the purposes of this
subsection (c) the representations and warranties in Section 3.3 above referring
to items "as of the Cut-Off Date" or "as of the Startup Day" shall be deemed to
refer to such items as of the date such Qualified Replacement Mortgage is
conveyed to the Trust.
(d) It is understood and agreed that the covenants set forth
in this Section 3.4 shall survive delivery of the respective Mortgage Loans
(including Qualified Replacement Mortgages) to the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any
Mortgage Loan pursuant to this section or the eligibility of any Mortgage Loan
for purposes of this Agreement.
Section 3.5. Conveyance of the Mortgage Loans. (a) The
Company, concurrently with the execution and delivery hereof, hereby transfers,
assigns, sets over and otherwise conveys without recourse, to the Trustee for
the benefit of the Owners of the Certificates and the Certificate Insurer, all
right, title and interest of the Company in and to each Initial Mortgage Loan
listed on the Schedules of Mortgage Loans delivered by the Company on the
Startup Day, all right, title and interest in and to principal and interest due
on each such Initial Mortgage Loan after the Cut-Off Date (other than payments
of principal due and interest accrued on or before the Cut-Off Date) and all its
right, title and interest in and to all Insurance Policies; provided, however,
that the Company reserves and retains all its right, title and interest in and
to principal (including Prepayments) collected and principal and interest due on
each Initial Mortgage Loan on or prior to the Cut-Off Date. The transfer by the
Company of the Initial Mortgage Loans and the Subsequent Mortgage Loans set
forth on the Schedules of Mortgage Loans is absolute and is intended by the
Owners and all parties hereto to be treated as a sale by the Company.
It is intended that the sale, transfer, assignment and
conveyance herein contemplated constitute a sale of the Mortgage Loans conveying
good title thereto free and clear of any liens and encumbrances from the Company
to the Trust and that the Mortgage Loans not be part of the Company's
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estate in the event of an insolvency. In the event that any such conveyance or a
conveyance pursuant to Section 3.8 and any Subsequent Transfer Agreement is
deemed to be a loan, the parties intend that the Company shall be deemed to have
granted to the Trustee a security interest of first priority in all of the
Company's right, title and interest in the Mortgage, Note and the File, and that
this Agreement shall constitute a security agreement under applicable law.
In connection with the sale, transfer, assignment, and
conveyance, from the Company to the Trustee, the Company has filed, in the
appropriate office or offices in the States of California and New York, a UCC-1
financing statement executed by the Company as debtor, naming the Trustee as
secured party and listing the Initial Mortgage Loans and the other property
described above as collateral, and on or prior to each Subsequent Transfer Date
the Company will file in such offices a UCC-1 financing statement listing the
Subsequent Mortgage Loans so transferred as collateral. The characterization of
the Company as a debtor and the Trustee as the secured party in such financing
statements is solely for protective purposes and shall in no way be construed as
being contrary to the intent of the parties that this transaction be treated as
a sale of the Company's entire right, title and interest in the Mortgage Loans
and the related Files to the Trust. In connection with such filing, the Company
shall cause to be filed all necessary continuation statements thereof and to
take or cause to be taken such actions and execute such documents as are
necessary to perfect and protect the Trustee's and the Owners' interests in the
Mortgage Loans and the related Files.
(b) In connection with the transfer and assignment of the
Mortgage Loans, the Company agrees to:
(i) cause to be delivered, on or prior to the Startup
Day (except as otherwise stated below) without recourse to the Trustee
on the Startup Day with respect to each Initial Mortgage Loan listed on
the Schedule of Mortgage Loans or on each Subsequent Transfer Date with
respect to each Subsequent Mortgage Loan:
(a) the original Notes or certified copies
thereof, endorsed without recourse by the related Originator,
"Pay to the order of _____________ _________________, without
recourse" or "Pay to the order of holder, without recourse."
In the event that the Mortgage Loan was acquired by the
related Originator in a merger, the endorsement must be by the
"(related Originator), successor by merger to (name of
predecessor)"; and in the event that the Mortgage Loan was
acquired or originated by the related Originator while doing
business under another name, the endorsement must be by the
"(related Originator), formerly known as (previous name)";
(b) originals of all intervening
assignments, showing a complete chain of assignment from
origination to the related Originator, if any, including
warehousing assignments, with evidence of recording thereon
(or, if an original intervening assignment has not been
returned from the recording office, a certified copy thereof,
the original to be delivered to the Trustee forthwith after
return);
(c) originals of all assumption and
modification agreements, if any (or, if an original assumption
and/or modification agreement has not been returned from the
recording office, a certified copy thereof, the original to be
delivered to the Trustee forthwith after return);
(d) either (A) the original Mortgage with
evidence of recording thereon or a certified copy of the
Mortgage as recorded, or (B) if the original Mortgage has not
yet been returned from the recording office, a certified copy
of the Mortgage, together with a
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receipt from the recording office or from a title
insurance company or a certificate of an Authorized Person
of the related Originator indicating that such Mortgage
has been delivered for recording;
(e) the original assignment of Mortgage for
each Mortgage Loan conveying the Mortgage to
________________________, as Trustee of the First Alliance
Mortgage Loan Trust 199_-_, which assignment shall be in form
and substance acceptable for recording in the state or other
jurisdiction where the mortgaged property is located and,
within 75 Business Days following the Startup Day with respect
to the Initial Mortgage Loans, or within 75 Business Days of
each Subsequent Transfer Date with respect to the Subsequent
Mortgage Loans, a recorded assignment of each such Mortgage;
provided that in the event that the Mortgage Loan was acquired
by the related Originator in a merger, the assignment of
Mortgage must be by the "(related Originator), successor by
merger to (name of predecessor)"; and in the event that the
Mortgage Loan was acquired or originated by the related
Originator while doing business under another name, the
assignment of Mortgage must be by the "(related Originator),
formerly known as (previous name)" (subject to the foregoing,
and where permitted under the applicable laws of the
jurisdiction where the mortgaged property is located, the
assignments of Mortgage may be made by blanket assignments for
Mortgage Loans covering mortgaged properties situated within
the same county or other permitted governmental subdivision);
and
(f) evidence of title insurance with respect
to the mortgaged property in the form of a binder or
commitment.
(ii) except with respect to Mortgage Loans covered by
opinions of counsel delivered in the manner set forth belTow
("Assignment Opinions"), cause, as soon as possible but no more than 75
Business Days following the Startup Day with respect to the Initial
Mortgage Loans, or within 75 Business Days of each Subsequent Transfer
Date with respect to the Subsequent Mortgage Loans, the Originators to
deliver to the Trustee copies of all Mortgage assignments submitted for
recording, together with a list of (x) all Mortgages for which no
Mortgage assignment has yet been submitted for recording by the related
Originator (y) reasons why the related Originator has not yet submitted
such Mortgage assignments for recording; provided, however, that with
respect to Mortgage Loans subject to jurisdiction in the states of
Arizona, California, Colorado, District of Columbia, Georgia, Idaho,
Illinois, Maryland, Massachusetts, Ohio, Oregon, Pennsylvania, Virginia
and Washington an Originator shall not be required to record an
assignment of a Mortgage if the Company furnishes to the Trustee and
the Certificate Insurer, on or before the Startup Day with respect to
the Initial Mortgage Loans, or on each Subsequent Transfer Date with
respect to the Subsequent Mortgage Loans, at the Company's expense, the
Assignment Opinions which opine that recording is not necessary to
perfect the rights of the Trustee in the related Mortgage (in form
satisfactory to the Certificate Insurer, Moody's and Standard &
Poor's); provided further, however, notwithstanding the delivery of any
legal opinions, each assignment of mortgage shall be recorded upon the
earliest to occur of: (i) the instructions by the Certificate Insurer
to so record such assignments (such instructions shall be given by the
Certificate Insurer using reasonable discretion) or (ii) the occurrence
of an Event of Servicing Termination. With respect to any Mortgage
assignment set forth on the aforementioned list which has not been
submitted for recording for a reason other than a lack of original
recording information or with respect to Mortgages not covered by the
Assignment Opinions, the Trustee shall make an immediate demand on the
Company to cause such Mortgage assignments to be prepared and shall
inform the Certificate Insurer of the Company's failure to cause such
Mortgage assignments to be prepared. Thereafter, the Trustee shall
cooperate in executing any documents prepared by the Certificate
Insurer and submitted to the Trustee in connection with this provision.
Following the expiration of the 75-Business Day period following the
Startup Day with respect to the Initial Mortgage Loans, or within 75
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Business Days of each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans and except with respect to Mortgages covered
by the Assignment Opinions, the Company shall cause to be prepared a
Mortgage assignment for any Mortgage for which original recording
information is subsequently received by the related Originator and
shall promptly deliver a copy of such Mortgage assignment to the
Trustee.
All recording required pursuant to this Section 3.5 shall be
accomplished at the expense of the Originators or of the Company.
Notwithstanding anything to the contrary contained in this Section 3.5, in those
instances where the public recording office retains the original Mortgage, the
assignment of a Mortgage or the intervening assignments of the Mortgage after it
has been recorded, the Company shall be deemed to have satisfied its obligations
hereunder upon delivery to the Trustee of a copy of such Mortgage, such
assignment or assignments of Mortgage certified by the public recording office
to be a true copy of the recorded original thereof.
Copies of all Mortgage assignments received by the Trustee
shall be kept in the related File.
(c) In the case of Initial Mortgage Loans which have been
prepaid in full on or after the Cut-Off Date and prior to the Startup Day, the
Company, in lieu of the foregoing, will deliver within 15 Business Days after
the Startup Day to the Trustee a certification of an Authorized Officer in the
form set forth in Exhibit D.
(d) The Company shall transfer, assign, set over and otherwise
convey without recourse, to the Trustee all right, title and interest of the
Company in and to any Qualified Replacement Mortgage delivered to the Trustee on
behalf of the Trust by the Company pursuant to Section 3.4 or Section 3.6 hereof
and all its right, title and interest to principal and interest due on such
Qualified Replacement Mortgage after the applicable Replacement Cut-Off Date;
provided, however, that the Company shall reserve and retain all right, title
and interest in and to payments of principal and interest due on such Qualified
Replacement Mortgage on and prior to the applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage therefor, the
Trustee will transfer, assign, set over and otherwise convey without recourse,
on the Company's order, all of its right, title and interest in and to such
released Mortgage Loan and all the Trust's right, title and interest to
principal and interest due on such released Mortgage Loan after the applicable
Replacement Cut-Off Date; provided, however, that the Trust shall reserve and
retain all right, title and interest in and to payments of principal and
interest due on such released Mortgage Loan on and prior to the applicable
Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Trustee on behalf of the Trust, the
Company agrees to cause to be delivered to the Trustee the items described in
Section 3.5(b) on the date of such transfer and assignment or if a later
delivery time is permitted by Section 3.5(b) then no later than such later
delivery time.
(g) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the Trustee
shall deliver on the date of conveyance of such Qualified Replacement Mortgage,
and on the order of the Company (i) the original Note, or the certified copy,
relating thereto, endorsed without recourse, to the Company and (ii) such other
documents as constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Company shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
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(i) The Company shall reflect on its records that the Mortgage
Loans have been sold to the Trust.
Section 3.6. Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee.
(a) The Trustee agrees to execute and deliver to the Company,
the Servicer and the Certificate Insurer on the Startup Day an Initial
Certification in the form annexed hereto as Exhibit E to the effect that, as to
each Mortgage Loan listed in the Schedules of Mortgage Loans (other than any
Mortgage Loan paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all documents required
to be delivered to it pursuant to this Agreement with respect to such Mortgage
Loan are in its possession, (ii) such documents have been reviewed by it and
appear regular on their face and relate to such Mortgage Loan and (iii) based on
its examination and only as to the foregoing documents, the information set
forth on the Schedules of Mortgage Loans as to loan number and address
accurately reflects information set forth in the File. The Trustee shall not be
under any duty or obligation to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented purpose or that they
have actually been recorded or that they are other than what they purport to be
on their face. Within 90 days of the Startup Date (or, with respect to any
document delivered after the Startup Day, within 45 days of receipt and with
respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage,
within 45 days after the assignment thereof) the Trustee shall deliver to the
Company, Certificate Insurer and the Servicer a Final Certification in the form
annexed hereto as Exhibit F evidencing the completeness of the Files, with any
applicable exceptions noted thereon.
(b) If in the process of reviewing the Files and preparing the
certifications referred to above the Trustee finds any document or documents
constituting a part of a File which is not properly executed, has not been
received within the specified period or is unrelated to the Mortgage Loans
identified in the Schedules of Mortgage Loans, or that any Mortgage Loan does
not conform as to loan number and address as set forth in the Schedules of
Mortgage Loans, the Trustee shall promptly notify the Company and the
Certificate Insurer. The Company shall use reasonable efforts to cure any such
defect within 60 days from the date on which the Company was notified of such
defect, and if the Company does not cure such defect in all material respects
during such period, the Company will (or will cause the related Originator or an
affiliate of the Company to) on the next succeeding Remittance Date (i)
substitute in lieu of such Mortgage Loan a Qualified Replacement Mortgage and
deliver the Substitution Amount applicable thereto to the Servicer for deposit
in the Principal and Interest Account or (ii) purchase such Mortgage Loan at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Servicer for deposit in the Principal and Interest
Account. In connection with any such proposed purchase or substitution the
Company shall cause at the Company's expense to be delivered to the Trustee and
to the Certificate Insurer an opinion of counsel experienced in federal income
tax matters stating whether or not such a proposed purchase or substitution
would constitute a Prohibited Transaction for the Trust or would jeopardize the
status of the Trust as a REMIC, and the Company shall only be required to take
either such action to the extent such action would not constitute a Prohibited
Transaction for the Trust or would not jeopardize the status of the Trust as a
REMIC. Any required purchase or substitution, if delayed by the absence of such
opinion shall nonetheless occur upon the earlier of (i) the occurrence of a
default or imminent default with respect to the Mortgage Loan or (ii) the
delivery of such opinion.
Section 3.7. Cooperation Procedures. (a) The Company shall, in
connection with the delivery of each Qualified Replacement Mortgage to the
Trustee, provide the Trustee with the information set forth in the Schedules of
Mortgage Loans with respect to such Qualified Replacement Mortgage.
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(b) The Company, the Servicer and the Trustee covenant to
provide each other with all data and information required to be provided by them
hereunder at the times required hereunder, and additionally covenant reasonably
to cooperate with each other in providing any additional information required to
be obtained by any of them in connection with their respective duties hereunder.
(c) The Servicer shall maintain such accurate and complete
accounts, records and computer systems pertaining to each File as shall enable
it and the Trustee to comply with this Agreement. In performing its
recordkeeping duties the Servicer shall act in accordance with the servicing
standards set forth in this Agreement. The Servicer shall conduct, or cause to
be conducted, periodic audits of its accounts, records and computer systems as
set forth in Sections 8.16 and 8.17 hereof. The Servicer shall promptly report
to the Trustee any failure on its part to maintain its accounts, records and
computer systems as herein provided and promptly take appropriate action to
remedy any such failure.
(d) The Company further confirms to the Trustee that it has
caused the portions of the electronic ledger relating to the Mortgage Loans to
be clearly and unambiguously marked to indicate that such Mortgage Loans have
been sold, transferred, assigned and conveyed to the Trustee and constitute part
of the Trust Estate in accordance with the terms of the trust created hereunder
and that the Company will treat the transaction contemplated by such sale,
transfer, assignment and conveyance as a sale for accounting purposes.
Section 3.8. Conveyance of the Subsequent Mortgage Loans. (a)
Subject to the satisfaction of the conditions set forth in Section 3.5 and
paragraphs (b), (c) and (d) below (based on the Trustee's review of such
conditions) in consideration of the Trustee's delivery on the relevant
Subsequent Transfer Dates to or upon the order of the Company of all or a
portion of the balance of funds in the Pre-Funding Account, the Company shall on
any Subsequent Transfer Date sell, transfer, assign, set over and otherwise
convey without recourse, to the Trustee, all of the Company's right, title and
interest in and to each Subsequent Mortgage Loan listed on the related Schedule
of Mortgage Loans (other than any principal and interest payments due thereon on
or prior to the relevant Subsequent Cut-Off Date) which the Company is causing
to be delivered to the Trustee herewith (and all substitutions therefor as
provided by Sections 3.3, 3.4 and 3.6) together with the related Subsequent
Mortgage Loan documents and the Company's interest in any Property which secured
a Subsequent Mortgage Loan but which has been acquired by foreclosure or deed in
lieu of foreclosure, and all payments thereon and proceeds of the conversion,
voluntary or involuntary, of the foregoing and proceeds of all the foregoing
(including, but not by way of limitation, all proceeds of any mortgage
insurance, hazard insurance and title insurance policy relating to the
Subsequent Mortgage Loans, cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment
of any and every kind, and other forms of obligations and receivables which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing).
The transfer by the Company of the Subsequent Mortgage Loans
set forth on the related Schedule of Mortgage Loans to the Trustee shall be
absolute and shall be intended by the Owners and all parties hereto to be
treated as a sale by the Company. Any Subsequent Mortgage Loan so transferred
will be included in one and only one of either Group I or Group II. The amount
released from the Pre-Funding Account shall be one hundred percent (100%) of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred.
Upon the transfer by the Company of the Subsequent Mortgage Loans hereunder,
such Subsequent Mortgage Loans (and all principal and interest due thereon
subsequent to the Subsequent Cut Off Date) and all other rights and interests
with respect to such Subsequent Mortgage Loans transferred pursuant to a
Subsequent Transfer Agreement shall be deemed for all purposes hereunder to be
part of the Trust Estate. The Company hereby covenants and agrees to use its
best efforts to ensure that a sufficient amount of Subsequent Mortgage Loans
will be transferred to the Trust during the Funding Period to reduce the
Pre-Funded Amount to less than $100,000 for each Group.
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(b) The obligation of the Trustee to accept the transfer of
the Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Company shall have provided the Trustee and
the Certificate Insurer with an Addition Notice and shall have
provided any information reasonably requested by any of the
foregoing with respect to the Subsequent Mortgage Loans;
(ii) the Company shall have delivered to the Trustee
a duly executed Subsequent Transfer Agreement (including an
acceptance by the Trustee) in substantially the form of
Exhibit L, which shall include a Schedule of Mortgage Loans,
listing the Subsequent Mortgage Loans and any other exhibits
listed thereon;
(iii) the Company shall have deposited in the
Principal and Interest Account all principal collected and
interest due in respect of such Subsequent Mortgage Loans on
or after the related Subsequent Cut Off Date;
(iv) as of each Subsequent Transfer Date, the Company
is not insolvent, nor will it be made insolvent by such
transfer, nor is it aware of any pending insolvency;
(v) the Funding Period shall not have ended;
(vi) the Company shall have delivered to the Trustee
and the Certificate Insurer an Officer's Certificate
confirming the satisfaction of each condition precedent
specified in items (i) through (v) of this paragraph (b) and
paragraphs (c) and (d) below and in the related Subsequent
Transfer Agreement;
(vii) the Company shall have delivered to the
Trustee, the Rating Agencies and the Certificate Insurer
opinions of counsel with respect to the transfer of the
Subsequent Mortgage Loans substantially in the form of the
opinions of counsel delivered to the Certificate Insurer and
the Trustee on the Startup Day with respect to the Initial
Mortgage Loans (bankruptcy, corporate and tax); and
(viii) the Certificate Insurer retains the right to
adjust the loss coverage requirements, including, but not
limited to the Specified Subordinated Amount, if the final
pool of Mortgage Loans differs materially from the Initial
Mortgage Loan pool. Prior to any such adjustment, the
Certificate Insurer shall give written notice to the Rating
Agencies.
(c) The obligation of the Trust to purchase Subsequent
Mortgage Loans for addition to Group I on a Subsequent Transfer Date is subject
to the following requirements: (i) such Subsequent Mortgage Loan may not be 30
or more days contractually delinquent as of the related Subsequent Cut Off Date;
(ii) the remaining term to maturity of such Subsequent Mortgage Loan may not
exceed 30 years; (iii) such Subsequent Mortgage Loan will have a Combined
Loan-to-Value Ratio of not more than 80% and (iv) following the purchase of such
Subsequent Mortgage Loans by the Trust, the Mortgage Loans (including the
Subsequent Mortgage Loans) in Group I (a) will have a weighted average Coupon
Rate of at least ______% (b) will have a weighted average Combined Loan-to-Value
Ratio of not more than ______% (c) will have an average current loan balance of
not greater than $____________ and not more than ______% of the Mortgage Loans
in Group I may have a principal balance in excess of $____________ and will
satisfy the representations and warranties set forth in Section 3.3 hereof. In
addition, the final pool of Mortgage Loans in Group I shall conform to the
guidelines set forth in paragraph 28 of the "Commitment to Issue a Financial
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Guaranty Insurance Policy dated ________________ __, 199_" from the Certificate
Insurer to the Company relating to the Fixed Rate Certificate Insurance Policy.
(d) The obligation of the Trust to purchase Subsequent
Mortgage Loans for addition to Group II on a Subsequent Transfer Date is subject
to the following requirements: (i) such Subsequent Mortgage Loan may not be 30
or more days contractually delinquent as of the related Subsequent Cut Off Date;
(ii) the remaining term to maturity of such Subsequent Mortgage Loan may not
exceed 30 years; (iii) such Subsequent Mortgage Loan will have a Loan to Value
Ratio of not more than 80%, and (iv) following the purchase of such Subsequent
Mortgage Loans by the Trust, the Mortgage Loans (including the Subsequent
Mortgage Loans) in Group II (a) will have a weighted average coupon rate of at
least ______% (b) will have a weighted average Loan to Value Ratio of not more
than ______%, and (c) will have an average current loan balance not greater than
$____________ and not more than ______% of the Mortgage Loans in Group II may
have a principal balance in excess of $____________ and (d) will satisfy the
representations and warranties set forth in Section 3.3 hereof. In addition, the
final pool of Mortgage Loans in Group II shall conform to the guidelines set
forth in paragraph 28 of the "Commitment to Issue a Financial Guaranty Insurance
Policy dated ________________ __, 199_ from the Certificate Insurer to the
Company relating to the Variable Rate Certificate Insurance Policy.
(e) In connection with each Subsequent Transfer Date and on
the Payment Date occurring in ___________________________, the Trustee shall
determine: (i) the amount and correct dispositions of the Group I and Group II
Capitalized Interest Requirements, Overfunded Interest Amounts, Pre-Funding
Account Earnings and the Pre-Funded Amount and (ii) any other necessary matters
in connection with the administration of the Pre-Funding Account and of the
Capitalized Interest Account. In the event that any amounts are released as a
result of an error in calculation to the Owners or the Company from the
Pre-Funding Account or from the Capitalized Interest Account, such Owners or the
Company shall immediately repay such amounts to the Trustee.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.1. Issuance of Certificates. On the Startup Day,
upon the Trustee's receipt from the Company of an executed Delivery Order in the
form set forth as Exhibit G hereto, the Trustee shall execute, authenticate and
deliver the Certificates on behalf of the Trust in accordance with the
directions set forth in such Delivery Order.
Section 4.2. Sale of Certificates. At 10:00 a.m. Eastern
Standard Time on the Startup Date, at the offices of Arter & Hadden LLP, 1801 K
Street, N.W., Washington, D.C. 20006, the Company will sell and convey the
Mortgage Loans and the money, instruments and other property related thereto to
the Trustee, and the Trustee will (i) deliver to the Underwriter the Class A
Certificates with an aggregate Percentage Interest in each Class equal to 100%,
registered in the name of Cede & Co. or in such other names as the Underwriters
shall direct, against payment of the purchase price thereof by wire transfer of
immediately available funds to the Trustee, and (ii) deliver to First Alliance
Residual Holding Company a Class R Certificate, with a Percentage Interest equal
to 100%. Upon the Trustee's receipt of the entire net proceeds of the sale of
the Class A Certificates the Company shall instruct the Trustee to: (a) deposit
(i) an amount equal to the Original Pre-Funded Amount in the Pre-Funding Account
and (ii) an amount equal to $____________ in the Capitalized Interest Account
contributed by the Company out of such proceeds or otherwise, (b) pay any fees
and expenses identified by the Company and (c) pay to the Company the balance
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after deducting such amounts. The Company shall pay directly to the Certificate
Insurer the Initial Premiums.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.1. Terms. (a) The Certificates are pass-through
securities having the rights described therein and herein. Notwithstanding
references herein or therein with respect to the Certificates as to "principal"
and "interest" no debt of any Person is represented thereby, nor are the
Certificates or the underlying Notes guaranteed by any Person (except that the
Notes may be recourse to the Mortgagors thereof to the extent permitted by law
and except for the rights of the Trustee with respect to the Certificate
Insurance Policies). Distributions on the Certificates are payable solely from
payments received on or with respect to the Mortgage Loans (other than the
Servicing Fees), moneys in the Principal and Interest Account, except as
otherwise provided herein, moneys in the Pre-Funding Account and the Capitalized
Interest Account from earnings on moneys and the proceeds of property held as a
part of the Trust Estate and, upon the occurrence of certain events, from
Insured Payments. Each Certificate entitles the Owner thereof to receive monthly
on each Payment Date, in order of priority of distributions with respect to such
Class of Certificates a specified portion of such payments with respect to the
Mortgage Loans in the related Mortgage Loan Group and certain related Insured
Payments, pro rata in accordance with such Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to
the Trustee at the Corporate Trust Office any Certificate prior to the final
distribution due thereon. Any such Certificate as to which the Trustee has made
the final distribution thereon shall be deemed canceled and shall no longer be
Outstanding for any purpose of this Agreement.
Section 5.2. Forms. The Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates and the Class R Certificates shall be
in substantially the forms set forth in Exhibits A-1, A-2, A-3 and C hereof,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Agreement or as may in the
Company's judgment be necessary, appropriate or convenient to comply, or
facilitate compliance, with applicable laws, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any applicable securities laws or
as may, consistently herewith, be determined by the Authorized Officer of the
Trustee executing such Certificates, as evidenced by his execution thereof.
Section 5.3. Execution, Authentication and Delivery. Each
Certificate shall be executed on behalf of the Trust, by the manual or facsimile
signature of one of the Trustee's Authorized Officers and shall be authenticated
by the manual or facsimile signature of one of the Trustee's Authorized
Officers.
Certificates bearing the manual signature of individuals who
were at any time the proper officers of the Trustee shall, upon proper
authentication by the Trustee, bind the Trust, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
execution and delivery of such Certificates or did not hold such offices at the
date of authentication of such Certificates.
The initial Certificates shall be dated as of the Startup Day
and delivered at the Closing to the parties specified in Section 4.2 hereof.
No Certificate shall be valid until executed and authenticated
as set forth above.
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Section 5.4. Registration and Transfer of Certificates. (a)
The Trustee, as registrar, shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby appointed registrar (the
"Registrar") for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Owners and the Certificate Insurer shall
have the right to inspect the Register during business hours upon reasonable
notice (but no less than 2 Business Days) and to obtain copies thereof.
(b) Subject to the provisions of Section 5.8 hereof, upon
surrender for registration of transfer of any Certificate at the office
designated as the location of the Register, the Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class
owned by such Owner may be exchanged for other Certificates authorized of like
Class, tenor, aggregate original principal amount and bearing numbers not
contemporaneously outstanding, upon surrender of the Certificates to be
exchanged at the office designated as the location of the Register. Whenever any
Certificate is so surrendered for exchange, the Trustee shall execute,
authenticate and deliver the Certificate or Certificates which the Owner making
the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer
or exchange of Certificates shall be valid evidence of the same ownership
interests in the Trust and entitled to the same benefits under this Agreement as
the Certificates surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Trustee duly
executed by the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates; any other expenses in connection with such transfer or
exchange shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered
so as to participate in a global book-entry system with the Depository, as set
forth herein. Each Class of Class A Certificates shall, except as otherwise
provided in the next paragraph, be initially issued in the form of a single
fully registered Class A Certificate with a denomination equal to the Original
Certificate Principal Balance of such Class. Upon initial issuance, the
ownership of each such Class A Certificate shall be registered in the Register
in the name of Cede & Co., or any successor thereto, as nominee for the
Depository.
On the Startup Day, no Class A Certificates shall be issued in
denominations of less than $1,000 except for one Certificate of each Class which
may be in a denomination of less than $1,000; accordingly the Trust shall not
issue tail certificates on the Startup Day.
The Company and the Trustee are hereby authorized to execute
and deliver the Representation Letter with the Depository.
With respect to Class A Certificates registered in the
Register in the name of Cede & Co., as nominee of the Depository, the Company,
the Servicer and the Trustee shall have no responsibility or
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obligation to Direct or Indirect Participants or beneficial owners for which the
Depository holds Class A Certificates from time to time as a Depository. Without
limiting the immediately preceding sentence, the Company, the Servicer and the
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect
Participant with respect to the ownership interest in the Class A Certificates,
(ii) the delivery to any Direct or Indirect Participant or any other Person,
other than a registered Owner of a Class A Certificate as shown in the Register,
of any notice with respect to the Class A Certificates or (iii) the payment to
any Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written
notice to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to the
registered Owners of Class A Certificates appearing as registered Owners in the
registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Company
advises the Trustee and the Certificate Insurer in writing that the Depository
is no longer willing or able to discharge properly its responsibilities as
nominee and depository with respect to the Class A Certificates and the Company
or the Trustee is unable to locate a qualified successor or (ii) the Company at
its sole option elects to terminate the book-entry system through the
Depository, the Class A Certificates shall no longer be restricted to being
registered in the Register in the name of Cede & Co. (or a successor nominee) as
nominee of the Depository. At that time, the Company may determine that the
Class A Certificates shall be registered in the name of and deposited with a
successor depository operating a global book-entry system, as may be acceptable
to the Company and at the Company's expense, or such depository's agent or
designee but, if the Company does not select such alternative global book-entry
system, then the Class A Certificates may be registered in whatever name or
names registered Owners of Class A Certificates transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to
the contrary, so long as any Class A Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class A Certificates and all notices with respect to such Class
A Certificates shall be made and given, respectively, in the manner provided in
the Representation Letter.
Section 5.5. Mutilated, Destroyed, Lost or Stolen
Certificates. If (i) any mutilated Certificate is surrendered to the Trustee, or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (ii) in the case of any mutilated Certificate,
such mutilated Certificate shall first be surrendered to the Trustee, and in the
case of any destroyed, lost or stolen Certificate, there shall be first
delivered to the Trustee such security or indemnity as may be reasonably
required by it to hold the Trustee harmless, then, in the absence of notice to
the Trustee that such Certificate has been acquired by a bona fide purchaser,
the Trustee shall execute, authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like Class, tenor and aggregate principal amount, bearing a number not
contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto; any other
expenses in connection with such issuance shall be an expense of the Trust.
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Every new Certificate issued pursuant to this Section in
exchange for or in lieu of any mutilated, destroyed, lost or stolen Certificate
shall constitute evidence of a substitute interest in the Trust and shall be
entitled to all the benefits of this Agreement equally and proportionately with
any and all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Certificates.
Section 5.6. Persons Deemed Owners. The Trustee and any agent
of the Trustee may treat the Person in whose name any Certificate is registered
as the Owner of such Certificate for the purpose of receiving distributions with
respect to such Certificate and for all other purposes whatsoever, and neither
the Trustee nor any agent of the Trustee shall be affected by notice to the
contrary.
Section 5.7. Cancellation. All Certificates surrendered for
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. No Certificate shall be authenticated in lieu of or in exchange for any
Certificate canceled as provided in this Section, except as expressly permitted
by this Agreement. All canceled Certificates may be held by the Trustee in
accordance with its standard retention policy.
Section 5.8. Limitation on Transfer of Ownership Rights. (a)
No sale or other transfer of any Class A Certificate shall be made to the
Company, any Originator or any of their respective affiliates.
(b) No sale or other transfer of record or beneficial
ownership of a Class R Certificate (whether pursuant to a purchase, a transfer
resulting from a default under a secured lending agreement or otherwise) shall
be made to a Disqualified Organization or agent of a Disqualified Organization.
The transfer, sale or other disposition of a Class R Certificate (whether
pursuant to a purchase, a transfer resulting from a default under a secured
lending agreement or otherwise) to a Disqualified Organization shall be deemed
to be of no legal force or effect whatsoever and such transferee shall not be
deemed to be an Owner for any purpose hereunder, including, but not limited to,
the receipt of distributions on such Class R Certificate. Furthermore, in no
event shall the Trustee accept surrender for transfer, registration of transfer,
or register the transfer, of any Class R Certificate nor authenticate and make
available any new Class R Certificate unless the Trustee has received an
affidavit from the proposed transferee that such transferee is not a pension or
benefit plan or individual retirement arrangement that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or to
Section 4975 of the Code or an entity whose underlying assets are deemed to be
assets of such a plan or arrangement by reason of such plan's or arrangement's
investment in the entity, as determined under U.S. Department of Labor
Regulations 29 C.F.R. ss. 2510.3-101 or otherwise. Each holder of a Class R
Certificate, by his acceptance thereof, shall be deemed for all purposes to have
consented to the provisions of this Section 5.8(b).
(c) No other sale or other transfer of record or beneficial
ownership of a Class R Certificate shall be made unless such transfer is exempt
from the registration requirements of the Securities Act, as amended, and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event such a transfer is to be made within three years from the
Startup Day, (i) the Trustee and the Company shall require a written opinion of
counsel acceptable to and in form and substance satisfactory to the Company and
the Certificate Insurer in the event that such transfer may be made pursuant to
an exemption, describing the applicable exemption and the basis therefor, from
said Act and laws or is being made pursuant to said Act and laws, which opinion
of counsel shall not be an expense of the Trustee, the Trust Estate or the
Certificate Insurer, and (ii) the Trustee shall require the Transferee to
execute an
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investment letter acceptable to and in form and substance satisfactory to the
Company and the Certificate Insurer certifying to the Trustee, the Certificate
Insurer and the Company the facts surrounding such transfer, which investment
letter shall not be an expense of the Trustee, the Trust Estate, the Certificate
Insurer or the Company. The Owner of a Class R Certificate desiring to effect
such transfer shall, and does hereby agree to, indemnify the Trustee, the
Certificate Insurer and the Company against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal and
state laws.
Section 5.9. Assignment of Rights. An Owner may pledge,
encumber, hypothecate or assign all or any part of its right to receive
distributions hereunder, but such pledge, encumbrance, hypothecation or
assignment shall not constitute a transfer of an ownership interest sufficient
to render the transferee an Owner of the Trust without compliance with the
provisions of Section 5.4 and Section 5.8 hereof.
ARTICLE VI
COVENANTS
Section 6.1. Distributions. On each Payment Date, the Trustee
will withdraw amounts from the Certificate Account and make the distributions
with respect to the Certificates in accordance with the terms of the
Certificates and this Agreement. Such distributions shall be made (i) by check
mailed on each Payment Date or (ii) if requested by any Owner, to such Owner by
wire transfer to an account within the United States designated no later than
five Business Days prior to the related Record Date, made on each Payment Date,
in each case to each Owner of record on the immediately preceding Record Date;
provided, however, that an Owner of a Class A Certificate shall only be entitled
to payment by wire transfer if such Owner owns Class A Certificates in the
aggregate denomination of at least $5,000,000.
Section 6.2. Money for Distributions to be Held in Trust;
Withholding. (a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Certificate
Account pursuant to Section 7.5 hereof or from Insured Payments shall be made by
and on behalf of the Trustee, and no amounts so withdrawn from the Certificate
Account for payments of the Certificates and no Insured Payment shall be paid
over to the Trustee except as provided in this Section.
(b) The Trustee on behalf of the Trust shall comply with all
requirements of the Code and applicable state and local law with respect to the
withholding from any distributions made by it to any Owner of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
(c) Any money held by the Trustee in trust for the payment of
any amount due with respect to any Class A Certificate and remaining unclaimed
by the Owner of such Class A Certificate for the period then specified in the
escheat laws of the State of New York after such amount has become due and
payable shall be discharged from such trust and be paid first to the Certificate
Insurer on account of any Reimbursement Amounts and second to the Owners of the
Class R Certificates; and the Owner of such Class A Certificate shall
thereafter, as an unsecured general creditor, look only to the Certificate
Insurer or the Owners of the Class R Certificates for payment thereof (but only
to the extent of the amounts so paid to the Certificate Insurer or the Owners of
the Class R Certificates), and all liability of the Trustee with respect to such
trust money shall thereupon cease; provided, however, that the Trustee, before
being required to make any such payment, shall at the expense of the Trust cause
to be published once, in the eastern edition of The Wall Street Journal, notice
that such money remains unclaimed and that, after a date specified therein,
which shall be not fewer than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be paid to the Certificate
Insurer or the Owners of the Class R Certificates. The Trustee shall,
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at the direction of the Company, also adopt and employ, at the expense of the
Trust, any other reasonable means of notification of such payment (including but
not limited to mailing notice of such payment to Owners whose right to or
interest in moneys due and payable but not claimed is determinable from the
Register at the last address of record for each such Owner).
Section 6.3. Protection of Trust Estate. (a) The Trustee will
hold the Trust Estate in trust for the benefit of the Owners and, upon request
of the Certificate Insurer, or, with the consent of the Certificate Insurer, at
the request and expense of the Company, will from time to time execute and
deliver all such supplements and amendments hereto pursuant to Section 11.14
hereof and all instruments of further assurance and other instruments, and will
take such other action upon such request from the Company or the Certificate
Insurer, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of or protect the validity of any
grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners
represented thereby, in such Trust Estate against the claims of all
Persons and parties.
The Trustee shall send copies of any request received from the
Certificate Insurer or the Company to take any action pursuant to this Section
6.3 to the other party.
(b) The Trustee shall have the power to enforce, shall enforce
the obligations of the other parties to this Agreement and of the Certificate
Insurer, by action, suit or proceeding at law or equity and shall also have the
power to enjoin, by action or suit in equity, any acts or occurrences which may
be unlawful or in violation of the rights of the Owners; provided, however, that
nothing in this Section shall require any action by the Trustee unless the
Trustee shall first (i) have been furnished indemnity satisfactory to it and
(ii) when required by this Agreement, have been requested to take such action by
a majority of the Percentage Interests represented by the affected Class or
Classes of Class A Certificates then Outstanding or, if there are no longer any
affecte Class A Certificates then outstanding, by such majority of the
Percentage Interests represented by the Class R Certificates.
(c) The Trustee shall execute any instrument required pursuant
to this Section so long as such instrument does not conflict with this Agreement
or with the Trustee's fiduciary duties.
Section 6.4. Performance of Obligations. The Trustee will not
take any action that would release the Company or the Certificate Insurer from
any of their respective covenants or obligations under any instrument or
document relating to the Trust Estate or the Certificates or which would result
in the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or document, except
as expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in
performing its duties hereunder.
Section 6.5. Negative Covenants. The Trustee will not, to the
extent within the control of the Trustee, take any of the following actions:
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(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty on behalf of the Trust any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust Estate in whole or in
part, except pursuant to Article IX hereof; or
(v) (A) impair the validity or effectiveness of this
Agreement, or release any Person from any covenants or obligations with
respect to the Trust or to the Certificates under this Agreement,
except as may be expressly permitted hereby or (B) create or extend any
lien, charge, adverse claim, security interest, mortgage or other
encumbrance to or upon the Trust Estate or any part thereof or any
interest therein or the proceeds thereof.
Section 6.6. No Other Powers. The Trustee will not, to the
extent within the control of the Trustee, permit the Trust to engage in any
business activity or transaction other than those activities permitted by
Section 2.3 hereof.
Section 6.7. Limitation of Suits. No Owner shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Agreement or the Certificate Insurance Policies or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(1) such Owner has previously given written notice to the Company
and the Trustee of such Owner's intention to institute such
proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the affected Class or Classes of Certificates
then Outstanding or, if there are no affected Classes of
Class A Certificates then Outstanding, by such percentage of
the Percentage Interests represented by the Class R
Certificates shall have made written request to the Trustee
to institute such proceeding in respect of such Event of
Default;
(3) such Owner or Owners have offered to the Trustee indemnity
against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceeding;
(5) as long as any Class A Certificates are Outstanding, the
Certificate Insurer has consented in writing thereto; and
(6) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the
Certificate Insurer or by the Owners of a majority of the
Percentage Interests represented by the Class A Certificates
or, if there are no Class A Certificates then
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Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners, each
representing less than a majority of the applicable Class of Certificates, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provision of this Agreement.
Section 6.8. Unconditional Rights of Owners to Receive
Distributions. Notwithstanding any other provision in this Agreement, the Owner
of any Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.9. Rights and Remedies Cumulative. Except as
otherwise provided herein, no right or remedy herein conferred upon or reserved
to the Trustee, the Certificate Insurer or to the Owners is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. Except as otherwise provided herein, the assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.10. Delay or Omission Not Waiver. No delay of the
Trustee, the Certificate Insurer or any Owner of any Certificate to exercise any
right or remedy under this Agreement to any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article VI or by law
to the Trustee, the Certificate Insurer or the Owners may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee, the
Certificate Insurer or the Owners, as the case may be.
Section 6.11. Control by Owners. The Certificate Insurer or
the Owners of a majority of the Percentage Interests represented by the Class A
Certificates then Outstanding, with the consent of the Certificate Insurer
(which may not be unreasonably withheld), or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates then Outstanding, with the consent of
the Certificate Insurer (which may not be unreasonably withheld), may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate,
including, but not limited to, those powers set forth in Section 6.3, Section
8.20 and Section 10.1 hereof, provided that:
(1) such direction shall not be in conflict with any rule of law
or with this Agreement;
(2) the Trustee shall have been provided with indemnity
satisfactory to it; and
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(3) the Trustee may take any other action deemed proper by the
Trustee, which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action
which it determines might involve it in liability or may be
unjustly prejudicial to the Owners not so directing.
Section 6.12. Access to Owners of Certificates' Names and
Addresses. (a) If any Owner (for purposes of this Section 6.12, an "Applicant")
applies in writing to the Trustee, and such application states that the
Applicant desires to communicate with other Owners with respect to their rights
under this Agreement or under the Certificates and is accompanied by a copy of
the communication which such Applicant proposes to transmit, then the Trustee
shall, at the expense of such Applicant, within ten (10) Business Days after the
receipt of such application, furnish or cause to be furnished to such Applicant
a list of the names and addresses of the Owners of record as of the most recent
Payment Date.
(b) Every Owner, by receiving and holding such list, agrees
with the Trustee that the Trustee shall not be held accountable in any way by
reason of the disclosure of any information as to the names and addresses of the
Owners hereunder, regardless of the source from which such information was
derived.
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.1. Collection of Money. Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of all
money and other property payable to or receivable by the Trustee pursuant to
this Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Trustee by the Servicer or by any Sub-Servicer
and (b) Insured Payments. The Trustee shall hold all such money and property
received by it, other than pursuant to or as contemplated by Section 6.2(b)
hereof, as part of the Trust Estate and shall apply it as provided in this
Agreement.
Section 7.2. Establishment of Accounts. (a) The Company shall
cause to be established, and the Trustee shall maintain, at the Corporate Trust
Office, a Certificate Account to be held by the Trustee so long as the Trustee
qualifies as a Designated Depository Institution and if the Trustee does not so
qualify, then by any Designated Depository Institution in the name of the Trust
for the benefit of the Owners of the Certificates and the Certificate Insurer,
as their interests may appear.
(b) The Company shall cause to be established, and the Trustee
shall maintain, at the corporate trust office of the Trustee, a Pre-Funding
Account and a Capitalized Interest Account to be held by the Trustee in the name
of the Trust for the benefit of the Owners of the Certificates and the
Certificate Insurer, as their interests may appear.
Section 7.3. The Certificate Insurance Policies. (a) (i) On
the Business Day prior to each Payment Date the Trustee shall determine with
respect to the immediately following Payment Date, the amount on deposit in the
Certificate Account on such Payment Date and available to be distributed to the
Owners on such Payment Date with respect to Group I (disregarding the sum of (x)
the amount of any Insured Payments and (y) the amount of any expected investment
earnings) and equal to the sum of (A) such amount excluding the amount of any
Total Monthly Excess Cashflow from Group I included in such amount plus (B) any
amount of Total Monthly Excess Cashflow from either Group to be applied on
account of Group I on such Payment Date to the Fixed Rate Certificates plus (C)
any deposit to the Certificate Account from the Pre-Funding Account or the
Capitalized Interest Account expected to be made with respect to Group I
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on such Payment Date. The amount described in clause (A) of the preceding
sentence with respect to each Payment Date is the "Group I Available Funds"; the
sum of the amounts described in clauses (A), (B) and (C) of the preceding
sentence with respect to each Payment Date is the "Group I Total Available
Funds."
(ii) On the Business Day prior to each Payment Date, the
Trustee shall determine with respect to the immediately following Payment Date,
the amount on deposit in the Certificate Account on such Payment Date and
available to be distributed to the Owners on such Payment Date with respect to
Group II (disregarding the sum of (x) the amount of any Insured Payments and (y)
the amount of any expected investment earnings), and equal to the sum of (A)
such amount excluding the amount of any Total Monthly Excess Cashflow from Group
II included in such amount plus (B) any amounts of Total Monthly Excess Cashflow
from either Group to be applied on account of Group II on such Payment Date to
the Class A-3 Certificates plus (C) any deposit to the Certificate Account from
the Pre-Funding Account or the Capitalized Interest Account expected to be made
with respect to Group II on such Payment Date. The amount described in clause
(A) of the preceding sentence with respect to each Payment Date is the "Group II
Available Funds"; the sum of the amounts described in clauses (A), (B) and (C)
of the preceding sentence with respect to each Payment Date is the "Group II
Total Available Funds".
(b) If (i) the Fixed Rate Certificate Current Interest for any
Payment Date exceeds the Group I Total Available Funds for such Payment Date
after deducting amounts payable therefrom, if any, for the Group I Premium
Amount and the Group I Trustee Fee due on such Payment Date and/or (ii) a Group
I Subordination Deficit exists for such Payment Date (any such event being a
"Group I Total Available Funds Shortfall"), the Trustee shall complete a Notice
in the form of Exhibit A to the Fixed Rate Certificate Insurance Policy and
submit such notice to the Certificate Insurer no later than 12:00 noon New York
City time on the Business Day preceding such Payment Date as a claim for an
Insured Payment in an amount equal to such Group I Total Available Funds
Shortfall. Similarly, if (i) the Class A-3 Current Interest for any Payment Date
exceeds the Group II Total Available Funds for such Payment Date after deducting
amounts payable therefrom, if any, for the Group II Premium Amount and the Group
II Trustee Fee due on such Payment Date and/or (ii) the Group II Subordination
Deficit exists for such Payment Date (any such event being a "Group II Total
Available Funds Shortfall"), the Trustee shall complete a Notice in the form of
Exhibit A to the Variable Rate Certificate Insurance Policy and submit such
notice to the Certificate Insurer no later than 12:00 noon New York City time on
the Business Day preceding such Payment Date as a claim for an Insured Payment
in an amount equal to such Group II Total Available Funds Shortfall.
(c) The Certificate Insurer shall forward to the Trustee
Insured Payments at such time and in the manner specified in the related
Certificate Insurance Policy. Upon receipt of Insured Payments from the
Certificate Insurer on behalf of Owners, the Trustee shall deposit such Insured
Payments in the Certificate Account and shall distribute such Insured Payments,
or the proceeds thereof, in accordance with Section 7.5(d)(iv) to the Owners of
the Class A Certificates of the related Class.
(d) The Trustee shall (i) receive Insured Payments as
attorney-in-fact of each Owner of the Class A Certificates of the related Class
receiving any Insured Payment from the Certificate Insurer and (ii) disburse
such Insured Payment to the Owners of Offered Certificates as set forth in
Section 7.5(d)(iv). Insured Payments disbursed by the Trustee from proceeds of a
Certificate Insurance Policy shall not be considered payment by the Trust nor
shall such payments discharge the obligation of the Trust with respect to the
related Class A Certificates, and the Certificate Insurer shall be entitled to
receive the related Reimbursement Amount pursuant to Sections 7.5(d)(ii)(C) and
7.5(d)(ii)(D) hereof. Each Owner of Class A Certificates by its acceptance
thereof recognizes that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Trustee), to
the Owners of such Class A Certificates the Certificate Insurer will be entitled
to receive the related Reimbursement Amount pursuant to Sections 7.5(d)(ii)(C)
and 7.5(d)(ii)(D) hereof.
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Section 7.4 Pre-Funding Account and Capitalized Interest
Account (a) On the Startup Day, the Company will deposit, on behalf of the
Owners of the Class A Certificates, in the Pre-Funding Account the Original
Pre-Funded Amount, from the proceeds of the sale of the Class A Certificates in
an amount equal to the sum of (i) the Original Group I Pre-Funded Amount, from
the proceeds of the sale of the Fixed Rate Certificates and (ii) the Original
Group II Pre-Funded Amount, from the proceeds of the sale of the Class A-3
Certificates.
(b) On any Subsequent Transfer Date, the Company shall
instruct the Trustee to withdraw from the Pre-Funding Account an amount equal to
100% of the aggregate Loan Balances of the Subsequent Mortgage Loans sold to the
Trust on such Subsequent Transfer Date and pay such amount to or upon the order
of the Company upon satisfaction of the conditions set forth in Sections 3.5 and
3.8 hereof with respect to such transfer; in connection with such instructions
the Company shall additionally inform the Trustee whether such Subsequent
Mortgage Loans are being transferred to Group I or Group II. In no event shall
the Company be permitted to instruct the Trustee to release from the Pre-Funding
Account to the Certificate Account with respect to Subsequent Mortgage Loans to
be transferred to Group I an amount in excess of the Original Group I Pre-
Funded Amount or to release from the Pre-Funding Account to the Certificate
Account with respect to Subsequent Mortgage Loans to be transferred to Group II
an amount in excess of the Original Group II Pre- Funded Amount.
(c) On or before the ___________________________ Payment Date,
the Trustee shall withdraw from the Pre-Funding Account the amount (exclusive of
any related Pre-Funding Account Earnings still on deposit therein) remaining in
the Pre-Funding Account, with respect to each Group of Mortgage Loans and
deposit such amount to the Certificate Account, for the benefit of the Owners of
the related Certificates, as applicable.
(d) On or before the ___________________________ Payment Date,
the Trustee shall transfer from the Pre-Funding Account to the Capitalized
Interest Account, the Pre-Funding Account Earnings, if any, applicable to such
Payment Date.
(e) On or before the ___________________________ Payment Date
the Trustee shall transfer from the Capitalized Interest Account to the
Certificate Account, (i) with respect to Group I, the Group I Capitalized
Interest Requirement for such Payment Date and (ii) with respect to Group II,
the Group II Capitalized Interest Requirement for such Payment Date.
(f) On each Subsequent Transfer Date the Trustee shall
distribute from the Capitalized Interest Account the Overfunded Interest Amount
(calculated by the Trustee on the day prior to such Subsequent Transfer Date) to
the Company and on the Payment Date in ___________________________, the Trustee
shall distribute to the Company any amounts remaining in the Capitalized
Interest Account after taking into account the transfers on such Payment Date
described in clause (e) above. Thereafter, the Capitalized Interest Account
shall be closed. All amounts, if any, remaining in the Capitalized Interest
Account on such day shall be transferred to the Company.
Section 7.5. Flow of Funds. (a) The Trustee shall deposit to
the Certificate Account with respect to Group I, without duplication, (i) upon
receipt, any Insured Payments relating to Group I, the proceeds of any
liquidation of the assets of the Trust, insofar as such assets relate to Group
I, the Group I Monthly Remittance Amount remitted by the Servicer or any
Sub-Servicer, together with any Substitution Amounts and any Loan Purchase Price
amounts received by the Trustee (each with respect to Group I), (ii) on the
first Payment Date, the Group I Capitalized Interest Requirement and any
Pre-Funding Account Earnings related to Group I to be transferred on such
Payment Date from the Capitalized Interest Account
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for the Payment Date, pursuant to Section 7.4(e) hereof and (iii) the amount, if
any, to be transferred on such Payment Date from the Pre-Funding Account
pursuant to Section 7.4(c) hereof.
(b) The Trustee shall deposit to the Certific ate Account with
respect to Group II, without duplication, (i) upon receipt, any Insured Payments
relating to Group II, the proceeds of any liquidation of the assets of the
Trust, insofar as such assets relate to Group II, the Group II Monthly
Remittance Amount remitted by the Servicer or any Sub-Servicer, together with
any Substitution Amounts and any Loan Purchase Price amounts received by the
Trustee (each with respect to Group II), (ii) on the first Payment Date, the
Group II Capitalized Interest Requirement and any Pre-Funding Account Earnings
related to Group II to be transferred on such Payment Date pursuant to Section
7.4(e) hereof and (iii) the amount, if any, to be transferred on such Payment
Date from the Pre-Funding Account pursuant to Section 7.4(c) hereof.
(c) [Reserved].
(d) With respect to the Certificate Account, on each Payment
Date, the Trustee shall make the following allocations, disbursements and
transfers for each Mortgage Loan Group from amounts deposited therein pursuant
to subsections (a) and (b), respectively in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, on each Payment Date from amounts then on deposit in the
Certificate Account (A) to the Trustee, the Trustee Fee and (B)
commencing on the third Payment Date following the Startup Day and each
Payment Date thereafter, to the Certificate Insurer, from amounts then
on deposit in the Certificate Account, (x) from amounts then on deposit
therein with respect to Group I, the Group I Premium Amount for such
Payment Date and (y) from amounts then on deposit therein with respect
to Group II, the Group II Premium Amount for such Payment Date;
(ii) second, on each Payment Date, the Trustee shall allocate an amount
equal to the sum of (x) the Total Monthly Excess Spread with respect to
such Mortgage Loan Group and Payment Date plus (y) any Subordination
Reduction Amount with respect to such Mortgage Loan Group and Payment
Date (such sum being the "Total Monthly Excess Cashflow" with respect
to such Mortgage Loan Group and Payment Date) with respect to each
Mortgage Loan Group in the following order of priority:
(A) first, such Total Monthly Excess Cashflow with
respect to each Group shall be allocated to the
payment of the related Class A Distribution Amount
pursuant to clause (iv) below on such Payment Date
with respect to the related Mortgage Loan Group in an
amount equal to the difference, if any, between (x)
the related Class A Distribution Amount (calculated
only with respect to clause (y) of the definition of
the related Group I or Group II Principal
Distribution Amount and without any Subordination
Increase Amount) for such Payment Date and (y) the
Available Funds with respect to such Mortgage Loan
Group for such Payment Date (the amount of such
difference being the "Group I or the Group II
Available Funds Shortfall" with respect to the
related Mortgage Loan Group);
(B) second, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the application described in clause
(A) above shall be allocated against any Available
Funds Shortfall with respect to the other Mortgage
Loan Group and to the payment of the Class A
Distribution Amount with respect to the other
Mortgage Loan Group pursuant to clause (iv) below;
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(C) third, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(A) and (B) above shall be disbursed to the
Certificate Insurer in respect of amounts owed on
account of any Reimbursement Amount with respect to
the related Mortgage Loan Group; and
(D) fourth, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(A), (B) and (C) above shall be paid to the
Certificate Insurer in respect of any Reimbursement
Amount with respect to the other Mortgage Loan Group.
(iii) third, the amount, if any, of the Total Monthly Excess Cashflow
with respect to a Mortgage Loan Group on a Payment Date remaining after
the allocations described in clause (ii) above is the "Net Monthly
Excess Cashflow" with respect to such Mortgage Loan Group for such
Payment Date; such Net Monthly Excess Cashflow is required to be
allocated in the following order of priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the allocation of a
Subordination Increase Amount to the payment of the
related Class A Distribution Amount pursuant to
clause (iv) below, any Subordination Deficiency
Amount with respect to the related Mortgage Loan
Group as of such Payment Date;
(B) second, the Net Monthly Excess Cashflow remaining
after the application described in clause (A) above
shall be used to reduce to zero, through the
allocation of a Subordination Increase Amount to the
payment of the related Class A Distribution Amount
pursuant to clause (iv) below, any Subordination
Deficiency Amounts with respect to the other Mortgage
Loan Group;
(C) third, an amount equal to the lesser of (i) any
portion of the Net Monthly Excess Cashflow remaining
after the applications described in clauses (A) and
(B) above and (ii) the excess of (a) the Group II
Available Funds Cap Carry-Forward Amount for such
Payment Date over (b) the amount then on deposit in
the Group II Available Funds Cap Carry-Forward Amount
Account shall be allocated to the Group II Available
Funds Cap Carry-Forward Amount Account.
(D) fourth, any Net Monthly Excess Cashflow remaining
after the applications described in clauses (A), (B)
and (C) above shall be paid to the Servicer to the
extent of any unreimbursed Delinquency Advances,
unreimbursed Servicing Advances and accrued and
unpaid Servicing Fees, in each case as certified to
the Trustee by the Servicer to be owing to it as of
such Payment Date;
(iv) fourth, following the making by the Trustee of all allocations,
transfers and disbursements described above under Section 7.3 hereof
and the prior clauses of this Section 7.5, from amounts (including any
related Insured Payment which shall be paid only to the Owners of the
Class A Certificates) then on deposit in the Certificate Account with
respect to the related Mortgage Loan Group, the Trustee shall
distribute in the following order of priority:
(A) from the amounts then on deposit in the Certificate
Account with respect to Group I, to the Owners of the
Fixed Rate Certificates, the related Fixed Rate
Certificate Current Interest thereon until the
related Class A Certificate Termination Date on
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a pro rata basis based on each such Class of Fixed
Rate Certificate's Current Interest without any
priority among the related Fixed Rate Certificates;
(B) from the amounts then on deposit in the Certificate
Account with respect to Group I, as a distribution of
principal to the Owners of the related Class of Fixed
Rate Certificates, the Group I Principal Distribution
Amount shall be distributed sequentially as follows:
(1) first, to the Owners of the Class A-1
Certificates until the Class A-1 TCertificate
Termination Date; and
(2) second, to the Owners of the Class A-2
Certificates until the Class A- 2 Certificate
Termination Date;
(C) from the amounts then on deposit in the Certificate
Account with respect to Group II, to the Owners of
the Class A-3 Certificates, the Class A-3 Current
Interest until the Class A-3 Certificate Termination
Date; and
(D) from the amounts then on deposit in the Certificate
Account with respect to Group II, to the Owners of
the Class A-3 Certificates, the Group II Principal
Distribution Amount until the Class A-3 Certificate
Termination Date;
Notwithstanding anything to the contrary herein, the amounts described
in Section 7.5(d)(iv)(A) and (C) shall be distributed prior to all
other allocations, distributions and transfers described in Section 7.3
and 7.5 hereof (other than the amount described in Section 7.5(d)(i)).
(v) fifth, following the making by the Trustee of all allocations,
transfers and disbursements described above under Section 7.3 hereof
and the prior clauses of this Section 7.5, from amounts then on deposit
in the Certificate Account for both Mortgage Loan Groups, the Trustee
shall distribute to the Owners of the Class R Certificates, the
Residual Net Monthly Excess Cashflow, if any, for such Payment Date.
(e) On each Payment Date the Trustee shall distribute to the Owners of
the Class A-3 Certificates the amount, if any, then on deposit in the Group II
Available Funds Cap Carry-Forward Amount Account.
(f) On any Payment Date during the continuance of any Certificate
Insurer Default, if there is a Subordination Deficit, then the Group I Principal
Distribution Amount for such Payment Date shall be distributed pro rata to the
Owners of any Outstanding Fixed Rate Certificates on such Payment Date.
(g) Notwithstanding clause (d)(iv) above, the aggregate amounts
distributed on all Payment Dates to the Owners of the related Class A
Certificates on account of principal shall not exceed the Original Certificate
Principal Balance for the related Class A Certificates.
Section 7.6. Investment of Accounts. (a) So long as no event
described in Sections 8.20(a) or (b) hereof shall have occurred and be
continuing, and consistent with any requirements of the Code, all or a portion
of the Accounts held by the Trustee shall be invested and reinvested by the
Trustee in the name of the Trustee for the benefit of the Owners and the
Certificate Insurer, as their interests may appear, directed in writing by the
Servicer on the Closing Date and from time to time thereafter, in one or more
Eligible Investments bearing interest or sold at a discount. During the
continuance of an event
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described in Sections 8.20(a) or (b) hereof and following any removal of the
Servicer, the Certificate Insurer shall direct such investments. No investment
in any Account shall mature later than the second Business Day preceding the
next Payment Date.
(b) If any amounts are needed for disbursement from any
Account held by the Trustee and sufficient uninvested funds are not available to
make such disbursement, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account. No
investments will be liquidated prior to maturity unless the proceeds thereof are
needed for disbursement.
(c) Subject to Section 10.1 hereof, the Trustee shall not in
any way be held liable by reason of any insufficiency in any Account held by the
Trustee resulting from any loss on any Eligible Investment included therein.
(d) The Trustee shall hold funds in the Accounts held by the
Trustee uninvested upon the occurrence of either of the following events:
(i) the Servicer or the Certificate Insurer, as the
case may be, shall have failed to give investment directions to the
Trustee within ten days after receipt of a written request for such
directions from the Trustee; or
(ii) the Servicer or the Certificate Insurer, as the
case may be, shall have failed to give investment directions to the
Trustee with respect to any investment by the Trustee that shall mature
during the ten-day period described in clause (i).
(e) For purposes of investment, the Trustee shall aggregate
all amounts on deposit in each Account. All income or other gain from
investments in any Account shall be deposited in such Account immediately on
receipt, and any loss resulting from such investments shall be charged to the
Company, and upon request by the Trustee, the Company shall reimburse the Trust
Estate for such losses.
(f) Each institution at which the Certificate Account is
maintained shall invest the funds therein in Eligible Investments, which shall
mature not later than the Business Day next preceding the related Payment Date
(except that if such Eligible Investment is an obligation of the institution
that maintains such account, then such Eligible Investment shall mature not
later than such Payment Date) and, in each case, shall not be sold or disposed
of prior to its maturity. All such Eligible Investments shall be made in the
name of the Trustee, for the benefit of the Owners and the Certificate Insurer.
All income and gain (net of any losses) realized from any such investment of
funds on deposit in the Certificate Account shall be for the benefit of the
Servicer as servicing compensation and shall be remitted to it monthly as
provided herein. The amount of any realized losses in the Certificate Account
incurred in any such account in respect of any such investments shall promptly
be deposited by the Servicer in the Certificate Account or paid to the Trustee
as applicable. The Trustee in its fiduciary capacity shall not be liable for the
amount of any loss incurred in respect of any investment or lack of investment
of funds held in the Certificate Account and made in accordance with this
Section 7.6(f).
(g) The Servicer shall give notice to the Trustee, the
Company, each Rating Agency, and the Certificate Insurer of any proposed change
of the location of the Certificate Account not later than 30 days and not more
than 45 days prior to any change thereof.
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Section 7.7. Eligible Investments. The following are Eligible
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by Standard & Poor's and P-1 by Moody's.
(c) Investment agreements approved by the Certificate Insurer
provided:
1. The agreement is with a bank or insurance company which has
an unsecured, uninsured and unguaranteed obligation (or claims-paying
ability) rated Aa2 or better by Moody's and AA or better by Standard &
Poor's,
2. Moneys invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice
(provided such notice may be amended or canceled at any time prior to
the withdrawal date),
3. The agreement is not subordinated to any other obligations
of such insurance company or bank,
4. The same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement, and
5. The Trustee and the Certificate Insurer receive an opinion
of counsel that such agreement is an enforceable obligation of such
insurance company or bank.
(d) Commercial paper (having original maturities of not more
than 365 days) rated A-1 or better by Standard & Poor's and P-1 or better by
Moody's.
(e) Investments in no load money market funds rated AAAm or
AAAm-G by Standard & Poor's and Aaa by Moody's.
(f) Investments approved in writing by the Certificate Insurer
and acceptable to Moody's and Standard & Poor's.
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than _______% of
the yield to maturity at par of the underlying obligations; and provided,
further, that no instrument described above may be purchased at a price greater
than par.
Section 7.8. Reports by Trustee. (a) On each Payment
Date the Trustee shall provide to each Owner, the Servicer, the
Certificate Insurer, each of the Underwriters, the Company, Standard &
Poor's and Moody's a written report (based solely upon the information
contained in the Monthly Servicing Report) in substantially the form
set forth as Exhibit J hereto with respect to each Mortgage Loan Group,
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as such form may be revised by the Trustee, the Servicer, Moody's and
Standard & Poor's from time to time, but in every case setting forth
the information requested on Exhibit J hereto and the following
information:
(i) the amount of the distribution with respect to
the related Class of the Class A Certificates and the Class R
Certificates;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments or Prepaid Installments of principal included therein, any
Pre- Funded Amounts distributed as a prepayment (based on a Certificate
in the original principal amount of $1,000) and separately identifying
any Subordination Increase Amounts with respect to the related Mortgage
Loan Group;
(iii) the amount of such distributions allocable to
interest;
(iv) the Certificate Principal Balance for each Class
of Class A Certificates as of such Payment Date together with the
principal amount of such Class of Class A Certificates (based on a
Certificate in an original principal amount of $1,000) then
outstanding, in each case after giving effect to any payment of
principal on such Payment Date;
(v) the amount of any Insured Payment included in the
amounts distributed with respect to the Class A Certificates on such
Payment Date;
(vi) information to the extent and in the form
furnished by the Company pursuant to Section 6049(d)(7)(C) of the Code
and the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(vii) the total of any Substitution Amounts and any
Loan Purchase Price amounts included in such distribution;
(viii) the amount of any Subordination Reduction
Amount with respect to each Mortgage Loan Group;
(ix) the amounts, if any, of any Realized Losses in
each Mortgage Loan Group for the related Remittance Period and the
cumulative amount of Realized Losses in each Mortgage Loan Group since
the Startup Day;
(x) for the related Remittance Period and
cumulatively since the Startup Day, the number and aggregate Loan
Balance of Mortgage Loans in each Group bought back by the Servicer or
the Company pursuant to Sections 3.4, 3.6 and 8.10 (identified
separately for each such section);
(xi) the amount of any Group II Available Funds Cap
Carry-Forward Amount;
(xii) a number with respect to each Class (the "Pool
Factor" for such Class) computed by dividing the Certificate Principal
Balance for such Class (after giving effect to any distribution of
principal to be made on such Payment Date) by the Original Certificate
Principal Balance for such Class on the Startup Day; and,
(xiii) for Payment Dates during the Funding Period,
the remaining Pre-Funded Amount.
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Items (i) through (iii) above shall, with respect to each
Class of Class A Certificates, be presented on the basis of a Certificate having
a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Certificates are outstanding, the Trustee
shall furnish a report to each Owner of record at any time during each calendar
year as to the aggregate of amounts reported pursuant to (i), (ii) and (iii)
with respect to the Certificates for such calendar year.
(b) In addition, on each Payment Date the Trustee will
distribute to each Owner, the Certificate Insurer, each of the Underwriters, the
Servicer, the Company, Standard & Poor's and Moody's, together with the
information described in Subsection (a) preceding, the following information
with respect to each Mortgage Loan Group as of the last day of the related
Remittance Period, which is hereby required to be prepared by the Servicer and
furnished to the Trustee for such purpose on or prior to the related Remittance
Date:
(i) the total number of Mortgage Loans in each
Mortgage Loan Group and the aggregate Loan Balances thereof, together
with the number, aggregate principal balances of such Mortgage Loans in
such Mortgage Loan Group and the percentage (based on the aggregate
Loan Balances of the Mortgage Loans in such Mortgage Loan Group) (a)
30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more
days Delinquent;
(ii) the number and aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Group and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Group) in foreclosure proceedings (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i));
(iii) the number, aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Group and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Group) relating to Mortgagors in bankruptcy proceedings (and whether
any such Mortgage Loans are also included in any of the statistics
described in the foregoing clause (i));
(iv) the number, aggregate Loan Balances of all
Mortgage Loans in each Mortgage Loan Group and percentage (based on the
aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan
Group) relating to REO Properties (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i));
(v) the aggregate Loan Balance of all Mortgage Loans,
the aggregate Loan Balance of the Mortgage Loans in each Group and the
aggregate Loan Balance of the Initial Mortgage Loans and the Subsequent
Mortgage Loans in each Group in each case after giving effect to any
payment of principal on such Payment Date; and
(vi) the book value of any REO Property in each
Mortgage Loan Group.
(c) The foregoing reports shall be sent to an Owner only
insofar as such Owner owns a Certificate with respect to the related Mortgage
Loan Group.
Section 7.9. Additional Reports by Trustee. (a) The Trustee
shall report to the Company, the Servicer, Standard & Poor's, Moody's and the
Certificate Insurer with respect to the amount then held in each Account
(including investment earnings accrued or scheduled to accrue) held by the
Trustee and the identity of the investments included therein, as the Company,
the Servicer or the Certificate Insurer may from time to time request.
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(b) Not later than 20 days after each Payment Date, the
Trustee shall forward to the Company, the Servicer and the Certificate Insurer a
statement, setting forth the status of the Certificate Account as of the close
of business on the last Business Day of the related Remittance Period showing,
for the period covered by such statement, the aggregate of deposits into and
withdrawals from the Certificate Account.
Section 7.10. Group II Available Funds Cap Trust. (a) The
parties hereto do hereby create and establish a trust for the benefit of the
Owners of the Class A-3 Certificates, the "First Alliance Available Funds Cap
Trust 199_-_" (the "Group II Available Funds Cap Trust"). The Group II Available
Funds Cap Trust shall include the Group II Available Funds Cap Carry-Forward
Amount Account which is held by the Trustee in the name of the Group II
Available Funds Cap Trust for the benefit of the Owners of the Class A-3
Certificates.
(b) On each Payment Date the Trustee shall receive the
distributions, if any, made to the Group II Available Funds Cap Carry-Forward
Amount Account pursuant to Section 7.5(d)(iii)(C) hereof on such Payment Date
and deposit such payment to the Group II Available Funds Cap Carry-Forward
Amount Account.
(c) On each Payment Date the Trustee shall pursuant to Section
7.5(e) withdraw from the Group II Available Funds Cap Carry-Forward Amount
Account and distribute to the Owners of the Class A-3 Certificates the amount,
if any, then on deposit in the Group II Available Funds Cap Carry-Forward Amount
Account.
(d) It is the intention of the parties that the Group II
Available Funds Cap Trust constitute a trust under the laws of the State of New
York. The Group II Available Funds Cap Trust will be created and administered
in, and the Group II Available Funds Cap Carry-Forward Amount Account maintained
by the Trustee on behalf of the Group II Available Funds Cap Trust will be
located in, the State of New York. Payments will be received by the Group II
Available Funds Cap Trust only in the State of New York, and payments from the
Group II Available Funds Cap Trust will be made only from the State of New York.
ARTICLE VIII
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS
Section 8.1. Servicer and Sub-Servicers. (a) Acting directly
or through one or more Sub-Servicers as provided in Section 8.3, the Servicer,
as servicer, shall service and administer the Mortgage Loans in accordance with
this Agreement and with reasonable care, and using that degree of skill and
attention that the Servicer exercises with respect to comparable mortgage loans
that it services for itself or others, and shall have full power and authority,
acting alone, to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
(b) The duties of the Servicer shall include collecting and
posting of all payments, responding to inquiries of Mortgagors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to Mortgagors in
accordance with its customary practices and accounting for collections,
furnishing monthly and annual statements to the Trustee with respect to
distributions, paying Compensating Interest and making Delinquency Advances and
Servicing Advances pursuant hereto. The Servicer shall follow its customary
standards, policies and procedures in performing its duties as Servicer. The
Servicer shall cooperate with the Trustee and furnish to the Trustee with
reasonable promptness information in its possession as may be necessary or
appropriate
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to enable the Trustee to perform its tax reporting duties hereunder. The Trustee
shall furnish the Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder.
(c) Without limiting the generality of the foregoing, the
Servicer (i) shall continue, and is hereby authorized and empowered by the
Trustee, to execute and deliver, on behalf of itself, the Owners and the Trustee
or any of them, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the related Properties; (ii)
may consent to any modification of the terms of any Note not expressly
prohibited hereby if the effect of any such modification (x) will not be to
affect materially and adversely the security afforded by the related Property,
the timing of receipt of any payments required hereby or the interests of the
Certificate Insurer and (y) will not cause the Trust to fail to qualify as a
REMIC.
(d) The parties intend that the Trust (other than the
Pre-Funding Account and the Capitalized Interest Account) shall constitute and
that the affairs of Trust shall (other than the Pre-Funding Account and the
Capitalized Interest Account) shall be conducted so as to qualify it as a REMIC.
In furtherance of such intention, the Servicer covenants and agrees that it
shall act as agent (and the Servicer is hereby appointed to act as agent) on
behalf of the Trust and that in such capacity it shall: (i) use its best efforts
to conduct the affairs of the Trust at all times that any Class of Certificates
are outstanding so as to maintain the status of the Trust as a REMIC under the
REMIC Provisions; (ii) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status of the
Trust or that would subject the Trust to tax and (iii) exercise reasonable care
not to allow the Trust to receive income from the performance of services or
from assets not permitted under the REMIC Provisions to be held by a REMIC.
(e) The Servicer may, and is hereby authorized to, perform any
of its servicing responsibilities with respect to all or certain of the Mortgage
Loans through a Sub-Servicer as it may from time to time designate but no such
designation of a Sub-Servicer shall serve to release the Servicer from any of
its obligations under this Agreement. Such Sub-Servicer shall have all the
rights and powers of the Servicer with respect to such Mortgage Loans under this
Agreement.
(f) Without limiting the generality of the foregoing, but
subject to Sections 8.13 and 8.14, the Servicer in its own name or in the name
of a Sub-Servicer may be authorized and empowered pursuant to a power of
attorney executed and delivered by the Trustee to execute and deliver, on behalf
of itself, the Owners and the Trustee or any of them, (i) any and all
instruments of satisfaction or cancellation or of partial or full release or
discharge and all other comparable instruments with respect to the Mortgage
Loans and with respect to the Properties, (ii) to institute foreclosure
proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of
any Property on behalf of the Trustee and (iii) to hold title to any Property
upon such foreclosure or deed in lieu of foreclosure on behalf of the Trustee;
provided, however, that Section 8.14(a) shall constitute a power of attorney
from the Trustee to the Servicer to execute an instrument of satisfaction (or
assignment of mortgage without recourse) with respect to any Mortgage Loan paid
in full (or with respect to which payment in full has been escrowed). Subject to
Sections 8.13 and 8.14, the Trustee shall execute a power of attorney to the
Servicer and any Sub-Servicer and furnish them with any other documents as the
Servicer or such Sub-Servicer shall reasonably request to enable the Servicer
and such Sub-Servicer to carry out their respective servicing and administrative
duties hereunder.
(g) The Servicer shall give prompt notice to the Trustee and
the Certificate Insurer of any action, of which the Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
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(h) Servicing Advances incurred by the Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage Loans (including
any penalties in connection with the payment of any taxes and assessments or
other charges) on any Property shall be recoverable by the Servicer or such
Sub-Servicer to the extent described in Section 8.9(c) and in Section
7.5(d)(iii)(D) hereof.
Section 8.2. Collection of Certain Mortgage Loan Payments. (a)
The Servicer shall, to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any applicable Insurance Policies
follow such collection procedures as it follows from time to time with respect
to mortgage loans in its servicing portfolio that are comparable to the Mortgage
Loans; provided that the Servicer shall always at least follow collection
procedures that are consistent with or better than standard industry practices.
Consistent with the foregoing, the Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if a
Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan; provided, however, the
Servicer shall not reschedule the payment of delinquent payments more than one
time in any twelve (12) consecutive months with respect to any Mortgagor or
(iii) modify payments of monthly principal and interest on any Mortgage Loan
becoming subject to the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended, in accordance with the Servicer's general policies of the
comparable mortgage loans subject to such Act.
(b) The Servicer shall hold in escrow on behalf of the related
Mortgagor all Prepaid Installments received by it, and shall apply such Prepaid
Installments as directed by such Mortgagor and as set forth in the related Note.
Section 8.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with any institution which is
acceptable to the Certificate Insurer and which is in compliance with the laws
of each state necessary to enable it to perform its obligations under such
Sub-Servicing Agreement and (x) has (i) been designated an approved
seller-servicer by FHLMC or Fannie Mae for Mortgage Loans and (ii) has equity of
at least $5,000,000, as determined in accordance with generally accepted
accounting principles or (y) is a Servicer Affiliate. The Servicer shall give
notice to the Certificate Insurer and the Trustee of the appointment of any
Sub-Servicer and shall furnish to the Certificate Insurer and the Trustee a copy
of such Sub-Servicing Agreement. For purposes of this Agreement, the Servicer
shall be deemed to have received payments on Mortgage Loans when any
Sub-Servicer has received such payments. Any such Sub-Servicing Agreement shall
be consistent with and not violate the provisions of this Agreement.
Section 8.4. Successor Sub-Servicers. The Servicer may
terminate any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement and either itself directly service
the related Mortgage Loans or enter into a Sub-Servicing Agreement with a
successor Sub-Servicer that qualifies under Section 8.3.
Section 8.5. Liability of Servicer. The Servicer shall not be
relieved of its obligations under this Agreement notwithstanding any
Sub-Servicing Agreement or any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Sub-Servicer or otherwise,
and the Servicer shall be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Mortgage
Loans. The Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and
nothing contained in such Sub-Servicing Agreement shall be deemed to limit or
modify this Agreement. The Trust shall not indemnify the Servicer for any losses
due to the Servicer's negligence.
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Section 8.6. No Contractual Relationship Between Sub-Servicer
and Trustee or the Owners. Any Sub-Servicing Agreement and any other
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
shall be deemed to be between the Sub-Servicer and the Servicer alone and the
Certificate Insurer, the Trustee and the Owners shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to any Sub-Servicer except as set forth in Section 8.7.
Section 8.7. Assumption or Termination of Sub-Servicing
Agreement by Trustee. In connection with the assumption of the responsibilities,
duties and liabilities and of the authority, power and rights of the Servicer
hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed
that the Servicer's rights and obligations under any Sub-Servicing Agreement
then in force between the Servicer and a Sub-Servicer may be assumed or
terminated by the Trustee at its option without the payment of a fee
notwithstanding any contrary provision in any Sub-Servicing Agreement.
The Servicer shall, upon reasonable request of the Trustee,
but at the expense of the Servicer, deliver to the assuming party documents and
records relating to each Sub-Servicing Agreement and an accounting of amounts
collected and held by it and otherwise use its best reasonable efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party.
Section 8.8. Principal and Interest Account.
(a) The Servicer shall establish in the name of the Trust for
the benefit of the Owners of the Certificates and the Certificate Insurer and
maintain at one or more Designated Depository Institutions the Principal and
Interest Account. The funds held in the Principal and Interest Account shall not
be commingled with any other funds.
Subject to Subsection (c) below, the Servicer and any
Sub-Servicer shall deposit all receipts related to the Mortgage Loans into the
Principal and Interest Account on a daily basis (but no later than the first
Business Day after receipt).
Subject to Subsection (c) below, within one Business Day
following the Startup Day, the Company and/or the Servicer shall deposit into
the Principal and Interest Account all receipts related to the related Mortgage
Loans received after the Cut-Off Date.
(b) Any investment of funds in the Principal and Interest
Account shall mature or be withdrawable at par on or prior to the immediately
succeeding Remittance Date. All funds in the Principal and Interest Account may
only be held (i) uninvested, up to the limits insured by the FDIC or (ii)
invested in Eligible Investments. The Principal and Interest Account shall be
held in trust in the name of the Trust and for the benefit of the Owners of the
Certificates. Any investment earnings on funds held in the Principal and
Interest Account shall be for the account of the Servicer and may only be
withdrawn from the Principal and Interest Account by the Servicer on the second
Business Day of the month for the investment earnings for the previous calendar
month. The Servicer shall withdraw from the Principal and Interest Account, on
the second Business Day of the month, investment earnings for the previous
calendar month. The Servicer shall deposit into the Principal and Interest
Account the amount of all losses on investment of funds in the Principal and
Interest Account upon request from the Trustee. Any references herein to amounts
on deposit in the Principal and Interest Account shall refer to amounts net of
investment earnings.
(c) The Servicer shall deposit to the Principal and Interest
Account all principal and interest collections on the Mortgage Loans received
after the Cut-Off Date, including any Prepayments and Net Liquidation Proceeds,
all Loan Purchase Prices and Substitution Amounts received or paid by the
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Servicer with respect to the Mortgage Loans, other recoveries or amounts related
to the Mortgage Loans received by the
Servicer, Compensating Interest and Delinquency Advances together with any
amounts which are reimbursable from the Principal and Interest Account but net
of (i) the Servicing Fee with respect to each Mortgage Loan and other servicing
compensation to the Servicer as permitted by Section 8.15 hereof, (ii) principal
(including Prepayments) due on the related Mortgage Loans on or prior to the
Cut-Off Date, (iii) interest accruing on the related Mortgage Loans on or prior
to the Cut-Off Date and (iv) Net Liquidation Proceeds to the extent such Net
Liquidation Proceeds exceed the Loan Balance of the related Mortgage Loan.
(d) (i) The Servicer may make withdrawals from the Principal
and Interest Account only for the following purposes:
(A) to effect the timely remittance to the
Trustee of the Monthly Remittance Amounts due on the
Remittance Date;
(B) to reimburse itself pursuant to Section
8.9(a) hereof for unrecovered Delinquency Advances
and Servicing Advances;
(C) to withdraw investment earnings on
amounts on deposit in the Principal and Interest
Account;
(D) to withdraw amounts that have been
deposited to the Principal and Interest Account in
error; and
(E) to clear and terminate the Principal and
Interest Account following the termination of the
Trust Estate pursuant to Article IX hereof.
(ii) On the Determination Date of each month, commencing in
____________________ the Servicer shall send to the Trustee the Monthly
Exception Report detailing the payments on the Mortgage Loans during the prior
Remittance Period and certifying the amounts and purpose of withdrawals
permitted pursuant to (d) above from the Principal and Interest Account. Such
report shall contain the specified data, as described in Section 8.26 hereof,
and shall be in the form and have the specifications as may be agreed to between
the Servicer, the Certificate Insurer and the Trustee from time to time.
(iii) On each Remittance Date, commencing in
___________________________ the Servicer shall remit to the Trustee by wire
transfer, or otherwise make funds available in immediately available funds for
deposit to the Certificate Account, (x) for Group I, the Group I Interest
Remittance Amount and the Group I Principal Remittance Amount and (y) for Group
II, the Group II Interest Remittance Amount and the Group II Principal
Remittance Amount.
Section 8.9. Delinquency Advances, Compensating Interest and
Servicing Advances. (a) The Servicer is required, not later than each Remittance
Date, to deposit into the Principal and Interest Account an amount equal to the
sum of (i) the interest due (net of the Servicing Fees due) but not collected,
(ii) on the Remittance Date in ___________________________, interest accrued on
each Subsequent Mortgage Loan transferred to the Trust during the related Due
Period from the related Subsequent Cut Off Date to the last day of the related
Remittance Period and (iii) scheduled principal due, but not collected, with
respect to Delinquent Mortgage Loans during the related Due Period but only if,
in its good faith business judgment, the Servicer reasonably believes that such
amount will ultimately be recovered from the related Mortgage Loan. Such amounts
are "Delinquency Advances".
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The Servicer shall be permitted to fund its payment of
Delinquency Advances on any Remittance Date and to reimburse itself for any
Delinquency Advances paid from the Servicer's own funds, from collections on any
Mortgage Loan deposited to the Principal and Interest Account subsequent to the
related Due Period and shall deposit into the Principal and Interest Account
with respect thereto (i) collections from the Mortgagor whose Delinquency gave
rise to the shortfall which resulted in such Delinquency Advance and (ii) Net
Liquidation Proceeds recovered on account of the related Mortgage Loan to the
extent of the amount of aggregate Delinquency Advances related thereto. If not
thereto recovered from the related Mortgagor or the related Net Liquidation
Proceeds, Delinquency Advances shall be recoverable pursuant to Section
7.5(d)(iii)(D).
(b) On or prior to each Remittance Date, the Servicer shall
deposit in the Principal and Interest Account with respect to any Paid-in-Full
Mortgage Loan during the related Remittance Period out of its own funds without
any right of reimbursement therefor an amount equal to the difference between
(x) 30 days' interest at such Mortgage Loan's Coupon Rate (less the Servicing
Fee) on the Loan Balance of such Mortgage Loan as of the first day of the
related Remittance Period and (y) to the extent not previously advanced, the
interest (less the Servicing Fee) paid by the Mortgagor with respect to the
Mortgage Loan during such Remittance Period (any such amount paid by the
Servicer, "Compensating Interest"). The Servicer shall in no event be required
to pay Compensating Interest with respect to any Remittance Period in an amount
in excess of the aggregate Servicing Fee received by the Servicer with respect
to all Mortgage Loans for such Remittance Period. Further, the Servicer is not
obligated to cover shortfalls in collections in interest due to Curtailments.
(c) The Servicer will pay all "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) Preservation Expenses, (ii) any enforcement
or judicial proceedings, including foreclosures, and (iii) the management and
liquidation of REO Property, but is only required to pay such costs and expenses
to the extent the Servicer reasonably believes such costs and expenses will
increase Net Liquidation Proceeds on the related Mortgage Loan. Each such amount
so paid will constitute a "Servicing Advance". The Servicer may recover
Servicing Advances (x) from the Mortgagors to the extent permitted by the
Mortgage Loans, from Liquidation Proceeds realized upon the liquidation of the
related Mortgage Loan, and (y) as provided in Section 7.5(d)(iii)(D) hereof. In
no case may the Servicer recover Servicing Advances from principal and interest
payments on any Mortgage Loan or from any amounts relating to any other Mortgage
Loan except as provided pursuant to Section 7.5(d)(iii)(D) hereof.
Section 8.10. Purchase of Mortgage Loans. The Servicer may,
but is not obligated to, purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Servicer or by any Sub-Servicer pursuant to Section 8.13. Any
such Loan so purchased shall be purchased by the Servicer not later than the
related Remittance Date at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the Principal and Interest
Account.
Section 8.11. Maintenance of Insurance. (a) The Servicer shall
cause to be maintained with respect to each Mortgage Loan a hazard insurance
policy with a generally acceptable carrier that provides for fire and extended
coverage, and which provides for a recovery by the Servicer on behalf of the
Trust of insurance proceeds relating to such Mortgage Loan in an amount not less
than the least of (i) the outstanding principal balance of the Mortgage Loan,
(ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan at the time of origination relates to
a Property in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood
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hazards, the Servicer will cause to be maintained with respect thereto a flood
insurance policy in a form meeting the requirements of the current guidelines of
the Federal Insurance Administration with a generally acceptable carrier in an
amount representing coverage, and which provides for a recovery by the Servicer
on behalf of the Trust of insurance proceeds relating to such Mortgage Loan of
not less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973. The Servicer shall
indemnify the Trust and the Certificate Insurer out of the Servicer's own funds
for any loss to the Trust and the Certificate Insurer resulting from the
Servicer's failure to maintain the insurance required by this Section.
(c) In the event that the Servicer shall obtain and maintain a
blanket policy insuring against fire, flood and hazards of extended coverage on
all of the Mortgage Loans, then, to the extent such policy names the Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance and otherwise
complies with the requirements of this Section 8.11, the Servicer shall be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage under this Section 8.11, it being understood and
agreed that such blanket policy may contain a deductible clause, in which case
the Servicer shall, in the event that there shall not have been maintained on
the related Property a policy complying with the preceding paragraphs of this
Section 8.11, and there shall have been a loss which would have been covered by
such policy, deposit in the Principal and Interest Account from the Servicer's
own funds the difference, if any, between the amount that would have been
payable under a policy complying with the preceding paragraphs of this Section
8.11 and the amount paid under such blanket policy. Upon the request of the
Trustee or the Certificate Insurer, the Servicer shall cause to be delivered to
the Trustee or the Certificate Insurer a certified true copy of such policy.
Section 8.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements. When a Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Servicer shall not exercise any
such right if (i) the "due-on-sale" clause, in the reasonable belief of the
Servicer, is not enforceable under applicable law or (ii) the Servicer
reasonably believes that to permit an assumption of the Mortgage Loan would not
materially and adversely affect the interest of the Owners or of the Certificate
Insurer. In such event, the Servicer shall enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Note and, unless prohibited by applicable law or the related Mortgage Loan
documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Servicer is authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Note; provided, however, that to the
extent any such substitution of liability agreement would be delivered by the
Servicer outside of its usual procedures for mortgage loans held in its own
portfolio the Servicer shall, prior to executing and delivering such agreement,
obtain the prior written consent of the Certificate Insurer. The Mortgage Loan,
as assumed, shall conform in all respects to the requirements, representations
and warranties of this Agreement. The Servicer shall notify the Trustee that any
such assumption or substitution agreement has been completed by forwarding to
the Trustee the original copy of such assumption or substitution agreement,
which copy shall be added by the Trustee to the related File and which shall,
for all purposes, be considered a part of such File to the same extent as all
other documents and instruments constituting a part thereof. The Servicer shall
be responsible for recording any such assumption or substitution agreements. In
connection with any such assumption or substitution agreement, the required
monthly payment on the related Mortgage Loan shall not be changed but shall
remain as in effect immediately prior to the assumption or substitution, the
stated maturity or
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outstanding principal amount of such Mortgage Loan shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven. Any fee collected by the Servicer or the Sub-Servicer for consenting
to any such conveyance or entering into an assumption or substitution agreement
shall be retained by or paid to the Servicer as additional servicing
compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 8.13. Realization Upon Defaulted Mortgage Loans. (a)
The Servicer shall foreclose upon or otherwise comparably effect the ownership
on behalf of the Trust of Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of Delinquent
payments and which the Servicer has not purchased pursuant to Section 8.10. In
connection with such foreclosure or other conversion, the Servicer shall
exercise such of the rights and powers vested in it hereunder, and use the same
degree of care and skill in its exercise or use as prudent mortgage lenders
would exercise or use under the circumstances in the conduct of their own
affairs, including, but not limited to, advancing funds for the payment of
taxes, amounts due with respect to Senior Liens and insurance premiums. Any
amounts so advanced shall constitute "Servicing Advances" within the meaning of
Section 8.9(c) hereof. The Servicer shall sell any REO Property within 23 months
of its acquisition by the Trust, unless the Servicer obtains for the Trustee and
the Certificate Insurer an opinion of counsel experienced in federal income tax
matters and reasonably acceptable to the Certificate Insurer, addressed to the
Trustee, the Certificate Insurer and the Servicer, to the effect that the
holding by the Trust of such REO Property for any greater period will not result
in the imposition of taxes on "Prohibited Transactions" of the Trust as defined
in Section 860F of the Code or cause the Trust to fail to qualify as a REMIC
under the REMIC Provisions at any time that any Certificates are outstanding, in
which case the Servicer shall sell any REO Property by the end of any extended
period specified in any such opinion.
Notwithstanding the generality of the foregoing provisions,
the Servicer shall manage, conserve, protect and operate each REO Property for
the Owners solely for the purpose of its prompt disposition and sale in a manner
which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or result in the
receipt by the Trust of any "income from non- permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the Servicer shall either itself or
through an agent selected by the Servicer protect and conserve such REO Property
in the same manner and to such extent as is customary in the locality where such
REO Property is located and may, incident to its conservation and protection of
the interests of the Owners, rent the same, or any part thereof, as the Servicer
deems to be in the best interest of the Owners for the period prior to the sale
of such REO Property. The Servicer shall take into account the existence of any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Resource Conservation and Recovery Act of 1976, or other federal, state
or local environmental legislation, on a Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Property.
(b) The Servicer shall determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a "Liquidated Loan".
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Section 8.14. Trustee to Cooperate; Release of Files. (a) Upon
the payment in full of any Mortgage Loan (including the repurchase of any
Mortgage Loan or any liquidation of such Mortgage Loan through foreclosure or
otherwise) or the receipt by the Servicer of a notification that payment in full
will be escrowed in a manner customary for such purposes, the Servicer shall
deliver to the Trustee a Request for Release. Upon receipt of such Request for
Release, the Trustee shall promptly release the related File, in trust to (i)
the Servicer, (ii) an escrow agent or (iii) any employee, agent or attorney of
the Trustee, in each case pending its release by the Servicer, such escrow agent
or such employee, agent or attorney of the Trustee, as the case may be. Upon any
such payment in full or the receipt of such notification that such funds have
been placed in escrow, the Servicer is authorized to give, as attorney-in-fact
for the Trustee and the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Principal and Interest Account. In lieu of executing any such
satisfaction or assignment, as the case may be, the Servicer may prepare and
submit to the Trustee a satisfaction (or assignment without recourse, if
requested by the Person or Persons entitled thereto) in form for execution by
the Trustee with all requisite information completed by the Servicer; in such
event, the Trustee shall execute and acknowledge such satisfaction or
assignment, as the case may be, and deliver the same with the related File, as
aforesaid.
(b) From time to time and as appropriate in the servicing of
any Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related File is released to an escrow agent or
an employee, agent or attorney of the Trustee), upon request of the Servicer and
delivery to the Trustee of a Request for Release, release the related File to
the Servicer and shall execute such documents as shall be necessary to the
prosecution of any such proceedings, including, without limitation, an
assignment without recourse of the related Mortgage to the Servicer; provided
that there shall not be released and unreturned at any one time more than ____%
of the entire number of Files. The Trustee shall complete in the name of the
Trustee any endorsement in blank on any Note prior to releasing such Note to the
Servicer. Such receipt shall obligate the Servicer to return the File to the
Trustee when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated in which case, upon receipt of the liquidation
information, in physical or electronic form, the Request for Release shall be
released by the Trustee to the Servicer.
(c) The Servicer shall have the right to approve applications
of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
and (iii) removal, demolition or division of properties subject to Mortgages. No
application for approval shall be considered by the Servicer unless: (x) the
provisions of the related Note and Mortgage have been complied with; (y) the
Combined Loan-to-Value Ratio (which may, for this purpose, be determined at the
time of any such action in a manner reasonably acceptable to the Certificate
Insurer) after any release does not exceed the Combined Loan-to-Value Ratio as
of the Cut-Off Date or Subsequent CutOff Date, as the case may be, and the
Mortgagor's debt-to-income ratio after any release does not exceed the debt-
to-income ratio as of the Cut-Off Date or Subsequent Cut-Off Date, as the case
may be, and in no event exceeds the maximum debt-to-income levels under the
related Originator's underwriting guidelines for a similar credit grade borrower
and (z) the lien priority of the related Mortgage is not adversely affected.
Upon receipt by the Trustee of an Officer's Certificate executed on behalf of
the Servicer setting forth the action proposed to be taken in respect of a
particular Mortgage Loan and certifying that the criteria set forth in the
immediately preceding sentence have been satisfied, the Trustee shall execute
and deliver to the Servicer the consent or partial release so requested by the
Servicer. A proposed form of consent or partial release, as the case may be,
shall accompany any Officer's Certificate delivered by the Servicer pursuant to
this paragraph.
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(d) No costs associated with the procedures described in this
Section 8.14 shall be an expense of the Trust.
Section 8.15. Servicing Compensation. As compensation for its
activities hereunder, the Servicer shall be entitled to retain the amount of the
Servicing Fee with respect to each Mortgage Loan. Additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, late payment charges, prepayment penalties, any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Principal and Interest Account pursuant to Section 8.8(c)(iv) and similar
items shall, to the extent collected from Mortgagors, be retained by the
Servicer.
Section 8.16. Annual Statement as to Compliance. (a) The
Servicer, at its own expense, will deliver to the Trustee, the Certificate
Insurer, Standard & Poor's and Moody's, on or before the last day of December of
each year, commencing in ____, an Officer's Certificate stating, as to each
signer thereof, that (i) a review of the activities of the Servicer during such
preceding calendar year and of performance under this Agreement has been made
under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement for such year, or, if there has been a default in the
fulfillment of all such obligations, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Servicer to remedy such defaults.
(b) The Servicer shall deliver to the Trustee, the Certificate
Insurer, the Owners and the Rating Agencies, promptly after having obtained
knowledge thereof but in no event later than five Business Days thereafter,
written notice by means of an Officer's Certificate of any event which with the
giving of notice or lapse of time, or both, would become an Event of Servicing
Termination.
Section 8.17. Annual Independent Certified Public Accountants'
Reports. On or before the last day of March of each year, commencing in _____,
the Servicer, at its own expense, shall cause to be delivered to the Trustee,
the Certificate Insurer, Standard & Poor's and Moody's a letter or letters of a
firm of independent, nationally- recognized certified public accountants
reasonably acceptable to the Certificate Insurer stating that such firm has,
with respect to the Servicer's overall servicing operations during the preceding
calendar year, examined such operations in accordance with the requirements of
the Uniform Single Audit Program for Mortgage Bankers, and in either case
stating such firm's conclusions relating thereto.
Section 8.18. Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Servicer shall provide to the Trustee, the
Certificate Insurer, the FDIC and the supervisory agents and examiners of each
of the foregoing access to the documentation regarding the Mortgage Loans
required by applicable state and federal regulations, such access being afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer designated by it.
Upon any change in the format of the computer tape maintained
by the Servicer in respect of the Mortgage Loans, the Servicer shall deliver a
copy of such computer tape to the Trustee and in addition shall provide a copy
of such computer tape to the Trustee, and the Certificate Insurer at such other
times as the Trustee or the Certificate Insurer may reasonably request.
Section 8.19. Assignment of Agreement. The Servicer may not
assign its obligations under this Agreement, in whole or in part, unless it
shall have first obtained the written consent of the Trustee and the Certificate
Insurer, which such consent shall not be unreasonably withheld; provided,
however, that any assignee must meet the eligibility requirements set forth in
Section 8.21(f) hereof for a successor
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servicer. Notice of any such assignment shall be given by the Servicer to the
Trustee, the Certificate Insurer and the Rating Agencies.
Section 8.20. Events of Servicing Termination. (a) The Trustee
or the Certificate Insurer (or the Owners pursuant to Section 6.11 hereof) may
remove the Servicer (including any successor entity serving as the Servicer)
upon the occurrence of any of the following events:
(i) The Servicer shall fail to deliver to the Trustee
any proceeds or required payment, which failure continues unremedied
for five Business Days following written notice to an Authorized
Officer of the Servicer from the Trustee or from any Owner;
(ii) The Servicer shall (I) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or
similar entity with respect to itself or its property, (II) admit in
writing its inability to pay its debts generally as they become due,
(III) make a general assignment for the benefit
of creditors, (IV) be adjudicated a bankrupt or insolvent, (V) commence
a voluntary case under the federal bankruptcy laws of the United States
of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding or (VI) take
corporate action for the purpose of effecting any of the foregoing;
(iii) If without the application, approval or consent
of the Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of
a trustee, receiver, liquidator, custodian or similar entity with
respect to the Servicer or of all or any substantial part of its
assets, or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by the
Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B)
continue undismissed or pending and unstayed for any period of
seventy-five (75) consecutive days;
(iv) The Servicer shall fail to perform any one or
more of its obligations hereunder (other than the obligations set out
in (i) above) and shall continue in default thereof for a period of
sixty (60) days after the earlier of (x) notice by the Trustee or the
Certificate Insurer of said failure or (y) actual knowledge of an
officer of the Servicer; provided, however, that if the Servicer can
demonstrate to the reasonable satisfaction of the Certificate Insurer
that it is diligently pursuing remedial action, then the cure period
may be extended with the written approval of the Certificate Insurer;
or
(v) The Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 3.2 which
materially and adversely affects the interests of the Owners or
Certificate Insurer for a period of sixty (60) days after the
Servicer's discovery or receipt of notice thereof; provided, however,
that if the Servicer can demonstrate to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer.
(b) The Certificate Insurer may remove the Servicer upon the
occurrence of any of the following events:
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(i) a Group I Total Available Funds Shortfall or a
Group II Total Available Funds Shortfall; provided, however, that the
Certificate Insurer shall have no right to remove the Servicer under
this clause (i) if the Servicer can demonstrate to the reasonable
satisfaction of the Certificate Insurer that such event was due to
circumstances beyond the control of the Servicer;
(ii) the failure by the Servicer to make any required
Servicing Advance;
(iii) the failure by the Servicer to perform any one
or more of its obligations hereunder, which failure materially and
adversely affects the interests of the Certificate Insurer, and the
continuance of such failure for a period of 30 days or such longer
period as agreed to in writing by the Certificate Insurer.
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating Interest;
(v) if on any Payment Date the Pool Rolling Three
Month Delinquency Rate exceeds _______%;
(vi) if on any Payment Date occurring in December of
any year, commencing in ________________, the aggregate Pool Cumulative
Realized Losses over the prior twelve month period exceed _______% of
the average Pool Principal Balance as of the close of business on the
last day of each of the twelve preceding Remittance Periods; or
(vii) (a) if on any of the first 60 Payment Dates
from the Startup Day the aggregate Pool Cumulative Expected Losses for
all prior Remittance Periods since the Startup Day exceed _______% of
the Pool Principal Balance as of the Cut-Off Date and (b) if on any
Payment Date thereafter the aggregate Pool Cumulative Expected Losses
for all prior Remittance Periods from the Startup Day exceed _______%
of the Pool Principal Balance as of the Cut-Off Date, provided,
however, with respect to clauses (v), (vi) and (vii), if the Servicer
can demonstrate to the reasonable satisfaction of the Certificate
Insurer that any such event was due to circumstances beyond the control
of the Servicer, such event shall not be considered an event of
termination of the Servicer.
Upon the Trustee's determination that a required Delinquency Advance or
payment of Compensating Interest has not been made by the Servicer, the Trustee
shall so notify in writing an Authorized Officer of the Servicer and the
Certificate Insurer as soon as is reasonably practical.
(c) In the case of clauses (i), (ii), (iii), (iv) or (v) of
Subsection (b) the Owners of Certificates evidencing not less than 33 1/3% of
the aggregate Class A Certificate Principal Balance (with the consent of the
Certificate Insurer) by notice then given in writing to the Servicer (and a copy
to the Trustee) may terminate all of the rights and obligations of the Servicer
under this Agreement; provided, however, that the responsibilities and duties of
the initial Servicer with respect to the repurchase of Mortgage Loans pursuant
to Section 3.4 shall not terminate. The Trustee shall mail a copy of any notice
given by it hereunder to the Rating Agencies. On or after the receipt by the
Servicer of such written notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Certificates or the Mortgage Loans
or otherwise, shall without further action pass to and be vested in the Trustee
(for this purpose, the term includes an affiliate thereof) or such successor
Servicer as may be appointed hereunder, and, without limitation, the Trustee is
hereby authorized and empowered (which authority and power are coupled with an
interest and are irrevocable) to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and to do or accomplish all other acts or
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things necessary or appropriate to effect the purposes of such notice or
termination, whether to complete the transfer and endorsement of the Mortgage
Loans and related documents or otherwise. The predecessor Servicer shall
cooperate with the successor Servicer or the Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement including the transfer to the successor Servicer or to the
Trustee for administration by it of all cash accounts that shall at the time be
held by the predecessor Servicer for deposit or shall thereafter be received
with respect to a Mortgage Loan. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Files to the
successor Servicer and amending this Agreement to reflect such succession as
Servicer pursuant to this Section 8.20 shall be paid by the predecessor Servicer
upon presentation of reasonable documentation of such costs and expenses.
(d) If any event described in subsections (a) or (b)
abovoccurs and is continuing, during the 30 day period following receipt of
notice, the Trustee and the Certificate Insurer shall cooperate with each other
to determine if the occurrence of such event is more likely than not the result
of the acts or omissions of the Servicer or more likely than not the result of
events beyond the control of the Servicer. If the Trustee and the Certificate
Insurer conclude that the event is the result of the latter, the Servicer may
not be terminated, unless and until some other event set forth in subsection (a)
or (b) has occurred and is continuing. If the Trustee and the Certificate
Insurer conclude that the event is the result of the former, the Certificate
Insurer may terminate the Servicer in accordance with this Section, and the
Trustee shall act as successor Servicer.
If the Trustee and the Certificate Insurer cannot agree, and
the basis for such disagreement is not arbitrary or unreasonable, as to the
cause of the event, the decision of the Certificate Insurer shall control;
provided, however, that if the Certificate Insurer decides to terminate the
Servicer, the Trustee shall be relieved of its obligation to assume the
servicing or to appoint a successor, which shall be the exclusive obligation of
the Certificate Insurer.
The Certificate Insurer agrees to use its best efforts to
inform the Trustee of any materially adverse information regarding the
Servicer's servicing activities that comes to the attention of the Certificate
Insurer from time to time.
Section 8.21. Resignation of Servicer and Appointment of
Successor. (a) Upon the Servicer's receipt of notice of termination pursuant to
Section 8.20 or the Servicer's resignation in accordance with the terms of this
Section 8.21, the predecessor Servicer shall continue to perform its functions
as Servicer under this Agreement, in the case of termination, only until the
date specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the earlier of (x) the date 45 days from the delivery to the
Certificate Insurer and the Trustee of written notice of such resignation (or
written confirmation of such notice) in accordance with the terms of this
Agreement and (y) the date upon which the predecessor Servicer shall become
unable to act as Servicer, as specified in the notice of resignation and
accompanying opinion of counsel. All collections then being held by the
predecessor Servicer prior to its removal and any collections received by the
Servicer after removal or resignation shall be endorsed by it to the Trustee and
remitted directly and immediately to the Trustee or the successor Servicer. In
the event of the Servicer's resignation or termination hereunder, the Trustee
shall appoint a successor Servicer and the successor Servicer shall accept its
appointment by a written assumption in form acceptable to the Trustee and the
Certificate Insurer, with copies to the Certificate Insurer and the Rating
Agencies. Pending such appointment, the Trustee shall act as the Servicer
hereunder.
(b) The Servicer shall not resign from the obligations and
duties hereby imposed on it, except (i) upon determination that its duties
hereunder are no longer permissible under applicable law or are
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in material conflict by reason of applicable law with any other activities
carried on by it, the other activities of the Servicer so causing such a
conflict being of a type and nature carried on by the Servicer at the date of
this Agreement or (ii) upon written consent of the Certificate Insurer and the
Trustee. Any such determination permitting the resignation of the Servicer shall
be evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee and the Certificate Insurer.
(c) No removal or resignation of the Servicer shall become
effective until the Trustee or a successor Servicer shall have assumed the
Servicer's responsibilities and obligations in accordance with this Section.
(d) Upon removal or resignation of the Servicer, the Servicer
also shall promptly deliver or cause to be delivered to a successor Servicer or
the Trustee all the books and records (including, without limitation, records
kept in electronic form) that the Servicer has maintained for the Mortgage
Loans, including all tax bills, assessment notices, insurance premium notices
and all other documents as well as all original documents then in the Servicer's
possession.
(e) Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the Trustee, or the successor Servicer.
(f) Upon removal or resignation of the Servicer, the Trustee
(x) shall solicit bids for a successor Servicer as described below and (y)
pending the appointment of a successor Servicer as a result of soliciting such
bids, shall serve as Servicer. The Trustee shall, if it is unable to obtain a
qualifying bid and is prevented by law from acting as Servicer, (I) appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution which has been
designated as an approved seller-servicer by Fannie Mae or FHLMC for second
mortgage loans and having equity of not less than $15,000,000 or such lower
level as may be acceptable to the Certificate Insurer as determined in
accordance with generally accepted accounting principles as the successor to the
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer hereunder and (II) give notice thereof to
the Certificate Insurer and Rating Agencies. The compensation of any successor
Servicer (including, without limitation, the Trustee) so appointed shall be the
Servicing Fee, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Sections 8.8
and 8.15; provided, however, that if the Trustee acts as successor Servicer,
then the former Servicer agrees to pay to the Trustee at such time that the
Trustee becomes such successor Servicer a set-up fee of fifteen dollars ($15.00)
for each Mortgage Loan then included in the Trust Estate. The Trustee shall be
obligated to serve as successor Servicer whether or not the fee described in the
preceding sentence is paid by the Company, but shall in any event be entitled to
receive, and to enforce payment of, such fee from the former Servicer.
(g) In the event the Trustee solicits bids as provided above,
the Trustee shall solicit, by public announcement, bids from housing and home
finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 8.8 and 8.15. Within thirty days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest satisfactory bid as to the price they
will pay to obtain such servicing. The Trustee shall deduct from any sum
received by the Trustee from the successor to the Servicer in respect of such
sale, transfer and assignment all costs and expenses of any public announcement
and of any sale, transfer and assignment of the servicing rights and
responsibilities
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hereunder. After such deductions, the remainder of such sum
shall be paid by the Trustee to the Servicer at the time of such sale.
(h) The Trustee and such successor shall take such action
consistent with this Agreement as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing if such notification is not done by the Servicer as required by
subsection (j) below. The Servicer agrees to cooperate with the Trustee and any
successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Trustee or
such successor Servicer, as applicable, all documents and records reasonably
requested by it to enable it to assume the Servicer's functions hereunder and
shall promptly also transfer to the Trustee or such successor Servicer, as
applicable, all amounts which then have been or should have been deposited in
the Principal and Interest Account by the Servicer or which are thereafter
received with respect to the Mortgage Loans. Neither the Trustee nor any other
successor Servicer shall be held liable by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivery, cash,
documents or records to it or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer.
(i) The Trustee or any other successor Servicer, upon assuming
the duties of Servicer hereunder, shall immediately make all Delinquency
Advances and pay all Compensating Interest which the Servicer has theretofore
failed to remit with respect to the Mortgage Loans; provided, however, that if
the Trustee is acting as successor Servicer, the Trustee shall only be required
to make Delinquency Advances (including the Delinquency Advances described in
this clause (i)) if, in the Trustee's reasonable good faith judgment, such
Delinquency Advances will ultimately be recoverable from the Mortgage Loans.
(j) The Servicer which is being removed or is resigning shall
give notice to the Mortgagors and to the Rating Agencies of the transfer of the
servicing to the successor Servicer.
(k) Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer and shall be subject to
all the responsibilities, duties and liabilities of the predecessor Servicer
including, but not limited to, the maintenance of the hazard insurance
policy(ies), the fidelity bond and an errors and omissions policy pursuant to
Section 8.23 and shall be entitled to the Monthly Servicing Fee and all of the
rights granted to the predecessor Servicer by the terms and provisions of this
Agreement. The appointment of a successor Servicer shall not affect any
liability of the predecessor Servicer which may have arisen under this Agreement
prior to its termination as Servicer (including, without limitation, any
deductible under an insurance policy) nor shall any successor Servicer be liable
for any acts or omissions of the predecessor Servicer or for any breach by such
Servicer of any of its representations or warranties contained herein or in any
related document or agreement.
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(l) The Trustee shall give notice to the Certificate Insurer,
Moody's and Standard & Poor's and the Owners of the occurrence of any event
specified in Section 8.20 of which a Responsible Officer of the Trustee has
actual knowledge.
Section 8.22. Waiver of Past Events of Servicing Termination.
Subject to the rights of the Certificate Insurer pursuant to Section 8.20 to
terminate all of the rights and obligations of the Servicer under this
Agreement, the Owners of at least 51% of the Class A Certificate Principal
Balance may, on behalf of all Owners of Certificates, waive any default by the
Servicer in the performance of its obligations hereunder and its consequences,
except a default in making any required deposits to or payments from the
Principal and Interest Account in accordance with this Agreement. Upon any such
waiver of a past default, such default shall cease to exist, and any Event of
Servicing Termination arising therefrom shall be deemed to have been remedied
for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Section 8.23. Inspections by Certificate Insurer; Errors and
Omissions Insurance. (a) At any reasonable time and from time to time upon
reasonable notice, the Certificate Insurer, the Trustee, or any agents or
representatives thereof may inspect the Servicer's servicing operations and
discuss the servicing operations of the Servicer with any of its officers or
directors. The costs and expenses incurred by the Servicer or its agents or
representatives in connection with any such examinations or discussions shall be
paid by the Servicer.
(b) The Servicer agrees to maintain errors and omissions
coverage and a fidelity bond, each at least to the extent generally maintained
by prudent mortgage loan servicers having servicing portfolios of a similar
size.
Section 8.24. Merger, Conversion, Consolidation or Succession
to Business of Servicer. Any corporation into which the Servicer may be merged
or converted or with which it may be consolidated, or corporation resulting from
any merger, conversion or consolidation to which the Servicer shall be a party
or any corporation succeeding to all or substantially all of the business of the
Servicer shall be the successor of the Servicer hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto provided that such corporation meets the qualifications set forth in
Section 8.21(f).
Section 8.25. Notices of Material Events. The Servicer shall
give prompt notice to the Certificate Insurer, the Trustee, Moody's and Standard
& Poor's of the occurrence of any of the following events:
(a) Any default or any fact or event which results, or which
with notice or the passage of time, or both, would result in the occurrence of a
default by the Company, any Originator or the Servicer under any Operative
Document or would constitute a material breach of a representation, warranty or
covenant under any Operative Document;
(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Company or the Servicer in any federal, state or local court or before any
governmental body or agency or before any arbitration board or any such
proceedings threatened by any governmental agency, which, if adversely
determined, would have a material adverse effect upon any the Company's or the
Servicer's ability to perform its obligations under any Operative Document;
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(c) The commencement of any proceedings by or against the
Company or the Servicer under any applicable bankruptcy, reorganization,
liquidation, insolvency or other similar law now or hereafter in effect or of
any proceeding in which a receiver, liquidator, trustee or other similar
official shall have been, or may be, appointed or requested for the Company or
the Servicer; and
(d) The receipt of notice from any agency or governmental body
having authority over the conduct of any of the Company's or the Servicer's
business that the Company or the Servicer is to cease and desist, or to
undertake any practice, program, procedure or policy employed by the Company or
the Servicer in the conduct of the business of any of them, and such cessation
or undertaking will materially and adversely affect the conduct of the Company's
or the Servicer's business or its ability to perform under the Operative
Documents or materially and adversely affect the financial affairs of the
Company or the Servicer.
Section 8.26. Monthly Servicing Report and Servicing
Certificate. (a) The Servicer shall, not later than the related Determination
Date, deliver to the Trustee and the Certificate Insurer a Monthly Servicing
Report relating to the Group I Mortgage Loans and a Monthly Servicing Report
relating to the Group II Mortgage Loans stating the following:
(i) As to the related Due Period, the Interest
Remittance Amount (in both cases specifying the (a) scheduled interest
collected; (b) Delinquency Advances relating to interest; and (c)
Compensating Interest paid) and the Principal Remittance Amount (in
both cases specifying the (1) scheduled principal collected; (2)
Delinquency Advance relating to Mortgage principal; (3) Prepayments;
(4) Loan Balance of Loans repurchased; (5) Substitution Amounts; and
(6) Net Liquidation Proceeds (related to principal));
(ii) With respect to the related Remittance Period,
the Servicing Fee payable to the Servicer;
(iii) With respect to the related Remittance
Period, the net scheduled principal and interest payments remitted by
the Servicer to the Principal and Interest Account;
(iv) The scheduled principal and interest payments
on the Mortgage Loans that were not made by the related Mortgagors as
of the last day of the related Remittance Period;
(v) The number and aggregate Loan Balances
(computed in accordance with the terms of the Mortgage Loans) and the
percentage of the total number of Mortgage Loans and of the Loan
Balance which they represent of Mortgage Loans Delinquent, if any, (i)
30-59 days, (ii) 60-89 days and (iii) 90 days or more, respectively, as
of the last day of the related Remittance Period;
(vi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in foreclosure and the book value (within the
meaning of 12 Code of Federal Regulations Section 571.13 or any
comparable provision) of any real estate acquired through foreclosure
or deed in lieu of foreclosure, including REO Properties as of the last
day of the related Remittance Period;
(vii) The Loan Balances (immediately prior to being
classified as Liquidated Mortgage Loans) of Liquidated Mortgage Loans
as of the last day of the related Remittance Period;
(viii) Liquidation Proceeds received during the
related Remittance Period;
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(ix) The amount of any Liquidation Expenses being
deducted from Liquidation Proceeds or otherwise being charged to the
Principal and Interest Account with respect to such Determination Date;
(x) Liquidation Expenses incurred during the
related Remittance Period which are not being deducted from Liquidation
Proceeds or otherwise being charged to the Principal and Interest
Account with respect to such Determination Date;
(xi) Net Liquidation Proceeds as of the last day of
the related Remittance Period;
(xii) Insurance payments received from Insurance
Policies during the related Remittance Period;
(xiii) The number of Mortgage Loans and the aggregate
scheduled Loan Balances as of the last day of the Due Period relating
to the Payment Date;
(xiv) The Group I Total Available Funds and the Group
II Total Available Funds for each Remittance Date;
(xv) The number and aggregate Loan Balances and Loan
Purchase Prices of Mortgage Loans required to be repurchased by the
Company or purchased by the Servicer as of the Replacement Cut-Off Date
occurring during the Remittance Period preceding such Date;
(xvi) The number and aggregate Loan Balances of
Mortgage Loans (at the time they became Defaulted Mortgage Loans) which
are being carried as REO Properties;
(xvii) The amount of any Delinquency Advances made by
the Servicer during the related Remittance Period and any unreimbursed
Delinquency Advances as of such Payment Date;
(xviii) The weighted average Coupon Rates of the
Group I and Group II Mortgage Loans, respectively;
(xix) The Monthly Exception Report;
(xx) The amount of any Substitution Amounts delivered
by the Company;
(xxi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in bankruptcy proceedings as of the last day of
related Remittance Period;
(xxii) The amount of unreimbursed Delinquency
Advances made by the Servicer;
(xxiii) The amounts, if any, of the Realized Losses in
each Mortgage Loan Group for the related Remittance Period and the
cumulative amount of Realized Losses in each Mortgage Loan Group since
the Startup Date.
(xxiv) The amount of unreimbursed Servicing Advances
made by the Servicer;
(xxv) Unpaid Servicing Fees;
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(xxvi) The amount of Compensating Interest to be paid
by the Servicer during the related Remittance Period;
(xxvii) The weighted average net Coupon Rate of the
Mortgage Loans;
(xxviii) For the related Remittance Period and
cumulatively since the Startup Day, the number and aggregate Loan
Balance of Mortgage Loans bought back by the Servicer or the Company
pursuant to Section 3.4, 3.6 and 8.10 hereof (identified separately for
each such section).
(xxix) Any other information reasonably requested by
the Certificate Insurer or the Trustee; and
(xxx) The aggregate actual Loan Balance as of the
last day of the Due Period relating to the Payment Date.
(b) On each Payment Date, the Trustee shall provide to the
Certificate Insurer, each of the Underwriters, the Company, Standard & Poor's
and Moody's a written report in substantially the form set forth as Exhibit J
hereto (the "Servicing Certificate") with respect to each Mortgage Loan Group,
as such form may be revised by the Trustee, the Servicer, Moody's and Standard &
Poor's from time to time, but in every case setting forth the information
required under Section 7.8 hereof, based solely on information contained in the
Monthly Servicing Report.
Section 8.27. Indemnification by the Company. The Company
agrees to indemnify and hold the Trustee, the Certificate Insurer and each Owner
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Trustee, the Certificate Insurer and any Owner may sustain in any way
related to the failure of the Company to perform its duties under this
Agreement. A party against whom a claim is brought shall immediately notify the
other parties and the Rating Agencies if a claim is made by a third party with
respect to this Agreement, and the Company shall assume (with the consent of the
Certificate Insurer and the Trustee) the defense of any such claim and pay all
expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Certificate Insurer, the Servicer, the Company, the Trustee and/or
Owner in respect of such claim.
Section 8.28. Indemnification by the Servicer. The Servicer
agrees to indemnify and hold the Trustee, the Certificate Insurer and each Owner
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Trustee, the Certificate Insurer and any Owner may sustain in any way
related to the failure of the Servicer to perform its duties and service the
Mortgage Loans in compliance with the terms of this Agreement. A party against
whom a claim is brought shall immediately notify the other parties and the
Rating Agencies if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Trustee) the
defense of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and satisfy any
judgment or decree which may be entered against the Certificate Insurer, the
Servicer, the Trustee and/or Owner in respect of such claim.
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ARTICLE IX
TERMINATION OF TRUST
Section 9.1. Termination of Trust. The Trust created hereunder
and all obligations created by this Agreement will terminate upon the earliest
of (i) the payment to the Owners of all Certificates from amounts other than
those available under the Certificate Insurance Policies of all amounts held by
the Trustee and required to be paid to such Owners pursuant to this Agreement
upon the later to occur of (a) the final payment or other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan in the Trust Estate
or (b) the disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust Estate, (ii) at any time when a Qualified Liquidation of
both Mortgage Loan Groups included within the Trust is effected as described
below or (iii) as described in Section 9.2, 9.3 and 9.4 hereof; provided, that
the Trust created hereunder shall not terminate at any time that the Certificate
Principal Balance of any Class of Class A Certificates is greater than zero. To
effect a termination of this Agreement pursuant to clause (ii) above, the Owners
of all Certificates then Outstanding shall (x) unanimously direct the Trustee on
behalf of the Trust to adopt a plan of complete liquidation for both Mortgage
Loan Groups, as contemplated by Section 860F(a)(4) of the Code and (y) provide
to the Trustee an opinion of counsel experienced in federal income tax matters
to the effect that such liquidation constitutes a Qualified Liquidation, and the
Trustee either shall sell the Mortgage Loans and distribute the proceeds of the
liquidation of the Trust Estate, or shall distribute equitably in kind all of
the assets of the Trust Estate to the remaining Owners of the Certificates based
on their interests in the Trust, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of this Agreement occur no later
than the close of the 90th day after the date of adoption of the plan of
liquidation and such liquidation qualifies as a Qualified Liquidation. In no
event, however, will the Trust created by this Agreement continue beyond the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the United Kingdom, living on the date hereof. The Trustee shall give written
notice of termination of the Agreement to each Owner in the manner set forth in
Section 11.5 hereof.
Section 9.2. Termination Upon Option of Servicer. (a) On any
Remittance Date on or after the Clean-Up Call Date, the Servicer acting directly
or through one or more affiliates may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans in the
Trust Estate and all property theretofore acquired in respect of any such
Mortgage Loan by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Trust Estate at a price equal to the sum of (v) the greater of
(i) 100% of the aggregate Loan Balances of the related Mortgage Loans as of the
Due Date which immediately follows the last day of the related Remittance Period
immediately preceding the day of purchase minus the amount actually remitted by
the Servicer representing collections of principal on the Mortgage Loans during
the related Remittance Period and Due Period and (ii) the greater of (A) the
fair market value of such Mortgage Loans (disregarding accrued interest) and (B)
the aggregate outstanding Certificate Principal Balance, (w) one month's
interest on the purchase price computed at the weighted average Pass-Through
Rate for the Class A Certificates, (x) any available Funds Cap Carry-Forward
Amount at such time, (y) the related Reimbursement Amount, if any, as of such
Remittance Date and (z) the aggregate amount of any Delinquency Advances and
Servicing Advances remaining unreimbursed, together with any accrued and unpaid
Servicing Fees, as of such Remittance Date (such amount, the "Termination
Price"). In connection with such purchase, the Servicer shall remit to the
Trustee all amounts then on deposit in the Principal and Interest Account for
deposit to the Certificate Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.
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(b) In connection with any such purchase, the Servicer shall
provide to the Trustee an opinion of counsel experienced in federal income tax
matters and reasonably acceptable to the Certificate Insurer to the effect that
such purchase constitutes a Qualified Liquidation of the Trust Estate.
(c) Promptly following any such purchase, the Trustee will
release the Files to the Servicer, or otherwise upon their order, in a manner
similar to that described in Section 8.14 hereof.
(d) If the Servicer does not exercise its option pursuant to
this Section 9.2 with respect to the Trust Estate, then the Certificate Insurer
may do so on the same terms.
Section 9.3. Termination Upon Loss of REMIC Status. (a)
Following a final determination by the Internal Revenue Service, or by a court
of competent jurisdiction, in either case from which no appeal is taken within
the permitted time for such appeal, or if any appeal is taken, following a final
determination of such appeal from which no further appeal can be taken, to the
effect that the Trust does not and will no longer qualify as a "REMIC" pursuant
to Section 860D of the Code (the "Final Determination"), at any time on or after
the date which is 30 calendar days following such Final Determination, (i) the
Certificate Insurer or the Owners of a majority in Percentage Interest
represented by the Class A Certificates then Outstanding with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld) may
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation, as contemplated by Section 860F(a)(4) of the Code and (ii) the
Certificate Insurer may notify the Trustee of the Certificate Insurer's
determination to purchase from the Trust all (but not fewer than all) Mortgage
Loans in the Trust Estate and all property theretofore acquired by foreclosure,
deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then
remaining in the Trust Estate at a price equal to the Termination Price. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit in the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
(b) Upon receipt of such direction from the Certificate
Insurer, the Trustee shall notify the holders of the Class R Certificates of
such election to liquidate or such determination to purchase, as the case may be
(the "Termination Notice"). The Owner of a majority of the Percentage Interest
of the Class R Certificates then Outstanding may, on any Remittance Date, within
60 days from the date of receipt of the Termination Notice (the "Purchase Option
Period"), at their option, purchase from the Trust all (but not fewer than all)
Mortgage Loans in the Trust Estate, and all property theretofore acquired by
foreclosure, deed in lieu of foreclosure, or otherwise in respect of any
Mortgage Loan then remaining in the Trust Estate at a purchase price equal to
the Termination Price.
(c) If, during the Purchase Option Period, the Owners of the
Class R Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Certificate Insurer or the Owners of the Class A
Certificates, with the consent of the Certificate Insurer have given the Trustee
the direction described in clause (a)(i) above, the Trustee shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, each in accordance with the plan of complete liquidation, such that, if
so directed, the liquidation of the Trust Estate, the distribution of the
proceeds of such liquidation and the termination of this Agreement occur no
later than the close of the 60th day, or such later day as the Certificate
Insurer or the Owners of the Class A Certificates, with the consent of the
Certificate Insurer shall permit or direct in writing, after the expiration of
the Purchase Option Period and (ii) in the event that the Certificate Insurer
has given the Trustee notice of the Certificate Insurer's determination to
purchase the Mortgage Loans in the Trust Estate described in clause (a)(ii)
preceding, the Certificate Insurer shall, on any Remittance Date within 60 days,
purchase all (but not fewer than all) Mortgage Loans in
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the Trust Estate, and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate. In connection with such purchase, the Servicer shall remit
to the Trustee all amounts then on deposit in the Principal and Interest Account
for deposit to the Certificate Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.
(d) Following a Final Determination, the Owners of a majority
of the Percentage Interest of the Class R Certificates then Outstanding may, at
their option on any Remittance Date and upon delivery to the Owners of the Class
A Certificates and the Certificate Insurer of an opinion of counsel experienced
in federal income tax matters acceptable to the Certificate Insurer selected by
the Owners of such Class R Certificates which opinion shall be reasonably
satisfactory in form and substance to the Certificate Insurer, to the effect
that the effect of the Final Determination is to increase substantially the
probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans in
the Trust Estate, and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate at a purchase price equal to the Termination Price. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The foregoing opinion shall be deemed satisfactory
unless the Certificate Insurer gives the Owners of a majority of the Percentage
Interest of the Class R Certificates notice that such opinion is not
satisfactory within thirty days after receipt of such opinion.
In connection with any such purchase, such Owners shall direct
the Trustee to adopt a plan of complete liquidation as contemplated by Section
860F(a)(4) of the Code and shall provide to the Trustee an opinion of counsel
experienced in federal income tax matters to the effect that such purchase
constitutes a Qualified Liquidation.
Section 9.4. Disposition of Proceeds. The Trustee shall, upon
receipt thereof, deposit the proceeds of any liquidation of the Trust Estate
pursuant to this Article IX to the Certificate Account; provided, however, that
any amounts representing Servicing Fees, unreimbursed Delinquency Advances or
unreimbursed Servicing Advances theretofore funded by the Servicer from the
Servicer's own funds shall be paid by the Trustee to the Servicer from the
proceeds of the Trust Estate.
Section 9.5. Netting of Amounts. If any Person paying the
Termination Price would receive a portion of the amount so paid, such Person may
net any such amount against the Termination Price otherwise payable.
ARTICLE X
THE TRUSTEE
Section 10.1. Certain Duties and Responsibilities. (a) The
Trustee (i) undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee and (ii) in
the absence of bad faith on its part, may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(b) Following the termination of the Servicer hereunder and
pending the appointment of any other Person as successor Servicer, the Trustee
(for this purpose, the term includes an affiliate thereof)
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is hereby obligated to perform the duties of the Servicer hereunder and shall,
for such period, have all of the rights of the Servicer; it being expressly
understood, however, by
all parties hereto, and the Owners, agree, prior to any termination of the
Servicer pursuant to Section 8.21, the Servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall upon
termination or resignation of the Servicer, and pending the appointment of any
other Person as successor Servicer, have the power and duty during its
performance as successor Servicer:
(i) to collect Mortgage payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter
into assumption and substitution agreements
as permitted by Section 8.12 hereof;
(iv) to deliver instruments of satisfaction
pursuant to Section 8.14 hereof;
(v) to make Delinquency Advances and Servicing
Advances and to pay Compensating Interest,
and
(vi) to enforce the Mortgage Loans.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to
limit the effect of subsection (a) of this
Section;
(ii) the Trustee shall not be liable for any
error of judgment made in good faith by an
Authorized Officer, unless it shall be
proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect
to any action taken or omitted to be taken
by it in good faith in accordance with the
direction of the Certificate Insurer or of
the Owners of a majority in Percentage
Interest of the Certificates of the affected
Class or Classes and the Certificate Insurer
relating to the time, method and place of
conducting any proceeding for any remedy
available to the Trustee, or exercising any
trust or power conferred upon the Trustee,
under this Agreement relating to such
Certificates;
(iv) The Trustee shall not be required to expend
or risk its own funds or otherwise incur
financial liability for the performance of
any of its duties hereunder or the exercise
of any of its rights or powers if there is
reasonable ground for believing that the
repayment of such funds or adequate
indemnity against such risk or liability is
not reasonably assured to it, and none of
the provisions contained in this Agreement
shall in any event require the Trustee to
perform, or be responsible for the manner of
performance of, any of the obligations of
the Servicer under this Agreement except
during such time, if any, as the Trustee
shall be the successor to, and be vested
with the rights, duties, powers and
privileges of, the Servicer in accordance
with the terms of this Agreement;
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(v) Subject to the other provisions of this
Agreement and without limiting the
generality of this Section 10.1, the Trustee
shall have no duty (A) to see any recording,
filing, or depositing of this Agreement or
any agreement referred to herein or any
financing statement or continuation
statement evidencing a security interest, or
to see to the maintenance of any such
recording or filing or depositing or to any
rerecording, refiling or redepositing of any
thereof, (B) to see to any insurance (C) to
see to the payment or discharge of any tax,
assessment, or other governmental charge or
any lien or encumbrance of any kind owing
with respect to, assessed or levied against,
any part of the Trust Estate from funds
available in the Certificate Account, (D) to
confirm or verify the contents of any
reports or certificates of the Servicer
delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be
genuine and to have been signed or presented
by the proper party or parties;
(vi) The Trustee shall not be accountable for the
use or application of any funds paid to the
Company or the Servicer in respect of the
Mortgage Loans or withdrawn from the
Principal and Interest Account or the
Certificate Account by the Company or the
Servicer; and
(vii) The Trustee shall not be required to take
notice or be deemed to have notice or
knowledge of any default or any of the
events described in Section 8.20 unless a
Responsible Officer of the Trustee shall
have received written notice thereof or a
Responsible Officer has actual knowledge
thereof. In the absence of receipt of such
notice, the Trustee may conclusively assume
that no default or event described in
Section 8.20 has occurred.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
(e) No provision of this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(f) The permissive right of the Trustee to take actions
enumerated in this Agreement shall not be construed as a duty and the Trustee
shall not be answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any
suit, or to take any remedial proceeding under this Agreement, or to take any
steps in the execution of the trusts hereby created or in the enforcement of any
rights and powers hereunder until it shall be indemnified to its satisfaction
against any and all costs and expenses, outlays, counsel fees and other
reasonable disbursements and against all liability, except liability which is
adjudicated to have resulted from its negligence or willful misconduct, in
connection with any action so taken.
Section 10.2. Removal of Trustee for Cause. (a) The Trustee
may be removed pursuant to paragraph (b) hereof upon the occurrence of any of
the following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
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judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners
entitled thereto on any Payment Date amounts available for
distribution received by the Trustee in accordance with the
terms hereof; or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in this Agreement, or
if any representation or warranty of the Trustee made in this
Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall prove to be
incorrect in any material respect as of the time when the same
shall have been made, and such failure or breach shall
continue or not be cured for a period of 30 days after there
shall have been given, by registered or certified mail, to the
Trustee by the Company, the Certificate Insurer or by the
Owners of at least 25% of the aggregate Percentage Interests
represented by the Class A Certificates then Outstanding, or,
if there are no Class A Certificates then Outstanding, by such
Percentage Interests represented by the Class R Certificates,
a written notice specifying such failure or breach and
requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Trustee, and
such decree or order shall have remained in force undischarged
or unstayed for a period of 75 days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the
Trustee or relating to all or substantially all of its
property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due,
file or consent to the filing of a petition to take advantage
of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, voluntarily
suspend payment of its obligations or take corporate action
for the purpose of any of the foregoing.
The Company shall give to Moody's and Standard & Poor's notice
of the occurrence of any such event of which the Company is aware.
(b) If any event described in Paragraph (a) occurs and is
continuing, then and in every such case (i) the Certificate Insurer or (ii) with
the prior written consent (which shall not be unreasonably withheld) of the
Certificate Insurer (x) the Company or (y) the Owners of a majority of the
Percentage Interests represented by the Class A Certificates may, whether or not
the Trustee resigns pursuant to Section 10.9 hereof, immediately, concurrently
with the giving of notice to the Trustee, and without delaying the 30 days
required for notice therein, appoint a successor Trustee pursuant to the terms
of Section 10.9 hereof.
Section 10.3. Certain Rights of the Trustee. Except as
otherwise provided in Section 10.1 hereof:
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(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company, the Certificate
Insurer or the Owners of any Class of Certificates mentioned herein
shall be sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officer's
Certificate;
(d) the Trustee may consult with counsel of its selection, and
the written advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reasonable reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement at the request
or direction of any of the Owners pursuant to this Agreement, unless
such Owners shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other paper or document, but the Trustee
in its discretion may make such further inquiry or investigation into
such facts or matters as it may see fit; provided, however, that if the
payment within a reasonable time to the Trustee of the costs, expenses
or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity against such
cost, expense or liability as a condition to taking any such action.
The reasonable expense of every such examination shall be paid by the
Servicer or, if paid by the Trustee, shall be repaid by the Servicer
upon demand by the Trustee from the Servicer's own funds;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed and supervised with due care by it hereunder;
(h) the Trustee shall not be personally liable for any action
it takes or omits to take in good faith which it reasonably believes to
be authorized by the Authorized Officer of any Person or within its
rights or powers under this Agreement;
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or
willful misconduct inthe performance of such act; and
(j) the Trustee shall not be required to give any bond or
surety in respect of the execution of the Trust Estate created hereby
or the powers granted hereunder.
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Section 10.4. Not Responsible for Recitals or Issuance of
Certificates. The recitals and representations contained herein and in the
Certificates, except any such recitals relating to the Trustee, shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representation as to the validity or
sufficiency of this Agreement, of the Certificates, of the Mortgage Loans or any
document relating thereto other than as to validity and sufficiency of its
authentication of the Certificates.
Section 10.5. May Hold Certificates. The Trustee or any agent
of the Trust, in its individual or any other capacity, may become an Owner or
pledgee of Certificates and may otherwise deal with the Trust with the same
rights it would have if it were not Trustee or such agent.
Section 10.6. Money Held in Trust. Money held by the Trustee
in trust hereunder need not be segregated from other trust funds except to the
extent required herein or required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company and except to the extent of income or other gain on
investments which are deposits in or certificates of deposit of the Trustee in
its commercial capacity and income or other gain actually received by the
Trustee on Eligible Investments.
Section 10.7. No Lien for Fees. The Trustee shall have no lien
on the Trust Estate for the payment of any fees and expenses.
Section 10.8. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall be a corporation or
association organized and doing business under the laws of the United States of
America or of any State authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $100,000,000, subject
to supervision or examination by the United States of America or any such State
having a rating or ratings acceptable to the Certificate Insurer and having a
long-term deposit rating of at least BBB from Standard & Poor's (or such lower
rating as may be acceptable to Standard & Poor's) and at least Baa2 from Moody's
(or such lower rating as may be acceptable to Moody's). If such Trustee
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
or association shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall, upon the request of the Company with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld) or of the
Certificate Insurer, resign immediately in the manner and with the effect
hereinafter specified in this Article X.
Section 10.9. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may resign at any time by giving written notice of resignation to the
Company and by mailing notice of resignation by registered mail, postage
prepaid, to the Certificate Insurer and the Owners at their addresses appearing
on the Register. A copy of such notice shall be sent by the resigning Trustee to
Moody's and Standard & Poor's. Upon receiving notice of resignation, the Company
shall promptly appoint a successor trustee or trustees reasonably acceptable to
the Certificate Insurer evidenced by its written consent by written instrument,
in duplicate, executed on behalf of the Trust by an Authorized Officer of the
Company, one copy of which instrument shall be delivered to the Trustee so
resigning and one copy to the successor trustee or trustees. If no successor
trustee shall have been appointed by the Company and have accepted appointment
within
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30 days after the giving of such notice of resignation, the Trustee shall
give notice to the Certificate Insurer of such failure and the Certificate
Insurer shall have an additional 30 days to appoint a successor trustee. If
after such time no successor has been appointed and accepted then the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible
under Section 10.8 hereof and shall fail to resign after written request
therefor by the Company or by the Certificate Insurer, the Certificate Insurer
or the Company with the written consent of the Certificate Insurer may remove
the Trustee and appoint a successor trustee by written instrument, in duplicate,
executed on behalf of the Trust by an Authorized Officer of the Company, one
copy of which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests
represented by the Class A Certificates, or, if there are no Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates, may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee to be removed, to the
successor trustee so appointed, to the Company and to the Certificate Insurer,
copies of the record of the act taken by the Owners, as provided for in Section
11.3 hereof.
(e) If the Trustee fails to perform its duties in accordance
with the terms of this Agreement or becomes ineligible to serve as Trustee, the
Certificate Insurer may remove the Trustee and appoint a successor trustee by
written instrument, in triplicate, signed by the Certificate Insurer duly
authorized, one complete set of which instruments shall be delivered to the
Company, one complete set to the Trustee so removed and one complete set to the
successor Trustee so appointed. If no successor is appointed, then the removed
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(f) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Trustee
for any cause, the Company shall promptly appoint a successor Trustee. If within
one year after such resignation, removal or incapability or the occurrence of
such vacancy, a successor Trustee shall be appointed by act of the Owners of a
majority of the Percentage Interests represented by the Class A Certificates
then Outstanding or, if there are no Class A Certificates then Outstanding, by
such majority of the Percentage Interest of the Class R Certificates delivered
to the Company and the retiring Trustee, the successor Trustee so appointed
shall forthwith upon its acceptance of such appointment become the successor
Trustee and supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Owners and
shall have accepted appointment in the manner hereinafter provided, any Owner
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor Trustee.
(g) The Company shall give notice of any removal of the
Trustee by mailing notice of such event by registered mail, postage prepaid, to
the Certificate Insurer and to the Owners as their names and addresses appear in
the Register. Each notice shall include the name of the successor Trustee and
the address of its corporate trust office.
Section 10.10. Acceptance of Appointment by Successor Trustee.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company on behalf of the Trust, to the
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Certificate Insurer and to its predecessor Trustee an instrument accepting such
appointment hereunder and stating its eligibility to serve as Trustee hereunder,
and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts, duties and obligations of its
predecessor hereunder; but, on request of the Company, the Certificate Insurer
or the successor Trustee, such predecessor Trustee shall, upon payment of its
charges then unpaid, execute and deliver an instrument transferring to such
successor Trustee all of the rights, powers and trusts of the Trustee so ceasing
to act, and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such Trustee so ceasing to act hereunder. Upon
request of any such successor Trustee, the Company on behalf of the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
Upon acceptance of appointment by a successor Trustee as
provided in this Section, the Company shall mail notice thereof by first-class
mail, postage prepaid, to the Owners at their last addresses appearing upon the
Register and to the Certificate Insurer. The Company shall send a copy of such
notice to Moody's and Standard & Poor's. If the Company fails to mail such
notice within ten days after acceptance of appointment by the successor Trustee,
the successor Trustee shall cause such notice to be mailed at the expense of the
Trust.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor shall be qualified and eligible under
this Article X.
Section 10.11. Merger, Conversion, Consolidation or Succession
to Business of the Trustee. Any corporation or association into which the
Trustee may be merged or converted or with which it may be consolidated, any
corporation or association resulting from any merger, conversion or
consolidation to which the Trustee shall be a party or any corporation or
association succeeding to all or substantially all of the corporate trust
business of the Trustee shall be the successor of the Trustee hereunder, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation or association
shall be otherwise qualified and eligible under this Article X. In case any
Certificates have been executed, but not delivered, by the Trustee then in
office, any successor by merger, conversion or consolidation to such Trustee may
adopt such execution and deliver the Certificates so executed with the same
effect as if such successor Trustee had itself executed such Certificates.
Section 10.12. Reporting; Withholding. The Trustee shall
timely provide to the Owners the Internal Revenue Service's Form 1099 and any
other statement required by applicable Treasury regulations as determined by the
Company and shall withhold, as required by applicable law, federal, state or
local taxes, if any, applicable to distributions to the Owners, including but
not limited to backup withholding under Section 3406 of the Code and the
withholding tax on distributions to foreign investors under Sections 1441 and
1442 of the Code.
Section 10.13. Liability of the Trustee. The Trustee shall be
liable in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Trustee herein. Neither the Trustee nor any
of the directors, officers, employees or agents of the Trustee shall be under
any liability on any Certificate or otherwise to any Account, the Company, the
Servicer or any Owner for any action taken or for refraining from the taking of
any action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Trustee or any such
Person against any liability which would otherwise be imposed by reason of
negligent action, negligent failure to act or bad faith in the performance of
duties or by reason of reckless disregard of obligations and duties hereunder.
Subject to the foregoing sentence, the Trustee shall not be liable for losses on
investments of amounts in any Account (except for any losses on obligations on
which the bank serving as Trustee is the obligor). In addition, the
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Company and Servicer covenant and agree to indemnify the Trustee and the
Certificate Insurer, and when the Trustee is acting as Servicer, the Servicer,
from, and hold it harmless against, any and all losses, liabilities, damages,
claims or expenses (including legal fees and expenses) other than those
resulting from the negligence or bad faith of the Trustee. The Trustee and the
Certificate Insurer and any director, officer, employee or agent thereof may
rely and shall be protected in acting or refraining from acting in good faith on
any certificate, notice or other document of any kind prima facie properly
executed and submitted by the Authorized Officer of any Person respecting any
matters arising hereunder. Provisions of this Section 10.13 shall survive the
termination of this Agreement.
Section 10.14. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate or Property may at the time be located, the Servicer and the
Trustee acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee and the
Certificate Insurer to act as co-Trustee or co-Trustees, jointly with the
Trustee, of all or any part of the Trust Estate or separate Trustee or separate
Trustees of any part of the Trust Estate and to vest in such Person or Persons,
in such capacity and for the benefit of the Owners, such title to the Trust
Estate, or any part thereof, and, subject to the other provisions of this
Section 10.14, such powers, duties, obligations, rights and trusts as the
Servicer and the Trustee may consider necessary or desirable. If the Servicer
shall not have joined in such appointment within 15 days after the receipt by it
of a request so to do, or in the case any event indicated in Sections 8.20(a) or
8.20(b) shall have occurred and be continuing, the Trustee alone shall have the
power to make such appointment (with the written consent of the Certificate
Insurer). No co-Trustee or separate Trustee hereunder shall be required to meet
the terms of eligibility as a successor Trustee under Section 10.8 and no notice
to Owner of the appointment of any co-Trustee or separate Trustee shall be
required under Section 10.8.
Every separate Trustee and co-Trustee shall, to the extent
permitted, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate Trustee or
co-Trustee jointly (it being understood that such separate Trustee or
co-Trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate Trustee or co-Trustee, but solely at
the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Servicer and the Trustee acting jointly may at any
time accept the resignation of or remove any separate Trustee or
co-Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate Trustees and
co-Trustees, as effectively as if given to each of them. Every instrument
appointing any separate Trustee or co-Trustee shall refer to this Agreement and
the conditions of this Section 10.14. Each separate Trustee and co-Trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
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Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of or affording protection
to the Trustee. Every such instrument shall be filed with the Trustee and a copy
thereof given to the Servicer.
Any separate Trustee or co-Trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate Trustee
or co-Trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.
The Trustee shall give to Moody's, the Company and the
Certificate Insurer notice of the appointment of any Co-Trustee or separate
Trustee.
Section 10.15 Reserved.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Compliance Certificates and Opinions. Upon any
application or request by the Company, the Certificate Insurer or the Owners to
the Trustee to take any action under any provision of this Agreement, the
Company, the Certificate Insurer or the Owners, as the case may be, shall
furnish to the Trustee a certificate stating that all conditions precedent, if
any, provided for in this Agreement relating to the proposed action have been
complied with, except that in the case of any such application or request as to
which the furnishing of any documents is specifically required by any provision
of this Agreement relating to such particular application or request, no
additional certificate need be furnished.
Except as otherwise specifically provided herein, each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 11.2. Form of Documents Delivered to the Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person or that they be
so certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
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Any certificate of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon an opinion of counsel,
unless such Authorized Officer knows, or in the exercise of reasonable care
should know, that the opinion is erroneous. Any such certificate of an
Authorized Officer of the Trustee or any opinion of counsel may be based,
insofar as it relates to factual matter upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Company or of the
Servicer, stating that the information with respect to such factual matters is
in the possession of the Company or of the Servicer, unless such Authorized
Officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any opinion of counsel may also be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Trustee, stating that the information with respect to
such matters is in the possession of the Trustee, unless such counsel knows, or
in the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to such matters are erroneous. Any opinion of
counsel may be based on the written opinion of other counsel, in which event
such opinion of counsel shall be accompanied by a copy of such other counsel's
opinion and shall include a statement to the effect that such counsel believes
that such counsel and the Trustee may reasonably rely upon the opinion of such
other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
Section 11.3. Acts of Owners. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by the Owners may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Owners in person or by an agent duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "act" of the Owners signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee and the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Owner of any Certificate shall bind the
Owner of every Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
Section 11.4. Notices, etc. to Trustee. Any request, demand,
authorization, direction, notice, consent, waiver or act of the Owners or other
documents provided or permitted by this Agreement to be made upon, given or
furnished to or filed with the Trustee by any Owner, the Certificate Insurer or
by
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the Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with and received by the Trustee at its
corporate trust office as set forth in Section 2.2 hereof.
Section 11.5. Notices and Reports to Owners; Waiver of
Notices. Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided.
Where this Agreement provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Owners shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Owners when such notice is required
to be given pursuant to any provision of this Agreement, then any manner of
giving such notice as shall be satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency
that rated any Certificates, failure to give such notice shall not affect any
other rights or obligations created hereunder.
Section 11.6. Rules by Trustee and the Company. The Trustee
may make reasonable rules for any meeting of Owners. The Company may make
reasonable rules and set reasonable requirements for its functions.
Section 11.7. Successors and Assigns. All covenants and
agreements in this Agreement by any party hereto shall bind its successors and
assigns, whether so expressed or not.
Section 11.8. Severability. In case any provision in this
Agreement or in the Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 11.9. Benefits of Agreement. Nothing in this Agreement
or in the Certificates, expressed or implied, shall give to any Person, other
than the Owners, the Certificate Insurer and the parties hereto and their
successors hereunder, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
Section 11.10. Legal Holidays. In any case where the date of
any Remittance Date, any Payment Date, any other date on which any distribution
to any Owner is proposed to be paid or any date on which a notice is required to
be sent to any Person pursuant to the terms of this Agreement shall not be a
Business Day, then (notwithstanding any other provision of the Certificates or
this Agreement) payment or mailing need not be made on such date but may be made
on the next succeeding Business Day with the same force and effect as if made or
mailed on the nominal date of any such Remittance Date, such Payment Date or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case
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may be, and no interest shall accrue for the period from and after any such
nominal date, provided such payment is made in full on such next succeeding
Business Day.
Section 11.11. Governing Law. In view of the fact that Owners
are expected to reside in many states and outside the United States and the
desire to establish with certainty that this Agreement will be governed by and
construed and interpreted in accordance with the law of a state having a
well-developed body of commercial and financial law relevant to transactions of
the type contemplated herein, this Agreement and each Certificate shall be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Section 11.12. Counterparts. This instrument may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.13. Usury. The amount of interest payable or paid
on any Certificate under the terms of this Agreement shall be limited to an
amount which shall not exceed the maximum nonusurious rate of interest allowed
by the applicable laws of the State of New York or any applicable law of the
United States permitting a higher maximum nonusurious rate that preempts such
applicable New York laws, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any Certificate exceeds the Highest Lawful Rate, the Trust stipulates that such
excess amount will be deemed to have been paid to the Owner of such Certificate
as a result of an error on the part of the Trustee acting on behalf of the Trust
and the Owner receiving such excess payment shall promptly, upon discovery of
such error or upon notice thereof from the Trustee on behalf of the Trust,
refund the amount of such excess or, at the option of such Owner, apply the
excess to the payment of principal of such Certificate, if any, remaining
unpaid. In addition, all sums paid or agreed to be paid to the Trustee for the
benefit of Owners of Certificates for the use, forbearance or detention of money
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such Certificates.
Section 11.14. Amendment. (a) The Trustee, the Company and the
Servicer, may at any time and from time to time, with the prior approval of the
Certificate Insurer but without the giving of notice to or the receipt of the
consent of the Owners, amend this Agreement for the purposes of (i) removing the
restriction against the transfer of a Class R Certificate to a Disqualified
Organization (as such term is defined in the Code) if accompanied by an opinion
of counsel experienced in federal income tax matters addressed to the
Certificate Insurer and the Trustee that there is or will be no adverse effect
as a result of such amendment, (ii) complying with the requirements of the Code
including any amendments necessary to maintain REMIC status of the assets of the
Trust treated as a REMIC hereunder, (iii) curing any ambiguity and (iv)
correcting or supplementing any provisions of this Agreement which are
inconsistent with any other provisions of this Agreement; or (v) for any other
purpose, provided that in the case of clause (v), (A) prior to the effectiveness
of such amendment, the Company delivers an opinion of counsel acceptable to the
Trustee and the Certificate Insurer that such amendment will not adversely
affect in any material respect the interest of the Owners and the Certificate
Insurer and (B) delivers a letter from each Rating Agency stating that such
amendment will not result in a withdrawal or reduction of the rating of the
Class A Certificates without regard to the Certificate Insurance Policy.
Notwithstanding anything to the contrary, no such amendment shall (a) change in
any manner the amount of, or delay the timing of, payments which are required to
be distributed to any Owner without the consent of the Owner of such
Certificate, (b) change the percentages of Percentage Interest which are
required to consent to any such amendments, without the consent of the Owners of
all Certificates of the Class or Classes affected then outstanding or (c) which
affects in any manner the terms or provisions of the related Certificate
Insurance Policy.
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(b) This Agreement may be amended from time to time by the
Servicer, the Company and the Trustee with the consent of the Certificate
Insurer (which consent shall not be withheld if, in an opinion of counsel
addressed to the Trustee and the Certificate Insurer, failure to amend would
adversely affect the interests of the Owners) and the Owners of 66 2/3% of the
Class A Certificates for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Owners; provided, however, that no
such amendment shall be made that no such amendment shall reduce in any manner
the amount of, or delay the timing of, payments received on Mortgage Loans which
are required to be distributed on any Certificate without the consent of the
Owner of such Certificate or reduce the percentage for each Class the Owners of
which are required to consent to any such amendment without the consent of the
Owners of 100% of each Class of Certificates affected thereby.
(c) Each proposed amendment to this Agreement shall be
accompanied by an opinion of counsel nationally recognized in federal income tax
matters and reasonably acceptable to the Certificate Insurer addressed to the
Trustee and to the Certificate Insurer to the effect that such amendment would
not adversely affect the status of the Trust (other than the Pre-Funding
Account, the Group II Available Funds Cap Carry- Forward Amount Account or the
Capitalized Interest Account) as a REMIC.
(d) The Certificate Insurer, the Owners, Moody's and Standard
& Poor's shall be provided with copies of any amendments to this Agreement,
together with copies of any opinions or other documents or instruments executed
in connection therewith.
Section 11.15. REMIC Status; Taxes. (a) The Tax Matters Person
shall prepare and file or cause to be filed with the Internal Revenue Service
federal tax or information returns with respect to the Trust and the
Certificates containing such information and at the times and in such manner as
may be required by the Code or applicable Treasury regulations and shall furnish
to Owners such statements or information at the times and in such manner as may
be required thereby. For this purpose, the Tax Matters Person may, but need not,
rely on any proposed regulations of the United States Department of the
Treasury. The Tax Matters Person shall indicate the election to treat the Trust
as a REMIC (which election shall apply to the taxable period ending
________________ __, 199_ and each calendar year thereafter) in such manner as
the Code or applicable Treasury regulations may prescribe. First Alliance
Residual Holding Company, as Tax Matters Person appointed pursuant to Section
11.17 hereof, shall sign all tax information returns filed pursuant to this
Section 11.15. The Tax Matters Person shall provide information necessary for
the computation of tax imposed on the transfer of a Class R Certificate to a
Disqualified Organization, an agent of a Disqualified Organization or a
pass-through entity in which a Disqualified Organization is the record holder of
an interest. The Tax Matters Person shall provide the Trustee with copies of any
Federal tax or information returns filed, or caused to be filed, by the Tax
Matters Person with respect to the Trust or the Certificates.
(b) The Tax Matters Person shall timely file all reports
required to be filed by the Trust with any federal, state or local governmental
authority having jurisdiction over the Trust, including other reports that must
be filed with the Owners, such as the Internal Revenue Service's Form 1066 and
Schedule Q and the form required under Section 6050K of the Code, if applicable
to REMICs. Furthermore, the Tax Matters Person shall report to Owners, if
required, with respect to the allocation of expenses pursuant to Section 212 of
the Code in accordance with the specific instructions to the Tax Matters Person
by the Company with respect to such allocation of expenses. The Tax Matters
Person shall collect any forms or reports from the Owners determined by the
Company to be required under applicable federal, state and local tax laws.
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(c) The Tax Matters Person shall provide to the Internal
Revenue Service and to persons described in Section 860E(e)(3) and (6) of the
Code the information described in Proposed Treasury Regulation Section
1.860D-1(b)(5)(ii), or any successor regulation thereto. Such information will
be provided in the manner described in Proposed Treasury Regulation Section
1.860E(2)(a)(5), or any successor regulation thereto.
(d) The Company covenants and agrees that within ten Business
Days after the Startup Day it shall provide to the Tax Matters Person any
information necessary to enable the Tax Matters Person to meet its obligations
under subsections (b) and (c) above.
(e) The Trustee, the Company and the Servicer each covenants
and agrees for the benefit of the Owners and the Certificate Insurer (i) to take
no action which would result in the termination of "REMIC" status for the Trust
(other than the Pre-Funding Account, the Group II Available Funds Cap
Carry-Forward Amount Account or the Capitalized Interest Account) (ii) not to
engage in any "prohibited transaction", as such term is defined in Section
860F(a)(2) of the Code and (iii) not to engage in any other action which may
result in the imposition on the Trust of any other taxes under the Code.
(f) The Trust shall, for federal income tax purposes, maintain
books on a calendar year basis and report income on an accrual basis.
(g) Except as otherwise permitted by Section 7.6(b) hereof, no
Eligible Investment shall be sold prior to its stated maturity (unless sold
pursuant to a plan of liquidation in accordance with Article IX hereof).
(h) Neither the Company nor the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, which fee or other compensation is
paid from the Trust Estate, other than as expressly contemplated by this
Agreement.
(i) Notwithstanding the foregoing clauses (g) and (h), the
Trustee or the Company may engage in any of the transactions prohibited by such
clauses, provided that the Trustee shall have received an opinion of counsel
experienced in federal income tax matters and reasonably acceptable to the
Certificate Insurer, which opinion shall not be at the expense of the Trustee,
to the effect that such transaction does not result in a tax imposed on the
Trustee or cause a termination of REMIC status for the Trust; provided, however,
that such transaction is otherwise permitted under this Agreement.
Section 11.16. Additional Limitation on Action and Imposition
of Tax. (a) Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an opinion of counsel experienced in
federal income tax matters and reasonably acceptable to the Certificate Insurer,
which opinion shall not be at the expense of the Trustee, to the effect that
such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the Trust, (i) sell any assets in the Trust
Estate, (ii) accept any contribution of assets after the Startup Day or (iii)
agree to any modification of this Agreement.
(b) In the event that any tax is imposed on "prohibited
transactions" of the Trust as defined in Section 860F(a)(2) of the Code, on the
"net income from foreclosure property" as defined in Section 860G(c) of the
Code, on any contribution to the Trust after the Startup Day pursuant to Section
860G(d) of the Code or any other tax (other than any minimum tax imposed by
Sections 23151(a) or 23153(a) of the California Revenue and Taxation Code) is
imposed, such tax shall be paid by (i) the Trustee, if such tax arises out of or
results from a breach by the Trustee of any of its obligations under this
Agreement, (ii) the
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Servicer, if such tax arises out of or results from a breach by the Servicer of
any of its obligations under this Agreement or (iii) the Owners of the Class R
Certificates in proportion to their Percentage Interests. To the extent such tax
is chargeable against the Owners of the Class R Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Owners of the Class R
Certificates on any Payment Date sufficient funds to reimburse the Trustee for
the payment of such tax (to the extent that the Trustee has not been previously
reimbursed or indemnified therefor). The Trustee agrees to first seek
indemnification for any such tax payment from any indemnifying parties before
reimbursing itself from amounts otherwise distributable to the Owners of the
Class R Certificates.
Section 11.17. Appointment of Tax Matters Person. A Tax
Matters Person will be appointed for the Trust for all purposes of the Code, and
such Tax Matters Person will perform, or cause to be performed through agents,
such duties and take, or cause to be taken, such actions as are required to be
performed or taken by the Tax Matters Person under the Code. The Tax Matters
Person for the Trust shall be First Alliance Residual Holding Company as long as
it owns a Class R Certificate or, if First Alliance Residual Holding Company
does not own a Class R Certificate, may be any other entity selected by First
Alliance Residual Holding Company that owns a Class R Certificate.
Section 11.18. The Certificate Insurer. The Certificate
Insurer is a third-party beneficiary of this Agreement. Any right conferred to
the Certificate Insurer shall be suspended during any period in which the
Certificate Insurer is in default in its payment obligations under the
Certificate Insurance Policies. During any period of suspension the Certificate
Insurer's rights hereunder shall vest in the Owners of the Class A Certificates
and shall be exercisable by the Owners of at least a majority in Percentage
Interest of the Class A Certificates then Outstanding. At such time as the Class
A Certificates are no longer Outstanding hereunder and the Certificate Insurer
has been reimbursed for all Insured Payments to which it is entitled hereunder,
the Certificate Insurer's rights hereunder shall terminate.
Section 11.19. Maintenance of Records. Each Owner of a Class R
Certificate shall each continuously keep an original executed counterpart of
this Agreement in its official records.
Section 11.20. Notices. All notices hereunder shall be given
as follows, until any superseding instructions are given to all other Persons
listed below:
The Trustee:
---------------------------
---------------------------
---------------------------
Attention:
-----------------
Tel:
-----------------------
Fax:
-----------------------
The Company: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Director, Secondary Marketing
Tel: (714) 224-8357
Fax: (714) 224-8366
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The Servicer: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Manager, Investor Reporting
Tel: (714) 224-8357
Fax: (714) 224-8366
The Certificate
Insurer:
---------------------------------
---------------------------------
---------------------------------
Attention:
-----------------------
Tel:
-----------------------------
Fax:
-----------------------------
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Home Equity Monitoring
Department
Standard & Poor's: Standard & Poor's, A Division of The
McGraw-Hill Companies
26 Broadway
15th Floor
New York, New York 10004
Attention: Residential Mortgage
Surveillance Dept.
Underwriters:
------------------------------------
------------------------------------
------------------------------------
Attention:
--------------------------
Tel:
--------------------------------
Fax:
--------------------------------
------------------------------------
------------------------------------
------------------------------------
Attention:
--------------------------
Tel:
--------------------------------
Fax:
--------------------------------
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IN WITNESS WHEREOF, the Company, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers thereunto
duly authorized, all as of the day and year first above written.
FIRST ALLIANCE MORTGAGE COMPANY
By:
----------------------------
Name:
-----------------------
Title:
----------------------
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
--------------------------------
as Trustee
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF _______________ )
) ss.:
COUNTY OF _______________ )
On the _____ day of ______________, 199_, before me, personally came
________________, to me known, who being by me duly sworn did depose and say
that his office is located at _____________________________; that he is a
____________________ of ________________________, the _______________ banking
corporation described herein and that he executed the above instrument as
Trustee; and that he signed his name thereto under the authority granted by the
Board of Directors of said _______________ banking corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this Certificate first above written.
[NOTARIAL SEAL]
- -------------------------------
Notary Public
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the _____ day of ________________, 199_, before me, a
Notary Public, personally appeared ____________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
[NOTARIAL SEAL]
- -------------------------------
Notary Public
Exhibit 4.2
INDENTURE
between
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_,
as Issuer
and
--------------------------------,
as Indenture Trustee
Dated as of ______________ __, 199_
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
[Adjustable][Fixed] Rate Mortgage Loan Asset Backed Notes, Series 199_-_
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE...........................................1
SECTION 1.1 Definitions...........................................................1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.....................7
SECTION 1.3 Rules of Construction.................................................7
ARTICLE II
<S> <C> <C>
THE NOTES...........................................................................8
SECTION 2.1 Form..................................................................8
SECTION 2.2 Execution, Authentication, Delivery and Dating........................8
SECTION 2.3 Registration; Registration of Transfer and Exchange...................9
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes...........................10
SECTION 2.5 Persons Deemed Owners................................................10
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest................10
SECTION 2.7 Cancellation.........................................................11
SECTION 2.8 Authentication of Notes..............................................11
SECTION 2.9 Release of Collateral................................................11
SECTION 2.10 Book-Entry Notes.....................................................12
SECTION 2.11 Notices to Clearing Agency...........................................13
SECTION 2.12 Definitive Notes.....................................................13
SECTION 2.13 Tax Treatment........................................................13
ARTICLE III
<S> <C> <C>
COVENANTS..........................................................................13
SECTION 3.1 Payment of Principal and Interest....................................13
SECTION 3.2 Maintenance of Office or Agency......................................14
SECTION 3.3 Money for Payments To Be Held in Trust...............................14
SECTION 3.4 Existence............................................................15
SECTION 3.5 Protection of Collateral.............................................16
SECTION 3.6 Annual Opinions as to Collateral.....................................16
SECTION 3.7 Performance of Obligations; Servicing of Mortgage Loans..............17
SECTION 3.8 Negative Covenants...................................................18
SECTION 3.9 Annual Statement as to Compliance....................................19
SECTION 3.10 Covenants of the Issuer..............................................19
SECTION 3.11 Reserved.............................................................19
SECTION 3.12 Restricted Payments..................................................19
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes..........................19
SECTION 3.14 Notice of Events of Default..........................................20
SECTION 3.15 Further Instruments and Acts.........................................20
ARTICLE IV
<S> <C> <C>
SATISFACTION AND DISCHARGE.........................................................20
SECTION 4.1 Satisfaction and Discharge of Indenture..............................20
</TABLE>
i
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<TABLE>
<S> <C> <C>
SECTION 4.2 Application of Trust Money................................................................21
SECTION 4.3 Repayment of Moneys Held by Paying Agent..................................................21
ARTICLE V
<S> <C> <C>
REMEDIES................................................................................................21
SECTION 5.1 Events of Default.........................................................................21
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment........................................22
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.................23
SECTION 5.4 Remedies; Priorities......................................................................25
SECTION 5.5 Optional Preservation of the Collateral...................................................26
SECTION 5.6 Limitation of Suits.......................................................................27
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest..........................27
SECTION 5.8 Restoration of Rights and Remedies........................................................27
SECTION 5.9 Rights and Remedies Cumulative............................................................27
SECTION 5.10 Delay or Omission Not a Waiver............................................................28
SECTION 5.11 Control by Owners.........................................................................28
SECTION 5.12 Waiver of Past Defaults...................................................................28
SECTION 5.13 Undertaking for Costs.....................................................................29
SECTION 5.14 Waiver of Stay or Extension Laws..........................................................29
SECTION 5.15 Action on Notes...........................................................................29
SECTION 5.16 Performance and Enforcement of Certain Obligations........................................29
ARTICLE VI
<S> <C> <C>
THE INDENTURE TRUSTEE...................................................................................30
SECTION 6.1 Duties of Indenture Trustee...............................................................30
SECTION 6.2 Rights of Indenture Trustee...............................................................31
SECTION 6.3 Individual Rights of Indenture Trustee....................................................32
SECTION 6.4 Indenture Trustee's Disclaimer............................................................32
SECTION 6.5 Notice of Defaults........................................................................32
SECTION 6.6 Reports by Indenture Trustee to Owners....................................................32
SECTION 6.7 Compensation and Indemnity................................................................32
SECTION 6.8 Replacement of Indenture Trustee..........................................................32
SECTION 6.9 Successor Indenture Trustee by Merger.....................................................33
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.........................34
SECTION 6.11 Eligibility; Disqualification.............................................................35
SECTION 6.12 Preferential Collection of Claims Against Issuer..........................................35
ARTICLE VII
<S> <C> <C>
OWNERS' LISTS AND REPORTS...............................................................................35
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.........................35
SECTION 7.2 Preservation of Information; Communications to Owners.....................................35
SECTION 7.3 Reports by Issuer.........................................................................35
SECTION 7.4 Reports by Indenture Trustee..............................................................36
ii
</TABLE>
<PAGE>
<TABLE>
ARTICLE VIII
<S> <C> <C>
ACCOUNTS, DISBURSEMENTS AND RELEASES.............................................................36
SECTION 8.1 Collection of Money................................................................36
SECTION 8.2 Accounts; Distributions............................................................36
SECTION 8.3 General Provisions Regarding Accounts..............................................37
SECTION 8.4 Servicer's Monthly Statements......................................................38
SECTION 8.5 Release of Collateral..............................................................38
SECTION 8.6 Opinion of Counsel.................................................................38
ARTICLE IX
<S> <C> <C>
SUPPLEMENTAL INDENTURES.........................................................................39
SECTION 9.1 Supplemental Indentures Without Consent of Owners..................................39
SECTION 9.2 Supplemental Indentures with Consent of Owners.....................................40
SECTION 9.3 Execution of Supplemental Indentures...............................................41
SECTION 9.4 Effect of Supplemental Indenture...................................................41
SECTION 9.5 Conformity with Trust Indenture Act................................................41
SECTION 9.6 Reference in Notes to Supplemental Indentures......................................41
SECTION 9.7 Amendments to Trust Agreement......................................................42
ARTICLE X
<S> <C> <C>
REDEMPTION OF NOTES............................................................................42
SECTION 10.1 Redemption. .....................................................................42
SECTION 10.2 Form of Redemption Notice........................................................42
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee and Note Insurer............................................43
ARTICLE XI
<S> <C> <C>
MISCELLANEOUS..................................................................................43
SECTION 11.1 Compliance Certificates and Opinions, etc........................................43
SECTION 11.2 Form of Documents Delivered to Indenture Trustee.................................44
SECTION 11.3 Acts of Owners...................................................................44
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies
and Note Insurer ................................................................45
SECTION 11.5 Notices to Owners; Waiver........................................................45
SECTION 11.6 [RESERVED].......................................................................45
SECTION 11.7 Conflict with Trust Indenture Act................................................46
SECTION 11.8 Effect of Headings and Table of Contents.........................................46
SECTION 11.9 Successors and Assigns...........................................................46
SECTION 11.10 Separability.....................................................................46
SECTION 11.11 Benefits of Indenture............................................................46
SECTION 11.12 Legal Holidays...................................................................46
SECTION 11.13 Governing Law....................................................................46
SECTION 11.14 Counterparts.....................................................................46
SECTION 11.15 Recording of Indenture...........................................................46
SECTION 11.16 Trust Obligation.................................................................47
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 11.17 No Petition........................................................................47
SECTION 11.18 Inspection.........................................................................47
SECTION 11.19 Grant of Owner Rights to Note Insurer..............................................47
SECTION 11.20 Third Party Beneficiary............................................................48
SECTION 11.21 Suspension and Termination of Note Insurer's Rights................................48
</TABLE>
EXHIBITS
SCHEDULE A - Schedule of Mortgage Loans
EXHIBIT A - Form of Note
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INDENTURE (this "Indenture" or this "Agreement") dated as of
______________ __, 199_, between FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST
199_-_, a Delaware business trust (the "Issuer"), and _______________________,
a ________________________________ corporation, as trustee and not in its
individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Owners of the Notes and the Note Insurer.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of
the Owners of the Notes and the Note Insurer, all of the Issuer's right, title
and interest in and to: (i) the Trust Estate; (ii) all right, title and interest
of the Issuer in the Sale and Servicing Agreement (including the Issuer's right
to cause the Seller to repurchase Mortgage Loans from the Issuer under certain
circumstances described therein); (iii) all present and future claims, demands,
causes of action and choses in action in respect of any or all of the foregoing
and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing; (iv) all funds on deposit from time to time in the Accounts
(including the Note Account) and (v) all other property of the Trust from time
to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Owners of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Owners of the Notes and
the Note Insurer may be adequately and effectively protected. The Indenture
Trustee agrees and acknowledges that the Files will be held by the Custodian, as
agent of the Indenture Trustee, in trust, for the use and benefit of the Issuer,
the Note Insurer and all present and future Owners of the Notes, in New York,
New York. The Indenture Trustee further agrees and acknowledges that each other
item of Collateral that is physically delivered to the Indenture Trustee will be
held by the Indenture Trustee in New York, New York.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 (a) Definitions. Except as otherwise specified herein or as
the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Act": The meaning specified in Section 11.3(a) hereof.
1
<PAGE>
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer": With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter).
"Book-Entry Notes": A beneficial interest in the Notes, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described in Section 2.10.
"Book-Entry Owner": With respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in the States of New York and California or in
the city in which the Corporate Trust Office is located or the city in which the
principal office of the Note Insurer is located are authorized or obligated by
law or executive order to be closed.
"Certificate of Trust": The certificate of trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date": _____________ __, 199_.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
"Corporate Trust Office": The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located at
____________________________ _________________, Attention: _______________
_______________, or at such other address as the Indenture Trustee may designate
from time to time by notice to the Owners and the Issuer, or the principal
corporate trust office of any successor Indenture Trustee at the address
designated by such successor Indenture Trustee by notice to the Owners, the Note
Insurer and the Issuer.
2
<PAGE>
"Default": Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes": The meaning specified in Section 2.12.
"Event of Default": The meaning specified in Section 5.1 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Payment Date": _____________ __, 20__.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indenture Trustee": _____________________, a ________________________
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent": When used with respect to any specified Person, that the
Person (a) is in fact independent of the Issuer, any other obligor on the Notes,
the Seller and any Affiliate of any of the foregoing Persons, (b) does not have
any direct financial interest or any material indirect financial interest in the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons and (c) is not connected with the Issuer, any such other
obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Certificate": A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer": First Alliance Mortgage Loan Owner Trust 199_-_ until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Moody's": Moody's Investor Service, Inc., or any successor thereto.
3
<PAGE>
"Note": The Issuer's [Adjustable][Fixed] Rate Mortgage Loan Asset
Backed Notes, Series 199_-_, substantially in the Form of Exhibit A hereto.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 2.3.
"Officer's Certificate": A certificate signed by any Authorized Officer
of the Issuer, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, and delivered to the
Indenture Trustee.
"Opinion of Counsel": One or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
the Note Insurer, and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Indenture Trustee and the Note Insurer.
"Outstanding": With respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the
Indenture Trustee or any Paying Agent in trust for the Owners
of such Notes (provided, however, that if such Notes are to be
redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision for such notice has
been made, satisfactory to the Indenture Trustee);
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture
unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a bona fide
purchaser; provided, that in determining whether the Owners of
the requisite Outstanding Amount of the Notes have given any
request, demand, authorization, direction, notice, consent, or
waiver hereunder or under any Operative Document, Notes owned
by the Issuer, any other obligor upon the Notes, the Seller or
any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Indenture Trustee shall be protected
in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Notes that the
Indenture Trustee knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that
the pledgee is not the Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing
Persons;
(iv) Notes alleged to have been destroyed, lost or stolen for which
replacement Notes have been issued as provided for in Section
2.4 thereof; and
(v) Notes as to which the Indenture Trustee has made the final
distribution thereon, whether or not such Notes are ever
returned to the Indenture Trustee.
4
<PAGE>
"Outstanding Amount": The aggregate principal amount of all Notes that
are Outstanding at the date of determination.
"Owner": The Person in whose name a Note is registered on the Note
Register; provided that the exercise of any rights of such Owner under this
Indenture shall at all times be subject to Section 11.19 hereto.
"Owner Trustee": ___________________________, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent": The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Note Account, including payment of principal of or interest on the Notes on
behalf of the Issuer.
"Payment Date": The 20th day of any month or if such day is not a
Business Day, the next succeeding Business Day, commencing in _______________
199_.
"Predecessor Note": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": Either or both of [(i) Standard & Poor's or (ii)
Moody's.] If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Insurer, notice of which
designation shall be given to the Issuer, the Indenture Trustee, the Owner
Trustee and the Servicer.
"Rating Agency Condition": With respect to any action to which a Rating
Agency Condition applies, that each Rating Agency shall have been given 10 days
(or such shorter period as is acceptable to each Rating Agency) prior notice
thereof and that each of the Rating Agencies shall have notified the Seller, the
Servicer, the Note Insurer and the Issuer in writing that such action will not
result in a reduction or withdrawal of the then current rating of the Notes.
"Record Date": With respect to any Payment Date, the last Business Day
immediately preceding such Payment Date.
"Redemption Price": In the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the unpaid principal amount of the Notes
redeemed plus accrued and unpaid interest thereon at the Note Rate to but
excluding the Redemption Date, plus any Available Funds Cap Carry-Forward
Amounts plus any unpaid Indenture Trustee Fees and Premium Amounts and all other
amounts owed to the Note Insurer pursuant to the Insurance Agreement.
"Registered Owner": The Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
5
<PAGE>
"Responsible Officer": With respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated
as of ______________ __, 199_, among the Issuer, First Alliance Mortgage
Company, as Seller and Servicer, and the Indenture Trustee, as Indenture
Trustee.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": First Alliance Mortgage Company, in its capacity as seller
under the Sale and Servicing Agreement, and its successor in interest.
"Servicer": First Alliance Mortgage Company, in its capacity as
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"State": Any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer": The meaning specified in Section 3.7(e).
"Trust Estate": The assets subject to this Agreement, the Sale and
Servicing Agreement and the Trust Agreement and assigned to the Trust, which
assets consist of (a) the Mortgage Loans listed in Schedule I to the Sale and
Servicing Agreement, including the related Files that the Seller cause to be
delivered to the Indenture Trustee, all payments of principal received,
collected or otherwise recovered after the Cut-Off Date for each Mortgage Loan
(other than any principal payments due thereon on or prior to the Cut-Off Date),
all payments of interest accruing on each Mortgage Loan after the Cut-Off Date
therefor (other than any interest payments due thereon on or prior to the
Cut-Off Date) and all other proceeds received in respect of such Mortgage Loans,
(b) the Note Insurance Policy, (c) any Insurance Policies, (d) all cash,
instruments or other property held or required to be deposited in the Principal
and Interest Account, the Note Account, and the Available Funds Cap Carry
Forward Amount Account, including all investments made with funds in such
accounts (but not including any income on funds deposited in, or investments
made with funds deposited in, the Principal and Interest Account, which income
shall belong to and be for the account of the Servicer, and not including any
income on funds deposited in, or investments made with funds deposited in, the
Note Account or Available Funds Cap Carry-Forward Amount Account, which income
shall belong to and be for the account of the Issuer), (e) the Issuer's rights
under the Sale and Servicing Agreement, and (f) all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or other liquid
assets, including, without limitation, all insurance proceeds and condemnation
awards.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
6
<PAGE>
"UCC": Unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, for all purposes of this Indenture capitalized terms used but
not otherwise defined herein have the respective meanings set forth in the Sale
and Servicing Agreement or, if not defined therein, in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security Owner" means an Owner.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the Indenture securities means the Issuer and any other
obligor on the Indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or
statute as from time to time amended, modified or supplemented
(as provided in such agreements) and includes (in the case of
agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
7
<PAGE>
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "First Alliance
[Adjustable][Fixed] Rate Mortgage Loan Asset Backed Notes, Series 199_-_" and,
together with the Indenture Trustee's certificate of authentication, shall be in
substantially the form set forth in Exhibit A hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
The Notes may be marked as temporary, and any Note being so marked may
be cancelled and destroyed for substitution by a replacement Note, subject to
the provisions of Section 2.2.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee. The signature of any such Authorized Officer on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
the Indenture Trustee shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $_______________. The aggregate principal
amount of Notes Outstanding at any time may not exceed such amount.
The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated
_____________ __, 199_. All other Notes that are authenticated after the Closing
Date for any other purpose under this Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $1,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
8
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SECTION 2.3 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar with the consent of the Note Insurer, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof, and the Indenture
Trustee and the Note Insurer shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Authorized Officer thereof as to
the names and addresses of the Owners of the Notes and the principal amounts and
number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Owner shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of any Owner, Notes owned by such Owner may be exchanged
for other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Owner shall obtain from the
Indenture Trustee, the Notes which the Owner making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Owner thereof or such Owner's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
No service charge shall be made to an Owner for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to such Note.
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SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, the Issuer shall execute, and upon its request the
Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Note, a replacement Note;
provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable,
or shall have been called for redemption, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Owner of such Note, other than the Note
Insurer, of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses (including
the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5 Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the day
of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or
the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest at the Note Rate as set forth in
the Sale and Servicing Agreement, and such interest shall be payable on each
Payment Date as specified therein, subject to Section 3.1 hereof. Any
installment of interest or principal, if any, payable on any Note that is
punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name
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such Note (or one or more Predecessor Notes) is registered on the Record Date by
check mailed first-class postage prepaid to such Person's address as it appears
on the Note Register on such Record Date, except that, unless Definitive Notes
have been issued pursuant to Section 2.12, with respect to Notes registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), payment will be made by wire transfer in
immediately available funds to the account designated by such nominee and except
for the final installment of principal payable with respect to such Note on a
Payment Date or on the applicable Final Payment Date (and except for the
Redemption Price for any Note called for redemption pursuant to Section 10.1),
which shall be payable as provided below. The funds represented by any such
checks returned undelivered shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the Sale and Servicing Agreement and the form of the
Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii)
the date on which an Event of Default shall have occurred and be continuing, if
the Indenture Trustee or the Owners of Notes representing not less than a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2. All principal
payments on the Notes shall be made pro rata to the Owners. The Indenture
Trustee shall notify the Person in whose name a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. A copy of such form of notice shall be sent to the Note Insurer by
the Indenture Trustee. Notices in connection with redemptions of Notes shall be
mailed to Owners as provided in Section 10.2.
SECTION 2.7 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time, unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.8 Authentication of Notes. The Notes may be authenticated by
the Indenture Trustee upon Issuer Request.
SECTION 2.9 Release of Collateral.
(a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and
the terms of the Operative Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
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(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Mortgage Loan and the related
Property at any time (i) after a payment by the Seller or the Issuer of the Loan
Purchase Price of the Mortgage Loan, (ii) after a Qualified Replacement Mortgage
is substituted for such Mortgage Loan and payment of the Substitution Amount if
any, (iii) after liquidation of the Mortgage Loan in accordance with Section
4.13 of the Sale and Servicing Agreement and the deposit of all Liquidation
Proceeds thereon in the Principal and Interest Account, or (iv) upon the
termination of a Mortgage Loan (due to, among other causes, a prepayment in full
of the Mortgage Loan and sale or other disposition of the related Property), if
the Issuer delivers to the Indenture Trustee and the Note Insurer an Issuer
Request (A) identifying the Mortgage Loan and the related Property to be
released, (B) requesting the release thereof, (C) setting forth the amount
deposited in the Principal and Interest Account with respect thereto, and (D)
certifying that the amount deposited in the Principal and Interest Account (x)
equals the Loan Purchase Price of the Mortgage Loan, in the event a Mortgage
Loan and the related Property are being released from the lien of this Indenture
pursuant to item (i) above, (y) equals the Substitution Amount related to the
Qualified Replacement Mortgage and the Mortgage Loan being released from the
lien of this Indenture pursuant to item (ii) above, or (z) equals the entire
amount of recoveries received with respect to such Mortgage Loan and the related
Property in the event of a release from the lien of this Indenture pursuant to
items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested in writing by the
Servicer, temporarily release or cause the Custodian to temporarily release to
the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and
Servicing Agreement upon compliance by the Servicer of the provisions thereof
provided that the Indenture Trustee's File shall have been stamped to signify
the Issuer's pledge to the Indenture Trustee under this Indenture.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Owner of any Note will receive a definitive Note
representing such Book-Entry Owner's interest in such Note, except as provided
in Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Book-Entry Owners pursuant to
Section 2.12:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Note Registrar, the Note Insurer and the Indenture Trustee
shall be entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the Notes and
the giving of instructions or directions hereunder) as the sole Owner of the
Notes, and shall have no obligation to the Book-Entry Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section shall
control;
(iv) the rights of Book-Entry Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such Book-Entry Owners and the Clearing Agency and/or the
Clearing Agency Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and transmit
payments of principal of and interest on the Notes to such Clearing Agency
Participants; and
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(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Owners of Notes evidencing a specified
percentage of the Outstanding Amount of the Notes, the Clearing Agency shall be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Book-Entry Owners and/or Clearing Agency
Participants owning or representing, respectively, such required percentage of
the beneficial interest in the Notes and has delivered such instructions to the
Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Indenture, unless and until
Definitive Notes shall have been issued to such Book-Entry Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Owners of the Notes to the
Clearing Agency, and shall have no obligation to such Book-Entry Owners.
SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii)
the Issuer at its option advises the Indenture Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Book-Entry Owners, then the Clearing Agency shall
notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Book-Entry Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or
the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the Owners of the Definitive Notes as Owners.
SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering
into this Indenture, and each Owner, by its acceptance of a Note (and each
Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.2(c), on each Payment Date the Issuer will cause to be
distributed all amounts on deposit in the Note Account deposited or retained
therein pursuant to the Sale and Servicing Agreement for the benefit of
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the Notes, to the Owners and the Note Insurer. Amounts properly withheld under
the Code by any Person from a payment to any Owner of interest and/or principal
shall be considered as having been paid by the Issuer to such Owner for all
purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral and any
amounts received by the Indenture Trustee under the Note Insurance Policy in
respect of the Notes, as provided in this Indenture and the Sale and Servicing
Agreement. The Issuer shall not otherwise be liable for payments on the Notes.
If any other provision of this Indenture shall be deemed to conflict with the
provisions of this Section 3.1, the provisions of this Section 3.1 shall
control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer will give prompt written notice to the
Indenture Trustee and the Note Insurer of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2 (a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account or retained in the Note Account pursuant to Section 8.2(c)
shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying
Agent, and no amounts so withdrawn from the Principal and Interest Account or
retained in the Note Account for payments of Notes shall be paid over to the
Issuer except as provided in this Section.
On or before the second Business Day preceding each Payment Date and
Redemption Date, the Indenture Trustee shall deposit or cause to be deposited in
the Note Account an aggregate sum sufficient to pay the amounts due on such
Payment Date under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto.
Subject to the prior consent of the Note Insurer, any Paying Agent
shall be appointed by Issuer Order with written notice thereof to the Indenture
Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be
a Person who would be eligible to be Indenture Trustee hereunder as provided in
Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Designated
Depository Institution.
The Issuer will cause each Paying Agent to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Owners entitled
thereto until such sums shall be paid to such Owners or otherwise
disposed of as herein provided and pay such sums to such Owners as
herein provided;
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(ii) give the Indenture Trustee and the Note Insurer notice of any
default by the Issuer (or any other obligor upon the Notes) of which it
has actual knowledge in the making of any payment required to be made
with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith; provided, however, that
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer shall have
first provided the calculations pertaining thereto to the Indenture
Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Owner of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ,
at the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Owners whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Owner).
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SECTION 3.4 Existence.
(a) Subject to subsection (b) of this Section 3.4, the Issuer will keep
in full effect its existence, rights and franchises as a business trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
SECTION 3.5 Protection of Collateral. The Issuer will from time to time
and upon the direction of the Note Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all or
any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of
the Indenture Trustee, the Owners and the Note Insurer in such
Collateral against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to Collateral. On or before
_____________ 15 in each calendar year, beginning in 199_, the Issuer shall
furnish to the Indenture Trustee and the Note Insurer an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any
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other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until _______________ 15 of the following calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Mortgage Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) Subject to the prior consent of the Note Insurer, the Issuer may
contract with or otherwise obtain the assistance of other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Note Insurer in
an Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Servicer to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Operative
Document or any provision thereof without the consent of the Indenture Trustee,
the Note Insurer, and the Owners of at least a majority of the Outstanding
Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies
thereof, and shall specify in such notice the action, if any, the Issuer is
taking with respect of such default. If such Event of Servicing Termination
shall arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the Mortgage
Loans, the Issuer shall take all reasonable steps available to it to remedy such
failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the Note Insurer, shall appoint a successor servicer
(the "Successor Servicer") in accordance with the provisions of Section 4.21 of
the Sale and Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Sale and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is
appointed pursuant to Section 4.21 of the Sale and Servicing Agreement, the
Issuer
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shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and the Note Insurer, or, if a
Note Insurer Default has occurred and is continuing, the Owners of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Operative
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Owners or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Owners of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee and the Note Insurer,
the Issuer agrees, promptly following a request by the Indenture Trustee or the
Note Insurer to do so, to execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the
Indenture Trustee or the Note Insurer may deem necessary or appropriate in the
circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, or the
Sale and Servicing Agreement, sell, transfer, exchange or
otherwise dispose of any of the properties or assets of
the Issuer, including those included in the Collateral,
unless directed to do so by the Indenture Trustee or the
Note Insurer;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes
(other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or
former Owner by reason of the payment of the taxes levied
or assessed upon any part of the Collateral;
(iii) engage in any business or activity other than as permitted
by the Trust Agreement or other than in connection with,
or relating to, the issuance of Notes pursuant to this
Indenture, or amend the Trust Agreement as in effect on
the Closing Date other than in accordance with Section
11.1 thereof,
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such indebtedness
as may be incurred by the Issuer in connection with the
issuance of the Notes pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture
to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under
this
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Indenture except as may be expressly permitted hereby, (B)
permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise
arise upon or burden the Collateral or any part thereof or
any interest therein or the proceeds thereof (other than
tax liens, mechanics' liens and other liens that arise by
operation of law, in each case on any of the Properties
and arising solely as a result of an action or omission of
the related Mortgagor) or (C) permit the lien of this
Indenture not to constitute a valid first priority (other
than with respect to any such tax, mechanics' or other
lien) security interest in the Collateral;
(viii) take any other action or fail to take any action which may
cause the Issuer to be taxable as (a) an association
pursuant to Section 7701 of the Code and the corresponding
regulations or (b) as a taxable mortgage pool pursuant to
Section 7701(i) of the Code and the corresponding
regulations.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee and the Note Insurer, within 120 days after the end of
each fiscal year of the Issuer (commencing with the 199_ fiscal year), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all
conditions and covenants under the Indenture throughout
such year, or, if there has been a default in its
compliance with any such condition or covenant, specifying
each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in
the Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.
SECTION 3.11 Reserved.
SECTION 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the
Owners and the Certificateholders as contemplated by, and to the extent funds
are available for such purpose under, the Sale and Servicing Agreement or the
Trust Agreement. The Issuer will not, directly or indirectly, make or cause to
be made payments to or distributions from the Principal and Interest Account
except in accordance with this Indenture and the Operative Documents.
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SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing
Agreement.
SECTION 3.15 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and
3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of Owners as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for cancellation
when due to the Final Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1), as the case may be;
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(B) the later of (a) eighteen months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
Indenture Trustee Fees and Premium Amounts and all sums owing to the Note
Insurer under the Insurance Agreement and (c) the date on which the Issuer has
paid or caused to be paid all other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture
Trustee) an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1 and, subject to Section
11.2, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to the Notes have
been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Owners of the Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest on any Note when the same
becomes due and payable (it being understood that any Available Funds Cap Carry
Forward Amount does not constitute interest due and payable); or
(b) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section specifically dealt with), or any representation or warranty of the
Issuer made in this Indenture, the Insurance Agreement, the Sale and Servicing
Agreement or in any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material respect as of
the time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall
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not have been eliminated or otherwise cured, for a period of 30 days after there
shall have been given, by registered or certified mail, to the Issuer by the
Indenture Trustee or to the Issuer and the Indenture Trustee by the Owners of at
least 25% of the Outstanding Amount of the Notes, a written notice specifying
such default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a notice of Default hereunder; or
(d) default in the observance or performance of any covenant or
agreement of the Seller made in the Trust Agreement or any representation or
warranty of Seller made in the Trust Agreement, proving to have been incorrect
in any material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Owners of at least 25%
of the Outstanding Amount of the Notes, a written notice specifying such default
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder;
(e) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(f) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clauses (c) and (d) above, its
status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee, at the direction or upon the prior written consent of the
Note Insurer or the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes may, with the prior written consent of the Note
Insurer, declare all the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Owners), and
upon any such declaration the unpaid principal amount of such Notes, together
with accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable.
Amount of the Notes, with the prior written consent of the Note
Insurer, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
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(a) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:
(i) all payments of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred;
and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee
and its agents and counsel; and
(iii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely
by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Indenture Trustee
and at the direction of the Note Insurer, pay to the Indenture Trustee, for the
benefit of the Owners of the Notes and the Note Insurer, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest at the rate borne by
the Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and
the Note Insurer and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, shall at the direction of the Note Insurer, and if a Note Insurer Default
has occurred and is continuing, the Indenture Trustee may, in its discretion,
and shall at the direction of the Owners of the Notes representing a majority of
the Outstanding Amount of the Notes, institute a Proceeding for the collection
of the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Note Insurer, and if a Note Insurer
Default has occurred and is continuing, the Indenture Trustee may, in its
discretion, and shall at the direction of the Owners of the Notes representing a
majority of the Outstanding Amount of the Notes, as more particularly provided
in Section 5.4, proceed to protect and enforce its rights and the rights of the
Note Insurer and the Owners, by such appropriate Proceedings as the Indenture
Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Indenture
Trustee by this Indenture or by law.
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(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, upon the direction of the Note Insurer, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to
the Indenture Trustee, each predecessor Indenture
Trustee and the Note Insurer, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each
predecessor Indenture Trustee (except as a result of
negligence or bad faith), the Note Insurer and of the
Owners allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Owners of Notes in any
election of a trustee, a standby trustee or Person
performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the
claims of the Owners, the Note Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee, the Note
Insurer or the Owners of Notes allowed in any
judicial proceedings relative to the Issuer, its
creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar
official in any such Proceeding is hereby authorized
by each of such Owners and the Note Insurer to make
payments to the Indenture Trustee and, in the event
that the Indenture Trustee shall consent to the
making of payments directly to such Owners and the
Note Insurer, to pay to the Indenture Trustee such
amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective
agents, attorneys and counsel, and all other expenses
and liabilities incurred, and all advances made, by
the Indenture Trustee and each predecessor Indenture
Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Owner or the Note Insurer any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Owner
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thereof or the Note Insurer or to authorize the Indenture Trustee to vote in
respect of the claim of any Owner in any such proceeding except, as aforesaid,
to vote for the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Owners of the Notes and the Note Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Owners, and it shall not be necessary to make any
Owner a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Note Insurer, and if a Note
Insurer Default has occurred and is continuing, the Indenture Trustee may and at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity
and assurances, do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts
then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Collateral;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture
Trustee, the Note Insurer or the Owners; and
(iv) sell the Collateral or any portion thereof or rights
or interest therein in a commercially reasonable
manner, at one or more public or private sales called
and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not
sell or otherwise liquidate the Collateral following
an Event of Default, unless (A) the Owners of 100% of
the Outstanding Amount of the Notes consent thereto,
(B) the proceeds of such sale or liquidation
distributable to the Owners are sufficient to
discharge in full all amounts then due and unpaid
upon such Notes for principal and interest or (C) the
Indenture Trustee determines that the Collateral will
not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as
they would have become due if the Notes
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had not been declared due and payable, and the
Indenture Trustee obtains the consent of Owners of
66-2/3% of the Outstanding Amount of the Notes. In
determining such sufficiency or insufficiency with
respect to clauses (B) and (C), the Indenture Trustee
may, but need not, obtain and rely upon an opinion of
an Independent investment banking or accounting firm
of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the
Collateral for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for the Indenture Trustee
Fee then due and any costs or expenses incurred by it in connection with the
enforcement of the remedies provided for in this Article V and to the Owner
Trustee for the Owner Trustee Fee then due;
SECOND: to the Note Insurer for the Premium Amount then due
and unpaid;
THIRD: to the Servicer for the Servicing Fee then due and
unpaid;
FOURTH: to Owners for amounts due and unpaid on the Notes for
Current Interest (including any premium), pro rata, according to the amounts due
and payable on the Notes for interest (including any premium);
FIFTH: to Owners of the Notes for amounts due and unpaid on
the Notes for principal, pro rata;
SIXTH: to the Note Insurer for any amounts then due and
payable under the Insurance Agreement; and
SEVENTH: to Owners of the Notes for any Available Funds Cap
Carry Forward Amount then unpaid; and
EIGHT: to the Owner Trustee, for any amounts to be
distributed, pro rata, to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Owners pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Owner, the
Note Insurer and the Issuer a notice that states the record date, the payment
date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Collateral. It is the desire of the parties hereto and the Owners that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining
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whether to maintain possession of the Collateral, the Indenture Trustee may, but
need not, obtain and rely upon an opinion of an Independent investment banking
or accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Collateral for such purpose.
SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Note Insurer Default has not occurred or is
not continuing and if a Note Insurer Default has occurred and is continuing,
unless:
(a) such Owner has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Owners of not less than 25% of the Outstanding Amount of the
Notes have made written request to the Indenture Trustee to institute such
Proceeding in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(c) such Owner or Owners have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such Proceedings;
and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Owners of a majority
of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Owners of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Owners of Notes or to obtain or to seek to obtain priority or preference
over any other Owners or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Owner of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective Final Payment Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Owner.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Note Insurer or to such Owner, then and in every such
case the Issuer, the Indenture
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Trustee, the Note Insurer and the Owners shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Owners shall continue as though no such Proceeding had been
instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Note Insurer or to the
Owners is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Note Insurer or by the Owners, as the case may be,
subject, in each case, however, to the right of the Note Insurer to control any
such right and remedy, except as provided in Section 11.21.
SECTION 5.11 Control by Owners. The Owners of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) subject to the express terms of Section 5.4, any direction to the
Indenture Trustee to sell or liquidate the Collateral shall be by Owners of
Notes representing not less than 100% of the Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Collateral pursuant to such Section,
then any direction to the Indenture Trustee by Owners of Notes representing less
than 100% of the Outstanding Amount of the Notes to sell or liquidate the
Collateral shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Note Insurer and the Owners set forth
in this Section, subject to Section 6.1, the Indenture Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Owners not consenting to such action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the Owners
of Notes representing not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in the payment of principal of or interest on any of the Notes or
(b) in respect of a covenant or provision hereof that cannot be modified or
amended without the consent of the Note Insurer
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or the Owner of each Note, as applicable. In the case of any such waiver, the
Issuer, the Indenture Trustee, the Note Insurer and the Owners of the Notes
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other Default or impair any
right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Owner of any Note by such Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Note Insurer, (b) any suit instituted by any Owner, or
group of Owners, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Owner for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture (or, in
the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Owners shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so,
the Issuer shall take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Seller and the
Servicer, as applicable, of each of their obligations to the Issuer under or in
connection with the Sale and Servicing Agreement and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the
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part of the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale and Servicing
Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the written direction (which direction shall be in
writing or by telephone, confirmed in writing promptly thereafter) of the Owners
of 66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller or the
Servicer under or in connection with the Sale and Servicing Agreement, including
the right or power to take any action to compel or secure performance or
observance by the Seller or the Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension, or waiver under the Sale and Servicing Agreement
and any right of the Issuer to take such action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default of which a Responsible Officer of the
Indenture Trustee shall have actual knowledge has occurred and is continuing,
the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
(or similar documents) or opinions furnished to the Indenture Trustee
and conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates (or similar documents)
and opinions to determine whether or not they conform to the
requirements of this Indenture; provided that the Indenture Trustee
shall not be responsible for the accuracy or content of any certificate
(or similar document) or opinion furnished to it pursuant to the terms
of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Indenture Trustee shall not be personally liable for
any error of judgment made in good faith by a Responsible Officer
unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts; and
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(iii) the Indenture Trustee shall not be personally liable
with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 5.11 or
for exercising or omitting to exercise any trust or power conferred
upon the Indenture Trustee under this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Indenture Trustee in its
commercial capacity.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7. In determining that such repayment or
indemnity is not reasonably assured to it, the Indenture Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of the Issuer
but also the likelihood of repayment or indemnity from amounts payable to it
from the Collateral pursuant to Section 6.7.
(h) Every provision of this Indenture relating to the conduct of,
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall not be at
the expense of the Indenture Trustee. The Indenture Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on an
Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney or custodian appointed by the Indenture Trustee with due care.
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(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or gross negligence on the part of the
Custodian.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in this Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to the Note Insurer and each Owner notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of Owners.
SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture
Trustee shall deliver to each Owner such information as may be required to
enable such Owner to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall
receive compensation for fees and reimbursement for expenses pursuant to Section
3.5(b)(iv)(D) of the Sale and Servicing Agreement. The Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee shall be
indemnified by the Trust and held harmless against any loss, liability, or
"unanticipated out-of-pocket" expense incurred or paid to third parties (which
expenses shall not include salaries paid to employees, or allocable overhead, of
the Indenture Trustee) in connection with the acceptance or administration of
its trusts hereunder or the Notes, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. All such amounts described in the preceding
sentence shall be payable as provided in Section 3.5(b)(iv)(D) of the Sale and
Servicing Agreement, subject to Section 6.1(g) of this Indenture. The provisions
of this Section 6.7 shall survive the termination of this Indenture.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Indenture Trustee may resign at
any time by so notifying the Issuer and the Note Insurer. The Owners of a
majority of the Outstanding Amount of the Notes (with the consent of the Note
Insurer) may remove the Indenture Trustee by so notifying the Indenture Trustee
and may appoint a successor Indenture Trustee. The Note Insurer (or the Issuer
upon the prior written consent of the Note Insurer) shall remove the Indenture
Trustee if:
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(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed, or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the Note
Insurer. A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Note Insurer and to the
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the Owners.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Owner
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Note
Insurer and the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
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SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the Note
Insurer, and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Owners, such title to the
Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 and no notice to Owners of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof;
provided that the Indenture Trustee shall deliver notice of any such co-trustee
or separate trustee to the Servicer and the Note Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or
imposed upon and exercised or performed by the Indenture
Trustee and such separate trustee or co-trustee jointly (it
being understood that such separate trustee or co-trustee is
not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding
of title to the Collateral or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of
the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and
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trusts shall vest in and be exercised by the Indenture Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
OWNERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Owners. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Owners as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Owners.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Owners contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Owners received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Owners may communicate pursuant to TIA Section 312(b) with other
Owners with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer. The Issuer shall:
(a) file with the Indenture Trustee and the Note Insurer, within 15
days after the Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(b) file with the Indenture Trustee and the Note Insurer and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission such additional information,
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documents and reports with respect to compliance by the Issuer with the
conditions and covenants of this Indenture as may be required from time to time
by such rules and regulations; and
(c) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Owners described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and
regulations prescribed from time to time by the Commission.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each _______________ __, beginning with
_______________ __, 199_, the Indenture Trustee shall mail to the Note Insurer
and to each Owner as required by TIA Section 313(c) a brief report dated as of
such date that complies with TIA Section 313(a). The Indenture Trustee also
shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Owners shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money.
(a) General. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may, and upon written request of the Note
Insurer shall, take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
(b) Claims Under Note Insurance Policy. The Notes will be insured by
the Note Insurance Policy pursuant to the terms set forth therein,
notwithstanding any provisions to the contrary contained in this Indenture or
the Sale and Servicing Agreement. All amounts received under the Note Insurance
Policy shall be used solely for the payment to Owners of Insured Payments.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Owners and the Note Insurer, the Accounts as provided in the Sale
and Servicing Agreement. The Indenture Trustee shall deposit amounts into the
Accounts in accordance with the terms hereof and the Sale and Servicing
Agreement.
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(b) On or before the Remittance Date prior to each Payment Date, the
Indenture Trustee shall withdraw from the Principal and Interest Account the
amounts specified in Section 3.3(a) of the Sale and Servicing Agreement and will
deposit such amount into the Note Account. No later than the Business Day prior
to each Payment Date, to the extent funds are available in the Note Account, the
Indenture Trustee shall either retain funds in the Note Account or make the
withdrawals from the Note Account and deposits into the other Accounts for
distribution on such Payment Date as required pursuant to Section 3.3(b) of the
Sale and Servicing Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds
are available in the Note Account, the Indenture Trustee shall make the
following distributions from the amounts on deposit in the Note Account in the
following order of priority (except as otherwise provided in Section 5.4(b)):
(i) to the Owners of the Notes, the Current Interest for
such Payment Date; provided, that if there are not
sufficient funds in the Note Account to pay the
entire amount of accrued and unpaid interest then due
on the Notes, the amount in the Note Account shall be
applied to the payment of such interest on the Notes
pro rata on the basis of the total such interest due
on the Notes; and
(ii) to the Owners of the Notes, the Principal
Distribution Amount for such Payment Date.
(d) The Indenture Trustee shall make claims under the Note Insurance
Policy pursuant to Section 3.3 of the Sale and Servicing Agreement and in
accordance with the Note Insurance Policy. The Indenture Trustee shall deposit
any Insured Payment received from the Note Insurer in the Note Account. All
amounts received under the Note Insurance Policy shall be used solely for the
payment to Owners of principal and interest on the Notes.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Accounts shall be invested
in Eligible Investments and reinvested by the Indenture Trustee at the direction
of the Seller in accordance with the provisions of Section 3.6 of the Sale and
Servicing Agreement. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the
Accounts unless the security interest Granted and perfected in such Account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Seller shall have failed to give investment directions
for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and
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payable pursuant to Section 5.2 or (iii) if such Notes shall been declared due
and payable following an Event of Default, amounts collected or receivable from
the Collateral are being applied in accordance with Section 5.5 as if there had
not been such a declaration, then the Indenture Trustee shall, to the fullest
extent practicable, invest and reinvest funds in the Accounts in one or more
Eligible Investments.
SECTION 8.4 Servicer's Monthly Statements. On each Payment Date (to the
extent it receives the supporting documentation from the Servicer on a timely
basis), the Indenture Trustee shall deliver the report required by Section 3.8
of the Sale and Servicing Agreement with respect to such Payment Date to the
Seller, the Servicer, the Rating Agencies, and the Note Insurer.
SECTION 8.5 Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to
Section 6.7, the Indenture Trustee may, and when required by the provisions of
this Indenture and the Sale and Servicing Agreement shall, execute instruments
to release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the
Owner Trustee have been paid, release any remaining portion of the Collateral
that secured the Notes from the lien of this Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the Accounts.
The Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Subsection (b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note
Insurer shall receive at least seven Business Days notice when requested by the
Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of
any instruments involved, and the Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Owners in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Owners.
(a) Without the consent of the Owners of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the Note
Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to
the Issuer, and the assumption by any such successor
of the covenants of the Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Owners of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
that may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to matters or
questions arising under this Indenture or in any
supplemental indenture; provided, that such action
shall not adversely affect the interests of the
Owners of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of the Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to the Indenture such other
provisions as may be expressly required by the TIA;
or
(viii) to modify or alter the provisions of the definition
of the term "Outstanding".
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The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Note Insurer, when authorized by an Issuer Order, may, upon
satisfaction of the Rating Agency Condition but without the consent of any of
the Owners , enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Owners of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Owner.
SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
the prior consent of the Note Insurer and with the consent of the Owners of not
less than a majority of the Outstanding Amount of the Notes, by Act of such
Owners delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Owners of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Owner of each Note affected thereby
and the Note Insurer if affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or, the Note Rate,
change the provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Collateral to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as provided in
Article V, to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Owners of which is required for any such supplemental indenture,
or the consent of the Owners of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Collateral pursuant to Section 5.4;
(d) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Operative Documents cannot be modified or waived without
the consent of the Owner of each Note affected thereby;
(e) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the Owners
of Notes to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
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(f) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Owner of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Owners of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Owners pursuant to
this Section, the Indenture Trustee shall mail to the Owners of the Notes to
which such amendment or supplemental indenture relates a notice setting forth in
general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Owners under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be deemed to be modified and amended in accordance therewith with respect to the
Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Notes.
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SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of
the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to
any proposed amendment to the Trust Agreement or an amendment to or waiver of
any provision of any other document relating to the Trust Agreement, such
consent to be given without the necessity of obtaining the consent of the Owners
of any Notes upon satisfaction of the requirements under Section 11.1 of the
Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption. The Servicer may effect an early redemption of
the Notes on or after any Remittance Date after the Redemption Date pursuant to
Section 5.2 of the Sale and Servicing Agreement. If the Servicer declines to
exercise such option to purchase the Collateral and redeem the Notes, the Note
Insurer may do so as provided in Section 5.2(c) of the Sale and Servicing
Agreement.
Any such redemption by the Servicer or the Note Insurer, as applicable,
shall be accomplished by the Servicer or the Note Insurer, as applicable,
depositing or causing to be deposited into the Principal and Interest Account by
10:00 A.M. New York City time on the on the Remittance Date prior to the
Redemption Date the amount of the Redemption Price. On the Payment Date after
the date that the Redemption Price is deposited into the Principal and Interest
Account, the Redemption Price shall be transferred to the Note Account for
distribution to the Owners on the Redemption Date; and any amounts received with
respect to the Mortgage Loans and REO Properties subsequent to such transfer
shall belong to the Servicer or the Note Insurer, as applicable.
The Servicer or the Issuer shall furnish the Indenture Trustee, the
Rating Agencies and the Note Insurer notice of any such redemption in accordance
with Section 10.2 no later than 15 days prior to the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
(a) Notice of redemption under Section 10.1 shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Owner of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Owner's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
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(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give notice of redemption, or any defect therein, to any Owner of any Note shall
not impair or affect the validity of the redemption of any other Note
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee and Note Insurer. The Notes or portions thereof to be redeemed
shall, following notice of redemption as required by Section 10.2 (in the case
of redemption pursuant to Section 10.1), on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price. The Issuer may not redeem the
Notes unless, (i) all outstanding obligations under the Notes have been paid in
full and (ii) the Indenture Trustee has been paid all amounts to which it is
entitled hereunder and the Note Insurer has been paid all Reimbursement Amounts
to which it is entitled as of the applicable Redemption Date.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(3) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so
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certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Seller or the Issuer, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agents duly appointed in
writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered in writing to
the Indenture Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Owners
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
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(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Notes shall bind the Owner of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Note Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Owners or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Owners is to be made
upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Owner or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) in the case of the Issuer, Rating Agencies or Note Insurer as
provided in Section 6.16 of the Sale and Servicing Agreement.
SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides
for notice to Owners of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Owner affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Owners is given by mail, neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Owner shall
affect the sufficiency of such notice with respect to other Owners, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Indenture Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 [RESERVED].
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
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The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.10 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Owners, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture, except that the Note Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.20.
SECTION 11.12 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Owners or any other Person secured
hereunder or for the enforcement of any right or remedy granted to the Indenture
Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in
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the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director,
employee or agent of the Indenture Trustee or the Owner Trustee in its
individual capacity, any Owner of a beneficial interest in the Issuer, the Owner
Trustee or the Indenture Trustee or of any successor or assign of the Indenture
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Indenture Trustee
and the Owner Trustee have no such obligations in their individual capacity) and
except that any such partner, owner or beneficiary shall be fully liable, to the
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity. For all purposes of this Indenture, in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Owner, by accepting a Note, hereby covenant and agree that
they will not at any time institute against the Seller, the Servicer or the
Issuer, or join in any institution against the Seller, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Operative Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the Note
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.19 Grant of Owner Rights to Note Insurer. In consideration
for the guarantee of the Notes by the Note Insurer pursuant to the Note
Insurance Policy, the Owners hereby grant to the Note Insurer the right to act
as the Owner of 100% of the outstanding Notes for the purpose of exercising the
rights of the Owners of the Notes hereunder, including the voting rights of such
Owners, but excluding those rights requiring the consent of all such Owners
under Section 9.2 and any rights of such Owners to distributions under Section
8.2 hereof; provided that the preceding grant of rights to the Note Insurer by
the Owners shall be subject to Section 11.21 hereof. The rights of the Note
Insurer to direct certain actions and consent to certain actions of the Owners
hereunder will terminate at such time as the Principal Balance has been reduced
to zero and the Note Insurer has been reimbursed for all Insured Payments and
any other amounts owed under the Note Insurance Policy and the Insurance
Agreement and the Note Insurer has no further obligation under the Note
Insurance Policy.
SECTION 11.20 Third Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were actually a party
hereto.
47
<PAGE>
SECTION 11.21 Suspension and Termination of Note Insurer's Rights.
(a) During the continuation of a Note Insurer Default, rights granted
or reserved to the Note Insurer hereunder shall vest instead in the Owners;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 9.2 hereof to consent to any supplement to this
Indenture.
(b) At such time as either (i) the Note Principal Balance has been
reduced to zero or (ii) the Note Insurance Policy has been terminated following
a Note Insurer Default, and in either case of (i) or (ii) the Note Insurer has
been reimbursed for all Insured Payments and any other amounts owed under the
Note Insurance Policy and the Insurance Agreement (and the Note Insurer no
longer has any obligation under the Note Insurance Policy, except for breach
thereof by the Note Insurer), then the rights and benefits granted or reserved
to the Note Insurer hereunder (including the rights to direct certain actions
and receive certain notices) shall terminate and the Owners shall be entitled to
the exercise of such rights and to receive such benefits of the Note Insurer
following such termination to the extent that such rights and benefits are
applicable to the Owners.
48
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
By:_______________________________________________________
not in its individual capacity but solely as Owner Trustee
By:__________________________________________
Name:________________________________________
Title:_______________________________________
_____________________________________________
as Indenture Trustee
By:__________________________________________
Name:________________________________________
Title:_______________________________________
49
<PAGE>
STATE OF )
) ss
COUNTY OF )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared
______________________________, known to me to be the person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the
same was the act of the said ______________________________, not in its
individual capacity, but solely as Owner Trustee on behalf of FIRST ALLIANCE
MORTGAGE LOAN OWNER TRUST 199_-_, a Delaware business trust, and that such
person executed the same as the act of said business trust for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___________________day of
______________, 199_.
______________________________________
Notary Public
in and for the State of_______________
(Seal)
My commission expires:________________
50
<PAGE>
STATE OF )
) ss
COUNTY OF )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared , known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of
________________________________, a ______________________________ corporation
and that such person executed the same as the act of said corporation for the
purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___________________day of
____________, 199_.
____________________________________________
Notary Public
in and for the State of_____________________
(Seal)
My commission expires:______________________
51
<PAGE>
SCHEDULE A
Available Upon Request to the Indenture Trustee
<PAGE>
EXHIBIT A
Form of Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
Date of Indenture: As of ________, 199_ Original Note Principal Balance: $____
First Payment Date: _____________, 199_ CUSIP No.________________
Denomination: $______________________ Note No: ___________
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
[FIXED] RATE MORTGAGE LOAN ASSET-BACKED NOTES, SERIES 199_-_
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_, a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of _____________ ($___________) payable
on each Payment Date in an amount equal to the result obtained by multiplying
(i) a fraction the numerator of which is $____________ and the denominator of
which is $________________ by (ii) the aggregate amount, if any, payable under
this Note pursuant to the Indenture dated as of ___________ __, 199_, between
the Issuer and ____________________________________, a ________________
corporation as Indenture Trustee (the "Indenture Trustee"); provided, however,
that the entire unpaid principal amount of this Note shall be due and payable on
the earlier of (i) the Payment Date occurring in __________ 20__ (the "Final
Payment Date"), (ii) the Redemption Date, if any, pursuant to Article X of the
Indenture or (iii) the date on which an Event of Default shall have occurred and
be continuing, if the Indenture
A-1
<PAGE>
Trustee or the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes (with the prior written consent of the Note
Insurer in the absence of a failure of the Note Insurer to have paid any Insured
Payment) have declared the Notes to be immediately due and payable in the manner
provided in Section 5.2 of the Indenture. Capitalized terms used but not defined
herein are defined in Article I of the Indenture.
Pursuant to the terms of the Indenture, payments will be made on the
20th day of each month or, if such day is not a Business Day, on the Business
Day immediately following such 20th day (the "Payment Date"), commencing on the
first Payment Date specified above, to the Person in whose name this Note is
registered at the close of business on the applicable Record Date, in an amount
equal to the product of (a) the Percentage Interest evidenced by this Note and
(b) the sum of the Current Interest, Principal Distribution Amount and any
Insured Payment with respect to such Payment Date, all as more specifically set
forth in the Indenture and the Sale and Servicing Agreement.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
[Signatures follow]
A-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: _____________________
FIRST ALLIANCE MORTGAGE LOAN OWNER
TRUST 199_-_
By: ____________________________________________
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By: ____________________________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: ______________________________
______________________________________,
as Indenture Trustee
By: ______________________________
Authorized Signatory
A-3
<PAGE>
[Reverse of Note]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its [Adjustable] [Fixed] Rate Mortgage Loan Asset-Backed Notes,
Series 199_-_ (herein called the "Notes"), issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Owners of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the
Indenture, the provisions of the Indenture shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Payment Date and the
Redemption Date, if any, pursuant to Article X of the Indenture. Notwithstanding
the foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee, at the direction or upon the prior written
consent of ______________________________________ (the "Note Insurer") or the
Owners of the Notes representing not less than a majority of the Outstanding
Amount of the Notes (with the prior written consent of the Note Insurer in the
absence of a failure of the Note Insurer to have paid any Insured Payment) have
declared the Notes to be immediately due and payable in the manner provided in
Section 5.2 of the Indenture. All principal payments on the Notes shall be made
pro rata to the Owners entitled thereto on the basis of their Note Principal
Balance.
The Note Insurer, has issued a Note Insurance Policy in the name of the
Indenture Trustee for the benefit of the Owners. Unless a Note Insurer Default
shall be continuing, subject to Section 11.19 of the Indenture, the Note Insurer
shall be deemed to be the Owner of 100% of the Note Principal Balance of the
Outstanding Notes for the purpose of exercising the rights, including voting
rights, of the Owners under the Indenture. In addition, on each Payment Date,
after the Owners have been paid all amounts to which they are entitled, the Note
Insurer will be entitled to be reimbursed for any unreimbursed Insured Payments
and any other amounts owed under the Note Insurance Policy.
Payments of interest on this Note are due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Owner of the Note (or one or more Predecessor Notes) on the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing
A-4
<PAGE>
Agency (initially, such nominee to be Cede & Co.), payments will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Such checks shall be mailed to the Person entitled thereto at the
address of such Person as it appears on the Note Register as of the applicable
Record Date without requiring that this Note be submitted for notation of
payment. Any reduction in the principal amount of this Note (or any one or more
Predecessor Notes) effected by any payments made on any Payment Date shall be
binding upon all future Owners of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Note on a Payment Date, then the Indenture Trustee, in the name of and on
behalf of the Issuer, will notify the Person who was the Owner hereof as of the
Record Date preceding such Payment Date by notice mailed or transmitted by
facsimile prior to such Payment Date, and the amount then due and payable shall
be payable only upon presentation and surrender of this Note at the Indenture
Trustee's principal Corporate Trust Office or at the office of the Indenture
Trustee's agent appointed for such purposes located in The City of New York.
As provided in the Indenture, the Notes may be redeemed (a) in whole,
but not in part, at the option of the Servicer, on any Payment Date on and after
the Remittance Date after the Redemption Date pursuant to Article X of the
Indenture and Section 5.2 of the Sale and Servicing Agreement. If the Servicer
declines to exercise such option, the Note Insurer may do so as provided in
Section 5.2 of the Sale and Servicing Agreement.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Owner hereof or such Owner's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one more new Notes of authorized denominations and in the
same aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such registration of transfer or exchange.
Each Owner, by acceptance of a Note or, in the case of a Book-Entry
Owner, a beneficial interest in a Note, covenants and agrees that no recourse
may be taken, directly or indirectly, with respect to the obligations of the
Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee on
the Notes or under the Indenture or any certificate or other writing delivered
in connection therewith, against (i) the Indenture Trustee or the Owner Trustee
in its individual
A-5
<PAGE>
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director or employee of the
Indenture Trustee or the Owner Trustee in its individual capacity, any holder of
a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee
or of any successor or assign of the Indenture Trustee or the Owner Trustee in
its individual capacity, except as any such person may have expressly agreed and
except that any such partner, owner or beneficiary shall be fully liable, to the
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity.
Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case
of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Owner or Book-Entry Owner will
not at any time institute against the Seller, the Servicer, or the Issuer, or
join in any institution against the Seller, the Servicer, or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or similar law in connection
with any obligations relating to the Notes, the Indenture or any of the
Operative Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Owner, by acceptance of a Note (and each
Book-Entry Owner by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Owners of the Notes under the Indenture at any time
by the Issuer with the consent of the Note Insurer and the Owner of Notes
representing a majority of the Outstanding Amount of Notes. The Indenture also
contains provisions permitting the Owners of Notes representing the majority of
the Outstanding Amount of the Notes on behalf of the Owners of all the Notes to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Owner of this Note (or any one or more Predecessor
Notes) shall be conclusive and binding upon such Owners and upon all future
Owners of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
amendment thereof, in certain limited circumstances, or the waiver of certain
terms and conditions set forth in the Indenture, without the consent of Owners
of the Notes issued thereunder.
A-6
<PAGE>
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Operative Documents, none of the Issuer in its individual
capacity, the Owner Trustee in its individual capacity, any owner of a
beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on this Note or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Owner of this Note by its acceptance hereof
agrees that, except as expressly provided in the Operative Documents, in the
case of an Event of Default under the Indenture, the Owner shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
provided, however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
A-7
<PAGE>
ASSIGNMENT
Social Security or Taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
- -------------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: __________________*/
Signature Guaranteed:
________________________*/
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by Note Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended.
A-8
Exhibit 5.1
January 21, 1998
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Re: First Alliance Mortgage Company
Mortgage Loan Asset Backed Certificates
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First Alliance Mortgage Company (the
"Company") in connection with the preparation and filing of the registration
statement on Form S-3 (such registration statement, the "Registration
Statement") being filed today with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of
Mortgage Loan Asset Backed Certificates (the "Certificates") which you plan to
offer in series, each series to be issued under a separate pooling and servicing
agreement (a "Pooling and Servicing Agreement"), in substantially the form set
forth as an exhibit to the Registration Statement, among the Company in its
capacity as the "Seller" and the "Servicer", and a trustee (the "Trustee") to be
identified in the prospectus supplement for such series of Certificates.
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Company and such other instruments and other certificates of public
officials, officers and representatives of the Company and such other persons,
and we have made such investigations of law, as we deemed appropriate as a basis
for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
<PAGE>
This opinion is limited to matters involving the Federal laws of the
United States of America and the laws of the State of California. All opinions
expressed herein are based on laws, regulations and policy guidelines currently
in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Certificates, a Pooling and
Servicing Agreement has been duly authorized by all necessary action and duly
executed and delivered by the Company and the Trustee for such series, such
Pooling and Servicing Agreement, will be a valid and legally binding obligation
of the Company; and
2. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the Company and the Trustee for such series, 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 in the Registration Statement and the prospectus, as amended or
supplemented, delivered pursuant to Section 5 of the Act in connection
therewith, such Certificates will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters".
This opinion is furnished by us as counsel to the company and is solely
for the benefit of the addressee thereof. It may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
/S/ Arter & Hadden LLP
-----------------------
Arter & Hadden LLP
Exhibit 5.2
January 21, 1998
First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Re: First Alliance Mortgage Company
Mortgage Loan Asset Backed Notes
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First Alliance Mortgage Company (the
"Company") in connection with the preparation and filing of the registration
statement on Form S-3 (such registration statement, the "Registration
Statement") being filed today with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of
Mortgage Loan Asset Backed Notes (the "Notes") which you plan to offer in
series, each series to be issued under a separate indenture (an "Indenture"), in
substantially the form set forth as an exhibit to the Registration Statement,
among a business trust formed by the Company (the "Issuer") pursuant to an trust
agreement substantially in the form set forth as an exhibit to the Registration
Statement, and a trustee (the "Indenture Trustee") to be identified in the
prospectus supplement for such series of Notes.
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Company and such other instruments and other certificates of public
officials, officers and representatives of the Company and such other persons,
and we have made such investigations of law, as we deemed appropriate as a basis
for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
This opinion is limited to matters involving the Federal laws of the
United States of America and the laws of the State of California. All opinions
expressed herein are based on laws, regulations and policy guidelines currently
in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
<PAGE>
1. When, in respect of a series of Notes, an Indenture has been duly
authorized by all necessary action and duly executed and delivered by the Issuer
and the Indenture Trustee for such series, such Indenture, will be a valid and
legally binding obligation of the Issuer; and
2. When an Indenture for a series of Notes has been duly authorized by
all necessary action and duly executed and delivered by the Issuer and the
Indenture Trustee for such series, and when the Notes of such series have been
duly executed and authenticated in accordance with the provisions of the
Indenture and issued and sold as contemplated in the Registration Statement and
the prospectus, as amended or supplemented, delivered pursuant to Section 5 of
the Act in connection therewith, such Notes will be valid and binding
non-recourse obligations of such Issuer, enforceable against such Issuer, in
accordance with their terms.
We hereby consent to the filing of this opinion as Exhibit 5.2 to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters".
This opinion is furnished by us as counsel to the company and is solely
for the benefit of the addressee thereof. It may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
/S/ Arter & Hadden LLP
-------------------------
Arter & Hadden LLP
Exhibit 8.1
January 21, 1998
Re: First Alliance Mortgage Company
Mortgage Loan Asset-Backed Securities
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First Alliance Mortgage Company in
connection with the preparation and filing of the registration statement on Form
S-3 (such registration statement, the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), in respect of Mortgage Loan Asset Backed
Certificates (the "Certificates") and Notes (the "Notes") which you plan to
offer in series. Our opinions formed the basis for the description of federal
income tax consequences appearing under the heading "Certain Federal Income Tax
Consequences" of the applicable prospectus supplement contained in the
Registration Statement. Assuming issuance of Certificates of a series and
assuming the federal income tax characterization of those Certificates as REMIC
interests, standard interests, stripped interests or partnership interests at
that time, we confirm that the description under "Certain Federal Income Tax
Consequences" in the prospectus of the federal income tax consequences with
respect to a series of Certificates presents our opinion of the material tax
issues relating to an investment in those Certificates. Assuming issuance of
Notes as indebtedness at that time, we confirm that the description under
"Certain Federal Income Tax Consequences" in the prospectus of the federal
income tax consequences with respect to a series of Notes presents our opinion
of the material tax issues relating to an investment in those Notes.
We hereby consent to the filing of this letter as Exhibit 8.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and related prospectus supplement under the heading "Certain Federal
Income Tax Consequences."
Very truly yours,
/S/ Arter & Hadden LLP
--------------------------
Arter & Hadden LLP
Exhibit 10.1
SALE AND SERVICING AGREEMENT
Dated as of _____________, 199_
Among
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
and
------------------------,
as Indenture Trustee
Dated as of ___________, 199_
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
MORTGAGE LOAN ASSET BACKED NOTES, SERIES 199_-_
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION...................................1
1.1. Definitions.................................................1
1.2. Use of Words and Phrases...................................16
1.3. Captions; Table of Contents................................16
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLER AND THE SERVICER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS.........................17
2.1. Representations and Warranties of the Seller...............17
2.2. Representations and Warranties of the Servicer.............19
2.3. Representations and Warranties of the Seller with
Respect to the Mortgage Loans..............................21
2.4. Covenants of the Seller to Take Certain Actions
with Respect to the Mortgage Loans In Certain Situations...23
2.5. Conveyance of the Mortgage Loans...........................24
2.6. Acceptance by Indenture Trustee; Certain Substitutions
of Mortgage Loans; Certification by Indenture Trustee......28
2.7. Cooperation Procedures.....................................29
2.8. Books and Records..........................................29
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES................................29
3.1. Reserved...................................................29
3.2. Establishment of Accounts..................................29
3.3. The Note Insurance Policy..................................29
3.4. Reserved...................................................30
3.5. Flow of Funds..............................................30
3.6. Investment of Accounts.....................................32
3.7. Eligible Investments.......................................33
3.8. Reports by Indenture Trustee...............................34
3.9. Additional Reports by Indenture Trustee....................36
ARTICLE IV
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS......................36
4.1. Servicer and Sub-Servicers.................................36
4.2. Collection of Certain Mortgage Loan Payments...............37
4.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers..............................................37
4.4. Successor Sub-Servicers....................................38
4.5. Liability of Servicer......................................38
4.6. No Contractual Relationship Between Sub-Servicer
and Indenture Trustee or the Owners........................38
4.7. Assumption or Termination of Sub-Servicing Agreement
by Indenture Trustee.......................................38
4.8. Principal and Interest Account.............................38
4.9. Delinquency Advances, Compensating Interest and
Servicing Advances.........................................40
4.10. Purchase of Mortgage Loans.................................40
4.11. Maintenance of Insurance...................................41
4.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements.................................................41
4.13. Realization Upon Defaulted Mortgage Loans..................42
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4.14. Indenture Trustee to Cooperate; Release of Files...........43
4.15. Servicing Compensation.....................................44
4.16. Annual Statement as to Compliance..........................44
4.17. Annual Independent Certified Public Accountants'
Reports....................................................44
4.18. Access to Certain Documentation and Information
Regarding the Mortgage Loans...............................44
4.19. Assignment of Agreement....................................45
4.20. Events of Servicing Termination............................45
4.21. Resignation of Servicer and Appointment of Successor.......47
4.22. Waiver of Past Events of Servicing Termination.............50
4.23. Inspections by Note Insurer; Errors and Omissions
Insurance..................................................50
4.24. Merger, Conversion, Consolidation or Succession to
Business of Servicer.......................................50
4.25. Notices of Material Events.................................50
4.26. Monthly Servicing Report and Servicing Certificate.........51
4.27. Indemnification by the Seller..............................53
4.28. Indemnification by the Servicer............................53
ARTICLE V
TERMINATION.........................................................53
5.1. Termination................................................53
5.2. Termination Upon Option of Servicer........................54
5.3. Disposition of Proceeds....................................54
5.4. Netting of Amounts.........................................54
ARTICLE VI
MISCELLANEOUS.......................................................54
6.1 Acts of Owners.............................................54
6.2 Recordation of Agreement. ................................54
6.3 Duration of Agreement. ...................................55
6.4 Successors and Assigns.....................................55
6.5 Severability. ............................................55
6.6. Benefits of Agreement......................................55
6.7. Legal Holidays.............................................55
6.8. Governing Law..............................................55
6.9. Counterparts...............................................55
6.10. Amendment..................................................55
6.11. Specification of Certain Tax Matters. ....................56
6.12. The Note Insurer...........................................56
6.13. Third Party Rights.........................................56
6.14. Usury......................................................56
6.15. No Petition................................................57
6.16. Notices....................................................57
EXHIBIT A -- Mortgage Loan Schedule
EXHIBIT B -- Form of Certificate Re: Mortgage Loans Prepaid
in full After the Cut-Off Date
EXHIBIT C -- Form of Initial Certification
EXHIBIT D -- Form of Final Certification
EXHIBIT E -- Form of Monthly Report
EXHIBIT F -- Form of Request for Release
ii
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of _________ _, 199_,
by and among FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_, a Delaware
business trust (the "Issuer" or the "Trust"), FIRST ALLIANCE MORTGAGE COMPANY, a
California corporation in its capacity as the Seller and the Servicer
(respectively, the "Seller" and the "Servicer"), and ________________________, a
________ banking corporation, in its capacity as Indenture Trustee (the
"Indenture Trustee").
WHEREAS, the Issuer desires to purchase a pool of Mortgage
Loans which were originated or purchased by the Seller in the ordinary course of
its business;
WHEREAS, the Servicer has agreed to service the Mortgage
Loans, in accordance with the terms of this Agreement;
WHEREAS, all things necessary to make this Agreement a valid
agreement, in accordance with their and its terms, have been done;
WHEREAS, ________________________ is willing to serve in the
capacity of Indenture Trustee hereunder; and
WHEREAS, __________________________ (the "Note Insurer") is
intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Seller, the Servicer and the Indenture
Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. Definitions. For all purposes of this Agreement,
the following terms shall have the meanings set forth below, unless the context
clearly indicates otherwise:
"Account": Any account established in accordance with Section
3.2, 3.10(a) or 4.8 hereof.
"Agreement": This Sale and Servicing Agreement, as it may be
amended from time to time, and including the Exhibits hereto.
"Amortized Subordinated Amount Requirement": As of any date of
determination, the product of (x) ____% and (y) the Original Aggregate Loan
Balance.
"Appraised Value": The appraised value of any Property based
upon the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value.
"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Seller and
the Servicer, initially including those individuals whose names appear on the
lists
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of Authorized Officers delivered on the Closing Date, and with respect to the
Indenture Trustee, any Vice President, Assistant Vice President, Assistant
Treasurer or Assistant Secretary of the Indenture Trustee.
"Available Funds": As defined in Section 3.3(a) hereof.
"Available Funds Cap": As of any Payment Date, the weighted
average of the Coupon Rates on the Mortgage Loans less the sum of (a) the rates
of which (i) the Servicing Fee, (ii) the Indenture Trustee Fee, (iii) beginning
on the [third] Payment Date, the Premium Amount are determined and (b) beginning
on the [seventh] Payment Date, _______% per annum expressed as a percentage of
the Mortgage Loans.
"Available Funds Cap Carry-Forward Amortization Amount": As of
any Payment Date, any amount distributed from the Available Funds Cap
Carry-Forward Amount Account on such Payment Date pursuant to Section 3.5(c)
hereof.
"Available Funds Cap Carry-Forward Amount": As of any Payment
Date, the excess, if any, of (x) the sum of (i) the excess, if any, equal to (a)
the aggregate amount of interest due on the Notes on all prior Payment Dates,
calculated at the Formula Rate applicable to each such Payment Date over (b) the
aggregate amount of interest due on the Notes on all prior Payment Dates,
calculated at the Note Rate applicable to each such Payment Date, (ii) the
amount, if any, described in clause (iii) hereof as of the immediately preceding
Payment Date and (iii) the product of (a) one-twelfth of the Formula Rate on
such Payment Date and (b) the sum of the amounts described in clauses (i) and
(ii) preceding over (y) all Available Funds Cap Carry-Forward Amortization
Amounts actually funded on all prior Payment Dates.
"Available Funds Cap Carry-Forward Amount Account": The
Available Funds Cap Carry- Forward Amount Account established in accordance with
Section 3.2 hereof and maintained by the Indenture Trustee. "Available Funds
Shortfall": As defined in Section 3.5(b)(ii)(A).
"Balloon Loan": Any Mortgage Loan which has an amortization
schedule which extends beyond its maturity date, resulting in an unamortized
principal balance due in a single payment at maturity.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the States of New York and
California or in the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to be closed.
"Carry-Forward Amount": With respect to any Payment Date, the
sum of (i) the amount, if any, by which (x) the Monthly Distribution Amount as
of the immediately preceding Payment Date exceeded (y) the amount of the actual
distribution made to the Owners of the Notes on such immediately preceding
Payment Date and (ii) 30 days' interest on the interest portion of such amount
at the Note Pass- Through Rate.
"Certificate": Any one of the Certificates issued pursuant to
the Trust Agreement.
"Certificate Distribution Account": The Certificate
Distribution Account established in accordance with the Trust Agreement.
"Closing Date": _________________ ____, 199__.
"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
2
<PAGE>
"Combined Loan-to-Value Ratio": With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Mortgage Note divided by the Appraised Value of the related Property and
with respect to any Second Mortgage Loan the percentage equal to (a) the sum of
(i) the remaining principal balance, as of origination of the Second Mortgage
Loan of the Senior Lien Mortgage Note(s) relating to such Second Mortgage Loan
and (ii) the Original Principal Amount of the Mortgage Note relating to such
Second Mortgage Loan divided by (b) the Appraised Value of the related Property.
"Compensating Interest": As defined in Section 4.9(b) hereof.
"Corporate Trust Office": The principal office of the
Indenture Trustee at _______________________________________________, attention:
First Alliance Mortgage Loan Owner Trust 199_-_ or any other office of the
Indenture Trustee designated as such hereunder.
"Coupon Rate": The rate of interest borne by each Mortgage
Note.
"Current Interest": With respect to interest accruing after
the Cut-Off Date and as of any Payment Date, the aggregate amount of interest
accrued on the Note Principal Balance immediately prior to such Payment Date
during the related Interest Accrual Period at the Note Rate.
"Curtailment": With respect to a Mortgage Loan, any payment of
principal received during a Remittance Period as part of a payment that is in
excess of the amount of the monthly payment due for such Remittance Period and
which is not a Paid-in-Full Mortgage Loan, nor is intended to cure a
delinquency.
["Custodial Agreement": The Custodial Agreement dated as of
__________ _, 199_ among the Custodian, the Indenture Trustee, the Seller and
the Servicer.]
["Custodian" ________________, a ________________
corporation.]
"Cut-Off Date": _________ _, 199_.
"Delinquency Advance": As defined in Section 4.9(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days Delinquent" if such payment has
not been received by the close of business on the second day of the month
immediately succeeding the month in which such payment was due. Similarly for
"60 days Delinquent," "90 days Delinquent" and so on.
"Depository": The Depository Trust Company, 7 Hanover Square,
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to the
Principal and Interest Account or the Note Account, an institution whose
deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, the long-term deposits of which shall be rated (x) A
or better by Standard & Poor's and (y) A2 or better by Moody's and in one of the
highest short-term rating categories, unless otherwise approved in writing by
the Note Insurer and each of Moody's and Standard & Poor's, and which is any of
the following: (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Note Insurer, Moody's and Standard & Poor's
3
<PAGE>
and, in each case acting or designated by the Servicer as the depository
institution for the Principal and Interest Account; provided, however, that any
such institution or association shall have combined capital, surplus and
undivided profits of at least $100,000,000. Notwithstanding the foregoing, the
Principal and Interest Account or the Note Account may be held by (a) the
Indenture Trustee or (b) an institution otherwise meeting the preceding
requirements except that the only applicable rating requirement shall be that
the unsecured and uncollateralized debt obligations thereof shall be rated Baa3
or better by Moody's if such institution has trust powers and the Principal and
Interest Account is held by such institution in its trust capacity and not in
its commercial capacity.
"Determination Date": The 12th day of each month, or if such
day is not a Business Day, the next succeeding Business Day.
"Due Date": The first day of the month of the related Payment
Date.
"Due Period": With respect to any Payment Date, the period
commencing on the second day of the month preceding the month of such Payment
Date (or, with respect to the first Due Period, the day following the Cut-Off
Date) and ending on the related Due Date.
"Eligible Investments": Those investments so designated
pursuant to Section 3.7 hereof.
"Event of Default": Any event described in clauses (a) or (b)
of Section 4.20 hereof.
"Event of Servicing Termination": Any event as described in
Section 4.20 hereof.
"Excess Subordinated Amount": With respect to any Payment
Date, the excess, if any, of (x) the Subordinated Amount that would apply on
such Payment Date after taking into account the payment of the Monthly
Distribution Amount on such Payment Date (except for any distributions of
Subordination Reduction Amount on such Payment Date) over (y) the related
Specified Subordinated Amount for such Payment Date.
"Fannie Mae": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Custodian on behalf of
the Indenture Trustee pursuant to Section 2.5 hereof pertaining to a particular
Mortgage Loan and any additional documents required to be added to the mortgage
file pursuant to this Agreement.
"Final Certification": The final certification in the form set
forth as Exhibit D hereto and delivered by the Indenture Trustee to the Seller
within 90 days after the Closing Date pursuant to Section 2.6 hereof.
"Final Payment Date": ____________ _, 20__.
4
<PAGE>
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Property.
"Formula Rate": The rate determined by clause (x) of the
definition of "Note Rate."
"Highest Lawful Rate": As defined in Section 6.14.
"Indemnification Agreement": The Indemnification Agreement
dated as of _________ _, 199_, among the Note Insurer, the Seller and the
Underwriters.
"Indenture": The Indenture, dated ____________ __, 199_,
between the Issuer and the Indenture Trustee.
"Indenture Trustee": ____________________ located on the date
of execution of this Agreement at
_______________________________________________, not in its individual capacity
but solely as Indenture Trustee under this Agreement, and any successor
hereunder.
"Indenture Trustee Fee": The amount payable monthly to the
Indenture Trustee on each Payment Date, in an amount equal to the product of (x)
one-twelfth of ____% and (y) the Note Principal Balance as of the opening of
business on the first day of the preceding Remittance Period.
"Initial Certification": The initial certification in the form
set forth as Exhibit C hereto and delivered by the Indenture Trustee to the
Seller on the Closing Date pursuant to Section 2.6 hereof.
"Initial Premium": The initial premium (covering three months)
payable by the Seller on behalf of the Trust to the Note Insurer in
consideration of the delivery to the Indenture Trustee of the Note Insurance
Policy.
"Initial Specified Subordinated Amount": $________.
"Insurance Agreement": The Insurance Agreement dated as of
_________ _, 199_, among the Seller, the Servicer, the Indenture Trustee and the
Note Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary
mortgage insurance policy relating to a Mortgage Loan.
"Insured Payment": As defined in the Note Insurance Policy.
"Interest Accrual Period": [With respect to the Notes and any
Payment Date, the calendar month immediately preceding such Payment Date. A
"Calendar Month" shall be deemed to be 30 days. ] With respect to the Notes and
any Payment Date, the period commencing on the immediately preceding Payment
Date (or in the case of the first Payment Date, the Closing Date) and ending on
the day immediately preceding the current Payment Date. [All calculations of
interest on the Notes will be made on the basis of a 360-day year assumed to
consist of twelve 30-day months.] All calculations of interest on the Notes will
be made on the basis of the actual number of days elapsed in the related
Interest Accrual Period and in a year of 360 days.
"Interest Determination Date": With respect to any Interest
Accrual Period, the second London Business Day preceding such Interest Accrual
Period.
5
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"Interest Remittance Amount": As of any Remittance Date, the
sum, without duplication, of (i) all scheduled interest collected by the
Servicer during the related Due Period, with respect to the Mortgage Loans, (ii)
all Delinquency Advances relating to interest made by the Servicer on such
Remittance Date and (iii) all Compensating Interest paid by the Servicer on such
Remittance Date.
"Issuer or "Trust": First Alliance Mortgage Loan Owner Trust
199_-_, a Delaware business trust.
"Late Payment Rate": For any Payment Date, the rate of
interest, as it is publicly announced by Citibank, N.A. at its principal office
in New York, New York as its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by Citibank, N.A.)
plus 3%. The Late Payment Rate shall be computed on the basis of a year of 365
days calculating the actual number of days elapsed. In no event shall the Late
Payment Rate exceed the maximum rate permissible under any applicable law
limiting interest rates.
"LIBOR": With respect to any Interest Accrual Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month U.S.
dollar deposits, as such rates appear on Telerate Page 3750, as of 11:00 a.m.
(London time) on such Interest Determination Date. On each Interest
Determination Date, LIBOR for the related Interest Accrual Period will be
established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the
nearest whole multiple of 0.0625%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, LIBOR for the
related Interest Accrual Period shall be the higher of (i)
LIBOR as determined on the previous Interest Determination
Date and (ii) the Reserve Interest Rate.
"Liquidated Loan": As defined in Section 4.13(b) hereof. A
Mortgage Loan which is purchased from the Trust pursuant to Section 2.4, 4.6 or
4.10 hereof is not a "Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the
Servicer in connection with the liquidation of any defaulted Mortgage Loan, such
expenses, including, without limitation, legal fees and expenses, and any
unreimbursed Servicing Advances expended by the Servicer pursuant to Sections
4.9(c) and 4.13 with respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan,
any amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through Indenture
Trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, the
principal balance thereof on the Cut-Off Date, less any Principal Remittance
Amounts relating to such Mortgage Loan included in previous related Monthly
Remittance Amounts that were received by the Servicer or any Sub-Servicer
whether or not delivered to the Indenture Trustee, however, that the Loan
Balance for any Mortgage Loan which has become a Liquidated Loan shall be zero
as of the first day of the Remittance Period following the Remittance Period in
which such Mortgage Loan becomes a Liquidated Loan, and at all times thereafter.
6
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"Loan Purchase Price": With respect to any Mortgage Loan
purchased from the Trust on a Remittance Date pursuant to Section 2.4, 2.6 or
4.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan as of the
date of purchase, plus one month's interest on the outstanding Loan Balance
thereof as of the beginning of the preceding Remittance Period computed at the
Coupon Rate less the Servicing Fee (expressed as an annual percentage rate), if
any, together with, without duplication, the aggregate amount of (i) all
delinquent interest, all Delinquency Advances and Servicing Advances theretofore
made with respect to such Mortgage Loan and not subsequently recovered from the
related Mortgage Loan and (ii) all Delinquency Advances which the Servicer or
any Sub-Servicer has theretofore failed to remit with respect to such Mortgage
Loan.
"London Business Day": A day on which banks are open for
dealing in foreign currency and exchange in London and New York City.
"Monthly Distribution Amount": The sum of (x) the Principal
Distribution Amount payable to the Owners of the Notes pursuant to Section
3.5(b)(iv)(C) and (y) the Current Interest.
"Monthly Exception Report": The monthly report delivered by
the Servicer to the Indenture Trustee on each Determination Date, commencing
with the Determination Date in _______ 199_, pursuant to Section 4.8(d)(ii).
Each Monthly Exception Report shall cover the immediately preceding Remittance
Period and shall consist of (i) an activity report of the Mortgage Loans setting
forth the Loan Balance of Mortgage Loans as of the first day of the related
Remittance Period, scheduled payments due, Prepayments, Liquidated Loan
balances, and the resulting Loan Balance of the Mortgage Loans as of the last
day of the related Remittance Period and (ii) separate reports of (a) payoffs,
Curtailments, foreclosures and bankruptcies such reports to provide the payment
details for each Mortgage Loan covering the immediately preceding Remittance
Period and any Prepayments not previously reported from a prior Remittance
Period, and (b) Prepayments and delinquencies, such reports to reflect the
current status of each Mortgage Loan with payment details as of the last day of
the related Remittance Period.
"Monthly Remittance Amount": As of any Remittance Date, the
sum of (i) the Interest Remittance Amount for such Remittance Date and (ii) the
Principal Remittance Amount for such Remittance Date.
"Monthly Servicing Report": As defined in Section 4.26.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Note.
"Mortgage Loans": Such of the mortgage loans transferred and
assigned to the Trust pursuant to Section 2.5(a) hereof, together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
Mortgage Loans originally so held being identified in the Schedule of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan" and
"Second Mortgage Loan." The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Property which is REO Property prior to such Property's disposition by the
Trust. Any mortgage loan which, although intended by the parties hereto to have
been, and which purportedly was, transferred and assigned to the Trust by the
Seller, in fact was not transferred and assigned to the Trust for any reason
whatsoever shall nevertheless be considered a "Mortgage Loan" for all purposes
of this Agreement.
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"Mortgage Note": The Mortgage Note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued
and unpaid Servicing Fees through the date of liquidation relating to such
Liquidated Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": As defined in Section
3.5(b)(iii) hereof.
"Note ": Any one of the Notes substantially in the form
attached to the Indenture as Exhibit A.
"Note Account": The Note Account established in accordance
with Section 3.2(a) hereof and maintained by the Indenture Trustee; provided
that the funds in such account shall not be commingled with any other funds held
by the Indenture Trustee.
"Note Insurance Policy": The certificate guaranty insurance
policy (number _____) dated _________ __, 199_ issued by the Note Insurer to the
Indenture Trustee for the benefit of the Owners of the Notes.
"Note Insurer": ___________________ or any successor thereto,
as issuer of the Note Insurance Policy.
"Note Insurer Default": The existence and continuance of any
of the following:
(a) the Note Insurer fails to make a payment required under
the Note Insurance Policy in accordance with its terms; or
(b)(i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Note Insurer in
an involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law or (B) a decree or order adjudging the Note Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Note Insurer under any applicable United States, federal or state law, or
appointing a custodian, receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of any substantial part of the Note
Insurer's property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 90 consecutive days; or
(ii) the commencement by the Note Insurer of a voluntary case
or proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Note Insurer to the entry of a decree or order for relief in respect of the Note
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency case or proceeding against the Note
Insurer, or the filing by the Note Insurer to the filing of such petition or to
the appointment of or the taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
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Note Insurer of any substantial part of its property, or the failure of the Note
Insurer to pay debts generally as they become due, or the admission by the Note
Insurer in writing of its inability to pay its debts generally as they become
due.
"Note Principal Balance": As of any time of determination, the
Original Note Principal Balance of the Notes less any amounts actually
distributed on account of the Principal Distribution Amount pursuant to Section
3.5(b)(iv)(C) hereof with respect to principal thereon on all prior Payment
Dates.
"Note Rate": For the initial Payment Date, _______%. As of any
Payment Date thereafter, the lesser of (x) LIBOR plus, in the case of any
Payment Date on or prior to the Redemption Date, ____% per annum, or in the case
of any Payment Date thereafter, ____% per annum and (y) the Available Funds Cap
for such Payment Date.
"Officer's Certificate": A certificate signed by any
Authorized Officer of any Person delivering such certificate and delivered to
the Indenture Trustee.
"Operative Documents": Collectively, this Agreement, the Note
Insurance Policy, the Notes, the Insurance Agreement, the Underwriting
Agreement, the Trust Agreement, the Indenture, any Sub- Servicing Agreement, the
Registration Statement and the Indemnification Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances
of all Mortgage Loans as of the Cut-Off Date, i.e., $_____________.
"Original Note Principal Balance": $_____________.
"Original Principal Amount": With respect to each Mortgage
Note, the principal amount of such Mortgage Note on the date of origination
thereof.
"Originator": The Seller and any entity from which the Seller
acquires Mortgage Loans.
"Owner": The Person in whose name a Note is registered in the
Register, to the extent described in the Indenture.
"Paid-in-Full Mortgage Loan": With respect to any Payment
Date, a Mortgage Loan on which the entire obligation of the related Mortgagor
has been satisfied and the lien on the property may be removed during the
related Remittance Period.
"Payment Date": Any date on which the Indenture Trustee is
required to make distributions to the Owners, which shall be the 20th day of
each month, or if such day is not a Business Day, the next succeeding Business
Day, commencing in the month following the Closing Date.
"Percentage Interest": As to the Notes, that percentage,
expressed as a fraction, the numerator of which is the Note Principal Balance
set forth on such Note as of the Cut-Off Date and the denominator of which is
the Original Note Principal Balance of all Notes as of the Cut-Off Date. With
respect to the Certificates, the portion evidenced thereby, expressed as a
percentage, as stated on the face of such Certificate, all of which shall total
100% with respect to the Certificates.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Pool Cumulative Expected Losses": With respect to any period,
the sum of (i) all Realized Losses with respect to the Mortgage Loans
experienced during such period and (ii) the product of (A) _____ and (B) with
respect to any date of determination, the sum of (x) [25%] of the Loan Balances
of all Mortgage Loans which are greater than 30 days Delinquent and less than 60
days Delinquent, (y) [50%] of the Loan Balances of all Mortgage Loans which are
greater than 60 days Delinquent and less than 90 days Delinquent, and (z) [100%]
of the Loan Balances of all Mortgage Loans which are greater than 90 days
Delinquent (including REO Properties).
"Pool Cumulative Realized Losses": With respect to any period,
the sum of all Realized Losses experienced since the Closing Date with respect
to the Mortgage Loans.
"Pool Delinquency Rate": With respect to any Remittance
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
principal balances of all Mortgage Loans 90 or more days Delinquent (including
foreclosures and REO Properties) as of the close of business on the last day of
such Remittance Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Remittance Period.
"Pool Principal Balance": The principal balances of the
Mortgage Loans.
"Pool Rolling Three Month Delinquency Rate": As of any Payment
Date, the fraction, expressed as a percentage, equal to the average of the Pool
Delinquency Rates for each of the three (or one and two, in the case of the
first and second Payment Dates) immediately preceding Remittance Periods.
"Preference Amount": As defined in the Note Insurance Policy.
"Premium Amount": As to any Payment Date beginning with the
[third] Payment Date, the product of one-twelfth of (x) the Premium Percentage
and (y) the Note Principal Balance on such Payment Date (before taking into
account any distributions of principal to be made to the Owners of the Notes on
such Payment Date).
"Premium Percentage": As defined in the Insurance Agreement.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received by the Servicer
prior to the scheduled due date for such installment, intended by the Mortgagor
as an early payment thereof and not as a Prepayment with respect to such
Mortgage Loan.
"Prepayment": A Curtailment or a Paid-in-Full Mortgage Loan.
"Preservation Expenses": Expenditures made by the Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal and Interest Account": Collectively, each principal
and interest account created by the Servicer pursuant to Section 4.8(a) hereof,
or pursuant to any Sub-Servicing Agreement.
"Principal Distribution Amount": With respect to the Notes on
the first Payment Date, the Initial Specified Subordinated Amount, if any and
for the first Payment Date and for any Payment Date thereafter, the lesser of:
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(x) the Total Available Funds plus any Insured Payment minus the
Current Interest for such Payment Date; and
(y) the excess, if any, of (i) the sum, without duplication of:
(a) the Carry-Forward Amount,
(b) the principal portion of all scheduled
monthly payments on the Mortgage Loans due
on or prior to the related Due Date during
the related Due Period, to the extent
actually received by the Indenture Trustee
on or prior to the related Remittance Date
or to the extent advanced by the Servicer on
or prior to the related Remittance Date and
any Prepayments made by the respective
Mortgagors during the related Remittance
Period,
(c) the Loan Balance of each Mortgage Loan that
either was repurchased by the Seller or an
Originator or purchased by the Servicer on
the related Remittance Date, to the extent
such Loan Balance is actually received by
the Indenture Trustee on or prior to the
related Remittance Date,
(d) any Substitution Amounts delivered by the
Seller or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan (to the
extent such Substitution Amounts relate to
principal), to the extent such Substitution
Amounts are actually received by the
Indenture Trustee on or prior to the related
Remittance Date,
(e) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Mortgage Loans during the related
Remittance Period (to the extent such Net
Liquidation Proceeds relate to principal) to
the extent actually received by the
Indenture Trustee on or prior to the related
Remittance Date,
(f) the amount of any Subordination Deficit for
such Payment Date,
(g) the proceeds received by the Indenture
Trustee of any termination as set forth in
Article V hereof (to the extent such
proceeds related to principal), and
(i) the amount of any Subordination Increase
Amount for such Payment Date, to the extent
of any Net Monthly Excess Cashflow available
for such purpose;
over
(ii) the amount of any Subordination Reduction Amount for
such Payment Date.
"Principal Remittance Amount": As of any Remittance Date, the
sum, without duplication, of (i) the scheduled principal actually collected by
the Servicer with respect to Mortgage Loans during the related Due Period, (ii)
Prepayments collected in the related Remittance Period, (iii) the Loan Balance
of each such Mortgage Loan that either was repurchased by an Originator or by
the Seller or purchased by the Servicer on such Remittance Date, to the extent
such Loan Balance was actually deposited in the Principal and Interest Account,
(iv) any Substitution Amounts delivered by the Seller in connection with a
substitution
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of a Mortgage Loan, to the extent such Substitution Amounts were actually
deposited in the Principal and Interest Account on such Remittance Date, (v) all
Net Liquidation Proceeds actually collected by the Servicer with respect to such
Mortgage Loans during the related Due Period (to the extent such Liquidation
Proceeds related to principal), (vi) all Delinquency Advances relating to
principal made by the Servicer on such Remittance Date and (vii) the amount of
any investment losses required to be deposited by the Seller or the Servicer
pursuant to Sections 3.6(e) or 4.8(b).
"Projected Net Monthly Excess Cashflow": As of any date of
calculation, Net Monthly Excess Cashflow (other than any Subordination Reduction
Amount included therein), as calculated pursuant to Section 3.5(b)(iii) hereof
on the Payment Date immediately preceding such date of calculation.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": The Seller's Prospectus dated _________ __,
199_.
"Prospectus Supplement": The First Alliance Mortgage Loan
Trust Owner 199_-_ Prospectus Supplement dated _________ _, 199_ to the
Prospectus.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
for another pursuant to Section 2.4 or 2.6 hereof, which (i) bears a [fixed]
[variable] rate of interest, (ii) has a Coupon Rate at least equal to the Coupon
Rate of the Mortgage Loan being replaced (which shall mean a Mortgage Loan
having the same interest rate index, a margin over such index and a maximum
interest rate at least equal to those applicable to the Mortgage Loan being
replaced), (iii) is of the same or better property type and the same or better
occupancy status as the replaced Mortgage Loan, (iv) shall be of the same or
better credit quality classification (determined in accordance with the
Originators' credit underwriting guidelines) as the Mortgage Loan being
replaced, (v) shall mature no later than ______ __, 20__, (vi) has a Combined
Loan-to- Value Ratio as of the Cut-Off Date, no higher than the Combined
Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (vii) has a Loan
Balance as of the related Replacement Cut-Off Date equal to or less than the
Loan Balance of the replaced Mortgage Loan as of such Replacement Cut-Off Date,
(viii) is of the same lien status or better lien status (ix) is not Delinquent,
(x) meets the representations and warranties set out in Section 2.3 hereof and
(xi) is a valid [fixed] [variable] rate Mortgage Loan. In the event that one or
more mortgage loans are proposed to be substituted for one or more mortgage
loans, the Note Insurer may allow the foregoing tests to be met on a weighted
average basis or other aggregate basis acceptable to the Note Insurer, as
evidenced by a written approval delivered to the Indenture Trustee by the Note
Insurer, except that the requirement of clause (vi) hereof must be satisfied as
to each Qualified Replacement Mortgage.
"Rating Agencies": Moody's and Standard & Poor's or any
successors thereto.
"Realized Loss": As to any Liquidated Loan, the amount, if
any, by which the Loan Balance thereof as of the date of liquidation is in
excess of Net Liquidation Proceeds realized thereon.
"Redemption Date": The date on which the outstanding aggregate
Loan Balance of the Mortgage Loans has declined to 10% or less of the Original
Aggregate Loan Balance.
"Reference Banks": _____________________, __________________,
_________________ and _____________________________; provided that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Indenture Trustee which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) not controlling, under the control
of or under common control with the Seller or any
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affiliate thereof, (iii) whose quotations appear on the Telerate Page 3750 on
the relevant Interest Determination Date and (iv) which have been designated as
such by the Indenture Trustee.
"Register": The register maintained by the Indenture Trustee
in accordance with Section 2.3 of the Indenture, in which the names of the
Owners are set forth.
"Registrar": The Indenture Trustee, acting in its capacity as
Indenture Trustee appointed pursuant to the Indenture, or any duly appointed and
eligible successor thereto.
"Registration Statement": The Registration Statement filed by
the Seller with the Securities and Exchange Commission, including all amendments
thereto and including the Prospectus and Prospectus Supplement constituting a
part thereof.
"Reimbursement Amount": As of any Payment Date, the sum of
(x)(i) all Insured Payments previously received by the Indenture Trustee and not
previously repaid to the Note Insurer pursuant to Section 3.5(b)(ii)(B) or
Section 3.5(b)(ii)(C) hereof plus (ii) interest accrued on each such Insured
Payment not previously repaid calculated at the Late Payment Rate from the date
the Indenture Trustee received the related Insured Payment to, but not
including, such Payment Date and (y)(i) any amounts then due and owing to the
Note Insurer under the Insurance Agreement plus (ii) interest on such amounts at
the Late Payment Rate. The Note Insurer shall notify the Indenture Trustee and
the Seller of the amount of any Reimbursement Amount.
"Remittance Date": Any date on which the Servicer is required
to remit moneys on deposit in the Principal and Interest Account to the Note
Account, which shall be the day two Business Days prior to the related Payment
Date, commencing two days prior to the first Payment Date.
"Remittance Period": The period (inclusive) beginning on the
first day of the calendar month immediately preceding the month in which a
Remittance Date occurs and ending on the last day of such immediately preceding
calendar month.
"REO Property": A Property acquired by the Servicer or any
Sub-Servicer on behalf of the Trust through foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Request for Release": The request for release in the form set
forth as Exhibit F hereto.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 0.0625%) of the one-month U.S. dollar lending rates which New
York City banks selected by the Indenture Trustee are quoting on the relevant
Interest Determination Date to the principal London offices of leading banks in
the London interbank market or (ii) in the event that the Indenture Trustee can
determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate
which New York City banks selected by the Indenture Trustee are quoting on such
Interest Determination Date to leading European banks.
"Residual Net Monthly Excess Cashflow": With respect to any
Payment Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after
the making of all applications described in Sections 3.5(b)(i), (ii), (iii) (iv)
hereof.
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"Schedule of Mortgage Loans": The Schedule of Mortgage Loans
with respect to the Mortgage Loans listing each Mortgage Loan to be conveyed on
the Closing Date. Such Schedule of Mortgage Loans shall identify each Mortgage
Loan by the Servicer's loan number and address (including the state) of the
Property and shall set forth as to each Mortgage Loan the lien status, the
Combined Loan-to-Value Ratio, the Loan Balance as of the Cut-Off Date, the
Coupon Rate thereof (or, the index and the margin) the current scheduled monthly
payment of principal and interest and the maturity of the related Mortgage Note,
the property type, occupancy status, Appraised Value and the Originator of the
Mortgage Loan, all as delivered to the Indenture Trustee in physical and
computer readable form and delivered to the Note Insurer in physical form.
"Second Mortgage Loan": A Mortgage Loan which constitutes a
second priority mortgage lien with respect to the related Property.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": First Alliance Mortgage Company, a California
corporation, and its permitted successors and assigns.
"Senior Lien": With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Property having a first priority
lien.
"Servicer": First Alliance Mortgage Company, a California
corporation, and its permitted successors and assigns.
"Servicer Affiliate": A Person (i) controlling, controlled by
or under common control with the Servicer and (ii) which is qualified to service
residential mortgage loans.
"Servicing Advance": As defined in Section 4.9(c) and Section
4.13 hereof.
"Servicing Certificate": A certificate completed by and
executed by an Authorized Officer of the Indenture Trustee as attached hereto in
the form of Exhibit E.
"Servicing Fee": As to any Payment Date, the product of (x)
one-twelfth of _______% and (y) the aggregate Loan Balances of the Mortgage
Loans as of the opening of business on the first day of the related Remittance
Period. Such Servicing Fee is retained by the Servicer pursuant to Sections
4.8(c)(i) and 4.15 hereof.
"Six Month LIBOR Loans": Mortgage Loans whose interest rates
adjust semi-annually based on the London interbank offered rate for six-month
United States Dollar deposits in the London Market and as published in The Wall
Street Journal.
"Specified Subordinated Amount": Means (a) for any Payment
Date occurring during the period commencing on the Closing Date and ending on
the later of (i) the date upon which principal equal to one-half of the Original
Aggregate Loan Balance has been received and (ii) the 30th Payment Date
following the Closing Date, the greater of (A) the Amortized Subordinated Amount
Requirement and (B) two (2) times the excess of (x) one-half of the aggregate
Loan Balances of all Mortgage Loans which are 90 or more days Delinquent
(including REO Properties) over (y) five times the Projected Net Monthly Excess
Cashflow as of such Payment Date; and (b) for any Payment Date occurring after
the end of the period in clause (a) above, the greatest of (i) the lesser of (A)
the Amortized Subordinated Amount Requirement and
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(B) two (2) times the Amortized Subordinated Amount Requirement stated as a
percentage of the Original Note Principal Balance times the current Note
Certificate Principal Balance, (ii) two (2) times the excess of (A) one-half of
the aggregate Loan Balances of all Mortgage Loans which are 90 or more days
Delinquent (including REO Properties) over (B) three times the Projected Net
Monthly Excess Cashflow as of such Payment Date and (iii) an amount equal to
_______% of the Original Aggregate Loan Balance; provided, however,
notwithstanding the above, in the event that any Insured Payment is made by the
Note Insurer, the amount described in this clause (b) shall remain equal to the
Amortized Subordinated Amount Requirement. The Specified Subordinated Amount may
be reduced or eliminated by the Note Insurer in its sole discretion. Prior to
any such reduction or elimination, the Servicer and the Note Insurer shall give
written notice to the Rating Agencies.
"Standard & Poor's": Standard & Poor's Rating Services, a
Division of The McGraw-Hill Companies.
"Subordinated Amount": As of any Payment Date, the difference,
if any, between (x) the sum of (i) the aggregate Loan Balances of the Mortgage
Loans as of the close of business on the last day of the related Remittance
Period and (y) the Note Principal Balance as of such Payment Date (after taking
into account the payment of the Monthly Distribution Amount (except for any
portion thereof related to an Insured Payment) on such Payment Date).
"Subordination Deficit": With respect to any Payment Date, the
amount, if any, by which (x) the Note Principal Balance, after taking into
account the payment of the Principal Distribution Amount on such Payment Date
(except any payment to be made as to principal from the proceeds of the Note
Insurance Policy), exceeds (y) the aggregate Loan Balances of the Mortgage Loans
as of the close of business on the last day of the related Due Period; provided
that for the purpose of calculating Loan Balances to determine if a
Subordination Deficit exists, the aggregate amount of the principal component of
all unreimbursed Delinquency Advances shall be deducted from the related actual
Loan Balances.
"Subordination Deficiency Amount": With respect to any Payment
Date, the excess, if any, of (i) the Specified Subordinated Amount applicable to
such Payment Date over (ii) the Subordinated Amount applicable to such Payment
Date prior to taking into account the payment of any Subordination Increase
Amount on such Payment Date.
"Subordination Increase Amount": With respect to any Payment
Date, the lesser of (i) the Subordination Deficiency Amount as of such Payment
Date (after taking into account the payment of the Monthly Distribution Amount
on such Payment Date (except for any Subordination Increase Amount)) and (ii)
the aggregate amount of Net Monthly Excess Cashflow to be allocated pursuant to
Section 3.5(b)(iii)(A) on such Payment Date.
"Subordination Reduction Amount": With respect to any Payment
Date, an amount equal to the lesser of (x) the Excess Subordinated Amount for
such Payment Date and (y) the Principal Remittance Amount for the related
Remittance Period.
"Sub-Servicer": Any Person with whom the Servicer has entered
into a Sub-Servicing Agreement and who satisfies any requirements set forth in
Section 4.3 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the
Servicer and any Sub-Servicer relating to servicing and/or administration of
certain Mortgage Loans as permitted by Section 4.3.
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"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such difference together with
accrued and unpaid interest on such amount calculated at the Coupon Rate net of
the Servicing Fee of the Mortgage Loan being replaced.
"Telerate Page 3750": The display designated as page "3750" on
the Dow Jones Telerate Capital Markets Report (or such other page as may replace
page 3750 on that report for the purpose of displaying London interbank offered
rates of major banks).
"Termination Price": As defined in Section 5.2(a) hereof.
"Total Available Funds": As defined in Section 3.3(a) hereof.
"Total Available Funds Shortfall": As defined in Section
3.3(b) hereof.
"Total Monthly Excess Cashflow": As defined in Section
3.5(b)(ii) hereof.
"Total Monthly Excess Spread": With respect to any Payment
Date, the difference between (i) the interest which is collected on the Mortgage
Loans during the related Remittance Period, less the Servicing Fee plus the
interest portion of any Delinquency Advances and Compensating Interest paid by
the Servicer for such Remittance Period and (ii) the sum of (x) the interest due
on the Notes on such Payment Date and (y) the Premium Amount and the Indenture
Trustee Fee, if any, for such Payment Date.
"Trust" or "Issuer": First Alliance Mortgage Loan Owner Trust
199_-_, a Delaware business trust.
"Trust Agreement": The Trust Agreement dated as of __________
__, 199_ between the Seller and the Owner Trustee.
"Trust Estate": As defined in the Indenture.
"Underwriters": ____________________________________________.
"Underwriting Agreement": The Underwriting Agreement dated as
of _________ _, 199_ between the Underwriters and the Seller.
Section 1.2. Use of Words and Phrases. "Herein", "hereby",
"hereunder", "hereof", "hereinbefore", "hereinafter" and other equivalent words
refer to this Agreement as a whole and not solely to the particular section of
this Agreement in which any such word is used. The definitions set forth in
Section 1.1 hereof include both the singular and the plural. Whenever used in
this Agreement, any pronoun shall be deemed to include both singular and plural
and to cover all genders.
Section 1.3. Captions; Table of Contents. The captions or
headings in this Agreement and the Table of Contents are for convenience only
and in no way define, limit or describe the scope and intent of any provisions
of this Agreement.
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ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLER AND THE SERVICER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 2.1. Representations and Warranties of the Seller. The
Seller hereby represents, warrants and covenants to the Indenture Trustee, the
Owner Trustee, the Issuer, the Note Insurer and to the Owners as of the Closing
Date that:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California
and is in good standing as a foreign corporation in each jurisdiction
in which the nature of its business, or the properties owned or leased
by it, make such qualification necessary. The Seller has all requisite
corporate power and authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be
conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party by the Seller and its
performance and compliance with the terms of this Agreement and of the
other Operative Documents to which it is a party have been duly
authorized by all necessary corporate action on the part of the Seller
and will not violate the Seller's Articles of Incorporation or Bylaws
or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the
breach of, any material contract, agreement or other instrument to
which the Seller is a party or by which the Seller is bound, or violate
any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Seller or
any of its properties.
(c) This Agreement and the other Operative Documents to which
the Seller is a party, assuming due authorization, execution and
delivery by the other parties hereto and thereto, each constitutes a
valid, legal and binding obligation of the Seller, enforceable against
it in accordance with the terms hereof and thereof, except as the
enforcement hereof and thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder or under the other Operative Documents to which it is a
party.
(e) No action, suit, proceeding or investigation is pending
or, to the best of the Seller's knowledge, threatened against the
Seller which, individually or in the aggregate, might have consequences
that would prohibit the Seller from entering into this Agreement or any
other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Seller or its properties or might have
consequences that
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would materially and adversely affect the validity or enforceability of
Mortgage Loans or the Seller's performance hereunder or under the other
Operative Documents to which it is a party.
(f) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Seller
contains any untrue statement of a material fact or omits to state any
material fact necessary to make the certificate, statement or report
not misleading.
(g) The statements contained in the Registration Statement
which describe the Seller or matters or activities for which the Seller
is responsible in accordance with the Operative Documents or which are
attributed to the Seller therein are true and correct in all material
respects, and the Registration Statement does not contain any untrue
statement of a material fact with respect to the Seller or omit to
state a material fact required to be stated therein or necessary in
order to make the statements contained therein with respect to the
Seller not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Seller's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact required to be stated
therein or omit to state any material fact required to be stated
therein or necessary to make the statements contained therein not
misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state
securities laws, real estate syndication or "Blue Sky" statutes, as to
which the Seller makes no such representation or warranty), that are
necessary or advisable in connection with the purchase and sale of the
Notes and the execution and delivery by the Seller of the Operative
Documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the
Closing Date, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within
which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative
Documents on the part of the Seller and the performance by the Seller
of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(j) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans.
(k) The Seller did not sell any interest in any Mortgage Loan
with any intent to hinder, delay or defraud any of its creditors.
(l) The Seller is solvent and the Seller will not be rendered
insolvent as a result of the sale of the Mortgage Loans.
(m) On the Closing Date, the Issuer will have good title to
each Mortgage Loan and such other items comprising the corpus of the
Trust Estate free and clear of any lien.
(n) There has been no material adverse change in any
information submitted by the Seller in writing to the Note Insurer.
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(o) To the best knowledge of the Seller, no event has occurred
which would allow any purchaser of the Notes not to be required to
purchase the Notes on the Closing Date.
(p) To the best knowledge of the Seller, no document submitted
by or on behalf of the Seller to the Note Insurer contains any untrue
or misleading statement of a material fact or fails to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(q) To the best knowledge of the Seller, no material adverse
change affecting any security for the Notes has occurred prior to
delivery of and payment for the Notes.
(r) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would
materially adversely impact the financial condition or operations of
the Seller or legal documents associated with the transaction
contemplated in this Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 2.1 shall survive delivery of the Mortgage
Loans to the Issuer.
Section 2.2. Representations and Warranties of the Servicer.
The Servicer hereby represents, warrants and covenants to the Issuer, the Owner
Trustee, the Indenture Trustee, the Note Insurer and to the Owners as of the
Closing Date that:
(a) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. The Servicer is in compliance with the laws of each state
in which any Property is located to the extent necessary to enable it
to perform its obligations hereunder and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business, or the properties owned or leased by it, make such
qualification necessary. The Servicer has all requisite corporate power
and authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to
enter into and discharge its obligations under this Agreement and the
other Operative Documents to which it is a party. The Servicer has
equity of at least $20,000,000, as determined in accordance with
generally accepted accounting principles.
(b) The execution and delivery of this Agreement by
the Servicer and its performance and compliance with the terms of this
Agreement and the other Operative Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of
the Servicer and will not violate the Servicer's Articles of
Incorporation or Bylaws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or
other instrument to which the Servicer is a party or by which the
Servicer is bound or violate any statute or any order, rule or
regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Servicer or any of its properties.
(c) This Agreement and the other Operative Documents
to which the Servicer is a party, assuming due authorization, execution
and delivery by the other parties hereto and thereto, each constitutes
a valid, legal and binding obligation of the Servicer, enforceable
against it in accordance with the terms hereof and thereof, except as
the enforcement hereof and thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws
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affecting creditors' rights generally and by general principles of
equity (whether considered in a proceeding or action in equity or at
law).
(d) The Servicer is not in default with respect to
any order or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency which might have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its
properties or might have consequences that would materially and
adversely affect its performance hereunder or under the other Operative
Documents to which the Servicer is a party.
(e) No action, suit, proceeding or investigation is
pending or, to the best of the Servicer's knowledge, threatened against
the Servicer which, individually or in the aggregate, might have
consequences that would prohibit its entering into this Agreement or
any other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Servicer or its properties or might have
consequences that would materially and adversely affect the validity or
the enforceability of the Mortgage Loans or the Servicer's performance
hereunder or under the other Operative Documents to which the Servicer
is a party.
(f) No certificate of an officer, statement furnished
in writing or report delivered pursuant to the terms hereof by the
Servicer contains any untrue statement of a material fact or omits to
state any material fact necessary to make the certificate, statement or
report not misleading.
(g) The statements contained in the Registration
Statement which describe the Servicer or matters or activities for
which the Servicer is responsible in accordance with the Operative
Documents or which are attributed to the Servicer therein are true and
correct in all material respects, and the Registration Statement does
not contain any untrue statement of a material fact with respect to the
Servicer or omit to state a material fact required to be stated therein
or necessary to make the statements contained therein with respect to
the Servicer not misleading. With respect to matters other than those
referred to in the immediately preceding sentence, to the best of the
Servicer's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements contained therein not misleading.
(h) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency (other than any such actions, approvals, etc. under
any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or
warranty), that are necessary or advisable in connection with the
execution and delivery by the Servicer of the Operative Documents to
which it is a party, have been duly taken, given or obtained, as the
case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review
thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this
Agreement and the other Operative Documents on the part of the Servicer
and the performance by the Servicer of its obligations under this
Agreement and such of the other Operative Documents to which it is a
party.
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(i) The collection practices used by the Servicer
with respect to the Mortgage Loans directly serviced by it have been,
and are in all material respects, legal, proper, prudent and customary
in the mortgage loan servicing business.
(j) The transactions contemplated by this Agreement
are in the ordinary course of business of the Servicer.
(k) There are no Sub-Servicers as of the Closing
Date.
(l) The Servicer covenants that it will terminate any
Sub-Servicer within ninety (90) days after being directed by the Note
Insurer to do so.
(m) There has been no material adverse change in any
information submitted by the Servicer in writing to the Note Insurer.
(n) To the best knowledge of the Servicer, no event
has occurred which would allow any purchaser of the Notes not to be
required to purchase the Notes on the Closing Date.
(o) To the best knowledge of the Servicer, no
document submitted by or on behalf of the Servicer to the Note Insurer
contains any untrue or misleading statement of a material fact or fails
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
(p) To the best knowledge of the Servicer, no
material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(q) The Servicer is not in default under any
agreement involving financial obligations or on any outstanding
obligation which would materially and adversely impact the financial
condition or operations of the Servicer or legal documents associated
with the transaction contemplated in this Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 2.2 shall survive delivery of the Mortgage
Loans to the Issuer.
Upon discovery by any of the Originators, the Servicer, the
Seller, the Issuer, any Sub-Servicer, the Note Insurer, the Owner Trustee or the
Indenture Trustee of a breach of any of the representations and warranties set
forth in this Section 2.2 or in Section 2.1 hereof which materially and
adversely affects the interests of the Owners or of the Note Insurer, without
regard to any limitation set forth in such representation or warranty concerning
the knowledge of the party making such representation or warranty as to the
facts stated therein, the party discovering such breach shall give prompt
written notice to the other parties hereto and the Note Insurer. Within 30 days
of its discovery or its receipt of notice of breach, the breaching party shall
cure such breach in all material respects and, if such breaching party is the
Servicer and upon the Servicer's continued failure to cure such breach, the
Servicer may be removed by the Indenture Trustee or the Note Insurer pursuant to
Section 4.20 hereof; provided, however, that if the Servicer can demonstrate to
the reasonable satisfaction of the Note Insurer that it is diligently pursuing
remedial action, then the cure period may be extended with the written approval
of the Note Insurer.
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Section 2.3. Representations and Warranties of the Seller with
Respect to the Mortgage Loans.
(a) The Seller makes the following representations and
warranties as to the Mortgage Loans on which the Note Insurer relies in issuing
the Note Insurance Policy. Such representations and warranties speak as of the
Closing Date but shall survive the sale, transfer, and assignment of the related
Mortgage Loans to the Issuer:
(i) The information with respect to each Mortgage Loan
set forth in the Schedule of Mortgage Loans is true and correct as of
the Cut-Off Date; the Original Aggregate Loan Balance in the Trust as
of the Cut-Off Date is $_____________.
(ii) All of the original or certified documentation set
forth in Section 2.5 (including all material documents related thereto)
with respect to each Mortgage Loan has been or will be delivered to the
Indenture Trustee on the Closing Date or as otherwise provided in
Section 2.5;
(iii) Each Mortgage Loan is being serviced by the
Servicer or a Servicer Affiliate;
(iv) The Mortgage Note related to each Mortgage Loan
bears a [current] Coupon Rate of at least ______% per annum;
(v) No more than ____% of the Mortgage Loans were 30
or more days Delinquent;
(vi) As of the Cut-Off Date, no more than ____% of the
Original Aggregate Loan Balance of the Mortgage Loans is secured by
Properties located within any single zip code area;
(vii) Each Mortgage Loan conforms, and all such
Mortgage Loans in the aggregate conform, in all material respects, to
the description thereof set forth in the Registration Statement;
(viii) As of the Cut-Off Date, no more than ____% of
the Original Aggregate Loan Balance is secured by condominiums,
townhouses, or planned unit developments;
(ix) As of the Cut-Off Date, no more than ____%
Original Aggregate Loan Balance is secured by investor-owned
Properties;
(x) The credit underwriting guidelines applicable to
each Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus;
(xi) No funds provided to borrower from a Second
Mortgage Loan originated by the Seller were concurrently used as a down
payment for a First Mortgage Loan originated by the Seller;
(xii) All of the Mortgage Notes are actuarial loans;
(xiii) No more than ____% of the Original Aggregate
Loan Balance, is secured by Second Mortgage Loans;
[(xiv) As of the Cut-Off Date, ____% of the Mortgage
Loans had interest rates which were not fully indexed;]
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[(xv) The gross margin range for Six Month LIBOR Loans
is _____% to _____% and, the gross margin for all Six Month LIBOR Loans
when added to the current index, creates the fully-indexed range;]
(xvi) No Mortgage Loan has a remaining term in excess
of 360 months;
[(xvii)With respect to each Mortgage Loan, each
Mortgagor's debt-to-income ratio will qualify for the related
Originator's underwriting guidelines for a similar credit grade
borrower when the related Mortgage Loan is at a rate equal to the
applicable initial Coupon Rate plus 2%;]
(xviii)There is no proceeding pending or to the best of
the Seller's knowledge threatened for the total or partial condemnation
of any Property. No Property is damaged by waste, fire, earthquake or
earth movement, windstorm, flood, other types of water damage, tornado,
or other casualty so as to affect adversely the value of such Property
as security for the Mortgage Loans or the use for which the premises
were intended and each Property is in good repair;
(xix) Each Mortgage Loan complies in all material
respects with all applicable federal and state laws including without
limitation the Truth-in-Lending Act, as amended;
(xx) Each Mortgage Loan is secured by a Property
having an appraised value of less than $__________;
(xxi) The first Due Date of each Mortgage Loan is no
later than _________ _, 199_; and
(xxii) On the Closing Date with respect to each
Mortgage Loan, the Issuer will have good title to each Mortgage Loan
transferred on such date.
(b) Upon the discovery by the Issuer, the Seller, the Servicer, the
Note Insurer, the Owner Trustee or the Indenture Trustee of a breach of any of
the representations and warranties made herein in respect of any Mortgage Loan,
without regard to any limitation set forth in such representation or warranty
concerning the knowledge of the Seller or any related Originator as to the facts
stated therein, which materially and adversely affects the interests of the
Owners or of the Note Insurer in such Mortgage Loan the party discovering such
breach shall give prompt written notice to the other parties hereto and the Note
Insurer, as their interests may appear. The Servicer shall promptly notify the
related Originator of such breach and request that such Originator cure such
breach or take the actions described in Section 2.4(b) hereof within the time
periods required thereby, and if such Originator does not cure such breach in
all material respects, the Seller shall cure such breach or take such actions.
Except as set forth in Section 2.4, the obligations of the Seller or Servicer,
as the case may be, shall be limited to the remedies for cure set forth in
Section 2.4 with respect to any Mortgage Loan as to which such a breach has
occurred and is continuing; the remedies set forth in Section 2.4 shall
constitute the sole remedy with respect to such breach available to the Owners,
the Indenture Trustee and the Note Insurer.
The Seller acknowledges that a breach of any representation or
warranty (x) relating to marketability of title sufficient to transfer
unencumbered title to a Mortgage Loan and (y) relating to enforceability of the
Mortgage Loan against the related Mortgagor or Property is a priori the breach
of a representation or warranty which "materially and adversely affects the
interests of the Owners or of the Note Insurer" in such Mortgage Loan.
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Section 2.4. Covenants of the Seller to Take Certain Actions
with Respect to the Mortgage Loans In Certain Situations. (a) With the provisos
and limitations as to remedies set forth in this Section 2.4, upon the discovery
by any Originator, the Seller, the Issuer, the Servicer, the Note Insurer, any
Sub-Servicer, the Owner Trustee or the Indenture Trustee that the
representations and warranties set forth in Section 2.3 of this Agreement were
untrue in any material respect as of the Closing Date, and that such breach of
the representations and warranties materially and adversely affects the
interests of the Owners or of the Note Insurer, the party discovering such
breach shall give prompt written notice to the other parties hereto and to the
Note Insurer.
(b) Upon the earliest to occur of the Seller's discovery, its
receipt of notice of breach from any one of the other parties hereto or from the
Note Insurer or such time as a breach of any representation and warranty
materially and adversely affects the interests of the Owners or of the Note
Insurer as set forth above, the Seller hereby covenants and warrants that it
shall promptly cure such breach in all material respects or it shall (or shall
cause an affiliate of the Seller to or an Originator to), subject to the further
requirements of this paragraph, on the second Remittance Date next succeeding
such discovery, receipt of notice or such other time (i) substitute in lieu of
each Mortgage Loan which has given rise to the requirement for action by the
Seller a Qualified Replacement Mortgage and deliver the Substitution Amount
applicable thereto, together with the aggregate amount of all Delinquency
Advances and Servicing Advances theretofore made with respect to such Mortgage
Loan, to the Servicer for deposit in the Principal and Interest Account or (ii)
purchase such Mortgage Loan from the Trust at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be delivered to the Servicer
for deposit in the Principal and Interest Account. It is understood and agreed
that the obligation of the Seller to cure the defect, or substitute for or
purchase any Mortgage Loan as to which a representation or warranty is untrue in
any material respect and has not been remedied shall constitute the sole remedy
available to the Owners, the Indenture Trustee and the Note Insurer.
(c) In the event that any Qualified Replacement Mortgage is
delivered by an Originator or by the Seller to the Trust pursuant to this
Section 2.4 or Section 2.6 hereof, the related Originator and the Seller shall
be obligated to take the actions described in Section 2.4(b) with respect to
such Qualified Replacement Mortgage upon the discovery by any of the Owners, the
Seller, the Issuer, the Servicer, the Note Insurer, any Sub-Servicer, the Owner
Trustee or the Indenture Trustee that any of the representations and warranties
set forth in Section 2.3 above are untrue in any material respect on the date
such Qualified Replacement Mortgage is conveyed to the Trust such that the
interests of the Owners or the Note Insurer in the related Qualified Replacement
Mortgage are materially and adversely affected; provided, however, that for the
purposes of this subsection (c) the representations and warranties in Section
2.3 above referring to items "as of the Cut-Off Date" or "as of the Closing
Date" shall be deemed to refer to such items as of the date such Qualified
Replacement Mortgage is conveyed to the Trust.
(d) It is understood and agreed that the covenants set forth
in this Section 2.4 shall survive delivery of the respective Mortgage Loans
(including Qualified Replacement Mortgages) to the Issuer.
(e) The Indenture Trustee shall have no duty to conduct any
affirmative investigation other than as specifically set forth in this Agreement
as to the occurrence of any condition requiring the repurchase or substitution
of any Mortgage Loan pursuant to this section or the eligibility of any Mortgage
Loan for purposes of this Agreement.
Section 2.5. Conveyance of the Mortgage Loans. (a) The Seller,
concurrently with the execution and delivery hereof, hereby transfers, assigns,
sets over and otherwise conveys without recourse, to the Issuer, all right,
title and interest of the Seller in and to each Mortgage Loan listed on the
Schedule of
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Mortgage Loans delivered by the Seller on the Closing Date, all right, title and
interest in and to principal and interest due on each such Mortgage Loan after
the Cut-Off Date (other than payments of principal due and interest accrued on
or before the Cut-Off Date) and all its right, title and interest in and to all
Insurance Policies; provided, however, that the Seller reserves and retains all
its right, title and interest in and to principal (including Prepayments)
collected and principal and interest due on each Mortgage Loan on or prior to
the Cut-Off Date. The transfer by the Seller of the Mortgage Loans set forth on
the Schedule of Mortgage Loans is absolute and is intended by the Owners and all
parties hereto to be treated as a sale by the Seller. Pursuant to the Indenture,
the Issuer will pledge the Trust Estate to the Indenture Trustee to be held on
behalf of the Owners of the Notes.
It is intended that the sale, transfer, assignment and
conveyance herein contemplated constitute a sale of the Mortgage Loans conveying
good title thereto free and clear of any liens and encumbrances from the Seller
to the Issuer and that the Mortgage Loans not be part of the Seller's estate in
the event of an insolvency. In the event that any such conveyance is deemed to
be a loan, the parties intend that the Seller shall be deemed to have granted to
the Issuer a security interest of first priority in all of the Seller's right,
title and interest in the Mortgage, Mortgage Note and the File, and that this
Agreement shall constitute a security agreement under applicable law.
In connection with the sale, transfer, assignment, and
conveyance, from the Seller to the Issuer, the Seller has filed, in the
appropriate office or offices in the States of California and New York, a UCC-1
financing statement executed by the Seller as debtor, naming the Issuer as
secured party and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Seller as a debtor and the
Issuer as the secured party in such financing statements is solely for
protective purposes and shall in no way be construed as being contrary to the
intent of the parties that this transaction be treated as a sale of the Seller's
entire right, title and interest in the Mortgage Loans and the related Files to
the Issuer. In connection with such filing, the Seller shall cause to be filed
all necessary continuation statements thereof and to take or cause to be taken
such actions and execute such documents as are necessary to perfect and protect
the Issuer's and the Owners' interests in the Mortgage Loans and the related
Files.
In connection with the pledge of the Trust Estate from the
Issuer to the Indenture Trustee, on behalf of the Owners of the Notes, the
Issuer has filed, in the appropriate office or offices in the State of Delaware,
a UCC-1 Financing Statement executed by the Issuer as debtor, naming the
Indenture Trustee, on behalf of the Owners of the Notes, as the secured party
and listing the Mortgage Loans and the other property described above as
collateral. In connection with such filing, the Issuer agrees that it shall
cause to be filed all necessary continuation statements thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Indenture Trustee's interest in the Trust Estate on
behalf of the Owners of the Notes.
(b) In connection with the transfer and assignment of the
Mortgage Loans, the Seller agrees to:
(i) cause to be delivered, on or prior to
the Closing Date (except as otherwise stated below) without recourse to
the Custodian, on behalf of Indenture Trustee, on the Closing Date with
respect to each Mortgage Loan listed on the Schedule of Mortgage Loans:
(a) the original Mortgage Notes or
certified copies thereof, endorsed without recourse by the
related Originator, "Pay to the order of ___________________,
without recourse" or "Pay to the order of The Chase Manhattan
Bank, as Indenture Trustee for the First Alliance [Adjustable]
[Fixed] Rate Mortgage Loan Asset Backed Notes, Series 199_-_,
without recourse." In the event that the
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Mortgage Loan was acquired by the related Originator in a
merger, the endorsement must be by the "(related Originator),
successor by merger to (name of predecessor)"; and in the
event that the Mortgage Loan was acquired or originated by the
related Originator while doing business under another name,
the endorsement must be by the "(related Originator), formerly
known as (previous name)";
(b) originals of all intervening
assignments, showing a complete chain of assignment from
origination to the related Originator, if any, including
warehousing assignments, with evidence of recording thereon
(or, if an original intervening assignment has not been
returned from the recording office, a certified copy thereof,
the original to be delivered to Custodian on behalf of the
Indenture Trustee forthwith after return);
(c) originals of all assumption and
modification agreements, if any (or, if an original assumption
and/or modification agreement has not been returned from the
recording office, a certified copy thereof, the original to be
delivered to the Custodian on behalf of the Indenture Trustee
forthwith after return);
(d) either (A) the original Mortgage
with evidence of recording thereon or a certified copy of the
Mortgage as recorded, or (B) if the original Mortgage has not
yet been returned from the recording office, a certified copy
of the Mortgage, together with a receipt from the recording
office or from a title insurance company or a certificate of
an Authorized Person of the related Originator indicating that
such Mortgage has been delivered for recording;
(e) the original assignment of
Mortgage for each Mortgage Loan conveying the Mortgage to
"________________________, as Indenture Trustee of the First
Alliance [Adjustable] [Fixed] Rate Mortgage Loan Asset Backed
Notes, Series 199_- _," which assignment shall be in form and
substance acceptable for recording in the state or other
jurisdiction where the mortgaged property is located and,
within 75 Business Days following the Closing Date, a recorded
assignment of each such Mortgage; provided that in the event
that the Mortgage Loan was acquired by the related Originator
in a merger, the assignment of Mortgage must be by the
"(related Originator), successor by merger to (name of
predecessor)"; and in the event that the Mortgage Loan was
acquired or originated by the related Originator while doing
business under another name, the assignment of Mortgage must
be by the "(related Originator), formerly known as (previous
name)" (subject to the foregoing, and where permitted under
the applicable laws of the jurisdiction where the mortgaged
property is located, the assignments of Mortgage may be made
by blanket assignments for Mortgage Loans covering mortgaged
properties situated within the same county or other permitted
governmental subdivision); and
(f) evidence of title insurance with
respect to the mortgaged property in the form of a binder or
commitment.
(ii) except with respect to Mortgage Loans
covered by opinions of counsel delivered in the manner set forth below
("Assignment Opinions"), cause, as soon as possible but no more than 75
Business Days following the Closing Date, the Originators to deliver to
the Custodian, on behalf of the Indenture Trustee, copies of all
Mortgage assignments submitted for recording, together with a list of
(x) all Mortgages for which no Mortgage assignment has yet been
submitted for recording by the related Originator (y) reasons why the
related Originator has not yet
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submitted such Mortgage assignments for recording; provided, however,
an Originator shall not be required to record an assignment of a
Mortgage if the Seller furnishes to the Indenture Trustee and the Note
Insurer, on or before the Closing Date, at the Seller's expense, the
Assignment Opinions for the relevant jurisdictions which opine that
recording is not necessary to perfect the rights of the Indenture
Trustee in the related Mortgage (in form satisfactory to the Note
Insurer, Moody's and Standard & Poor's); provided further, however,
notwithstanding the delivery of any legal opinions, each assignment of
mortgage shall be recorded upon the earliest to occur of: (i) the
instructions by the Note Insurer to so record such assignments (such
instructions shall be given by the Note Insurer using reasonable
discretion) or (ii) the occurrence of an Event of Servicing
Termination. With respect to any Mortgage assignment set forth on the
aforementioned list which has not been submitted for recording for a
reason other than a lack of original recording information or with
respect to Mortgages not covered by the Assignment Opinions, the
Custodian, on behalf of the Indenture Trustee shall make an immediate
demand on the Seller to cause such Mortgage assignments to be prepared
and shall inform the Note Insurer of the Seller's failure to cause such
Mortgage assignments to be prepared. Thereafter, the Custodian and the
Indenture Trustee shall cooperate in executing any documents prepared
by the Note Insurer and submitted to the Custodian and the Indenture
Trustee in connection with this provision. Following the expiration of
the 75- Business Day period following the Closing Date and except with
respect to Mortgages covered by the Assignment Opinions, the Seller
shall cause to be prepared a Mortgage assignment for any Mortgage for
which original recording information is subsequently received by the
related Originator and shall promptly deliver a copy of such Mortgage
assignment to the Custodian, on behalf of the Indenture Trustee.
All recording required pursuant to this Section 2.5 shall be
accomplished at the expense of the Originators or of the Seller. Notwithstanding
anything to the contrary contained in this Section 2.5, in those instances where
the public recording office retains the original Mortgage, the assignment of a
Mortgage or the intervening assignments of the Mortgage after it has been
recorded, the Seller shall be deemed to have satisfied its obligations hereunder
upon delivery to the Custodian, on behalf of the Indenture Trustee, of a copy of
such Mortgage, such assignment or assignments of Mortgage certified by the
public recording office to be a true copy of the recorded original thereof.
Copies of all Mortgage assignments received by the Custodian,
on behalf of the Indenture Trustee shall be kept in the related File.
(c) In the case of Mortgage Loans which have been prepaid in
full on or after the Cut-Off Date and prior to the Closing Date, the Seller, in
lieu of the foregoing, will deliver within 15 Business Days after the Closing
Date to the Indenture Trustee a certification of an Authorized Officer in the
form set forth in Exhibit B.
(d) The Seller shall transfer, assign, set over and otherwise
convey without recourse, to the Issuer all right, title and interest of the
Seller in and to any Qualified Replacement Mortgage delivered to the Custodian,
on behalf of the Indenture Trustee, on behalf of the Issuer by the Seller
pursuant to Section 2.4 or Section 2.6 hereof and all its right, title and
interest to principal and interest due on such Qualified Replacement Mortgage
after the applicable Replacement Cut-Off Date; provided, however, that the
Seller shall reserve and retain all right, title and interest in and to payments
of principal and interest due on such Qualified Replacement Mortgage on and
prior to the applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the lien of the
Indenture in connection with the conveyance of a Qualified Replacement Mortgage
therefor, the Custodian, on behalf of the Indenture Trustee, will transfer,
assign, set over and otherwise convey without recourse, on the Seller's order,
all of its
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right, title and interest in and to such released Mortgage Loan and all the
Issuer's right, title and interest to principal and interest due on such
released Mortgage Loan after the applicable Replacement Cut-Off Date; provided,
however, that the Issuer shall reserve and retain all right, title and interest
in and to payments of principal and interest due on such released Mortgage Loan
on and prior to the applicable Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Issuer, the Seller agrees to cause to be
delivered to the Custodian, on behalf of the Indenture Trustee, the items
described in Section 2.5(b) on the date of such transfer and assignment or if a
later delivery time is permitted by Section 2.5(b) then no later than such later
delivery time.
(g) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the
Custodian, on behalf of the Indenture Trustee, shall deliver on the date of
conveyance of such Qualified Replacement Mortgage, and on the order of the
Seller (i) the original Mortgage Note, or the certified copy, relating thereto,
endorsed without recourse, to the Seller and (ii) such other documents as
constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Seller shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
Section 2.6. Acceptance by Indenture Trustee; Certain
Substitutions of Mortgage Loans; Certification by Indenture Trustee.
(a) The Indenture Trustee agrees to cause the Custodian to
execute and deliver to the Seller, the Issuer, the Servicer and the Note Insurer
on the Closing Date an Initial Certification in the form annexed hereto as
Exhibit C to the effect that, as to each Mortgage Loan listed in the Schedule of
Mortgage Loans (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to it pursuant to
this Agreement with respect to such Mortgage Loan are in its possession, (ii)
such documents have been reviewed by it and appear regular on their face and
relate to such Mortgage Loan and (iii) based on its examination and only as to
the foregoing documents, the information set forth on the Schedule of Mortgage
Loans as to loan number and address accurately reflects information set forth in
the File. The Indenture Trustee and the Custodian shall not be under any duty or
obligation to inspect, review or examine said documents, instruments, Notes or
other papers to determine that the same are genuine, enforceable or appropriate
for the represented purpose or that they have actually been recorded or that
they are other than what they purport to be on their face. Within 90 days of the
Closing Date (or, with respect to any document delivered after the Closing Date,
within 45 days of receipt thereof) the Indenture Trustee shall cause the
Custodian to deliver to the Issuer, the Seller, Note Insurer and the Servicer a
Final Certification in the form annexed hereto as Exhibit D evidencing the
completeness of the Files, with any applicable exceptions Mortgage Noted
thereon.
(b) If in the process of reviewing the Files and preparing the
certifications referred to above the Custodian, on behalf of the Indenture
Trustee, finds any document or documents constituting a part of a File which is
not properly executed, has not been received within the specified period or is
unrelated to the Mortgage Loans identified in the Schedule of Mortgage Loans, or
that any Mortgage Loan does not conform as to loan number and address as set
forth in the Schedule of Mortgage Loans, the Custodian, on behalf of the
Indenture Trustee, shall promptly notify the Seller and the Note Insurer. The
Seller shall use reasonable efforts to cure any such defect within 60 days from
the date on which the Seller was notified of such defect, and if the Seller does
not cure such defect in all material respects during such period, the Seller
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will (or will cause the related Originator or an affiliate of the Seller to) on
the next succeeding Remittance Date (i) substitute in lieu of such Mortgage Loan
a Qualified Replacement Mortgage and deliver the Substitution Amount applicable
thereto to the Servicer for deposit in the Principal and Interest Account or
(ii) purchase such Mortgage Loan at a purchase price equal to the Loan Purchase
Price thereof, which purchase price shall be delivered to the Servicer for
deposit in the Principal and Interest Account.
Section 2.7. Cooperation Procedures. (a) The Seller shall, in
connection with the delivery of each Qualified Replacement Mortgage to the
Custodian, on behalf of the Indenture Trustee, provide the Indenture Trustee
with the information set forth in the Schedule of Mortgage Loans with respect to
such Qualified Replacement Mortgage.
(b) The Seller, the Issuer, the Servicer and the Indenture
Trustee covenant to provide each other with all data and information required to
be provided by them hereunder at the times required hereunder, and additionally
covenant reasonably to cooperate with each other in providing any additional
information required to be obtained by any of them in connection with their
respective duties hereunder.
(c) The Servicer shall maintain such accurate and complete
accounts, records and computer systems pertaining to each File as shall enable
it and the Indenture Trustee to comply with this Agreement. In performing its
recordkeeping duties the Servicer shall act in accordance with the servicing
standards set forth in this Agreement. The Servicer shall conduct, or cause to
be conducted, periodic audits of its accounts, records and computer systems as
set forth in Sections 4.16 and 4.17 hereof. The Servicer shall promptly report
to the Indenture Trustee any failure on its part to maintain its accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure.
(d) The Seller further confirms to the Indenture Trustee that
it has caused the portions of the electronic ledger relating to the Mortgage
Loans to be clearly and unambiguously marked to indicate that such Mortgage
Loans have been sold, transferred, assigned and conveyed to the Issuer and
constitute part of the Trust Estate in accordance with the terms of the trust
created hereunder and that the Seller will treat the transaction contemplated by
such sale, transfer, assignment and conveyance as a sale for accounting
purposes.
Section 2.8. Books and Records.
The sale of each Mortgage Loan shall be reflected in the Seller's
balance sheets and other financial statements as a sale of assets by the Seller
under generally accepted accounting principles.
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 3.1. Reserved.
Section 3.2. Establishment of Accounts. The Seller shall cause
to be established, and the Indenture Trustee shall maintain, at the Corporate
Trust Office, a Note Account and an Available Funds Cap Carry-Forward Account
each to be held by the Indenture Trustee so long as the Indenture Trustee
qualifies as a Designated Depository Institution and if the Indenture Trustee
does not so qualify, then by any Designated Depository Institution in the name
of the Indenture Trustee for the benefit of the Owners of the
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First Alliance [Adjustable] [Fixed] Rate Mortgage Loan Asset Backed Notes,
Series 199_-_and the Note Insurer, as their interests may appear.
Section 3.3. The Note Insurance Policy. (a) On the Business
Day prior to each Payment Date the Indenture Trustee shall determine with
respect to the immediately following Payment Date, the amount on deposit in the
Note Account on such Payment Date and available to be distributed to the Owners
on such Payment Date (disregarding the sum of (x) the amount of any Insured
Payments and (y) the amount of any expected investment earnings) and equal to
the sum of (A) such amount excluding the amount of any Total Monthly Excess
Cashflow included in such amount plus (B) any amount of Total Monthly Excess
Cashflow to be applied on such Payment Date. The amount described in clause (A)
of the preceding sentence with respect to each Payment Date is the "Available
Funds"; the sum of the amounts described in clauses (A) and (B) of the preceding
sentence with respect to each Payment Date is the "Total Available Funds."
(b) If (i) the Current Interest for any Payment Date exceeds
the Total Available Funds for such Payment Date after deducting amounts payable
therefrom, if any, for the Premium Amount and the Indenture Trustee Fee due on
such Payment Date and/or (ii) a Subordination Deficit exists for such Payment
Date (any such event being a "Total Available Funds Shortfall"), the Indenture
Trustee shall complete a Notice in the form of Exhibit A to the Note Insurance
Policy and submit such notice to the Note Insurer no later than 12:00 noon New
York City time on the Business Day preceding such Payment Date as a claim for an
Insured Payment in an amount equal to such Total Available Funds Shortfall.
(c) The Note Insurer shall forward to the Indenture Trustee
Insured Payments at such time and in the manner specified in the Note Insurance
Policy. Upon receipt of Insured Payments from the Note Insurer on behalf of
Owners, the Indenture Trustee shall deposit such Insured Payments in the Note
Account and shall distribute such Insured Payments, or the proceeds thereof, in
accordance with Section 3.5(b)(iv) to the Owners of the Notes.
(d) The Indenture Trustee shall (i) receive Insured Payments
as attorney-in-fact of each Owner of the Notes receiving any Insured Payment
from the Note Insurer and (ii) disburse such Insured Payment to the Owners of
Notes as set forth in Section 3.5(b)(iv). Insured Payments disbursed by the
Indenture Trustee from proceeds of the Note Insurance Policy shall not be
considered payment by the Trust nor shall such payments discharge the obligation
of the Trust with respect to the Notes, and the Note Insurer shall be entitled
to receive the related Reimbursement Amount pursuant to Sections 3.5(b)(ii)(C)
hereof. Each Owner of Notes by its acceptance thereof recognizes that to the
extent the Note Insurer makes Insured Payments, either directly or indirectly
(as by paying through the Indenture Trustee), to the Owners of such Notes the
Note Insurer will be entitled to receive the related Reimbursement Amount
pursuant to Section 3.5(b)(ii)(C) hereof.
Section 3.4. Reserved.
Section 3.5. Flow of Funds. (a) The Indenture Trustee shall
deposit to the Note Account, without duplication, (i) upon receipt, any Insured
Payments, the proceeds of any liquidation of the assets of the Trust, the
Monthly Remittance Amount remitted by the Servicer or any Sub-Servicer, together
with any Substitution Amounts and any Loan Purchase Price amounts received by
the Indenture Trustee.
(b) With respect to the Note Account, on each Payment Date,
the Indenture Trustee shall make the following allocations, disbursements and
transfers from amounts deposited therein pursuant to subsection (a), in the
following order of priority, and each such allocation, transfer and disbursement
shall be treated as having occurred only after all preceding allocations,
transfers and disbursements have occurred:
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(i) first, on each Payment Date from amounts then on deposit in the Note
Account (A) to the Indenture Trustee, the Indenture Trustee Fee and (B)
commencing on the third Payment Date following the Closing Date and
each Payment Date thereafter, to the Note Insurer, from amounts then on
deposit in the Note Account, the Premium Amount for such Payment Date;
(ii) second, on each Payment Date, the Indenture Trustee shall allocate an
amount equal to the sum of (x) the Total Monthly Excess Spread with
respect to such Payment Date plus (y) any Subordination Reduction
Amount with respect to such Payment Date (such sum being the "Total
Monthly Excess Cashflow" with respect to such Payment Date) in the
following order of priority:
(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Monthly Distribution
Amount pursuant to clause (iv) below on such Payment
Date in an amount equal to the difference, if any,
between (x) the Monthly Distribution Amount
(calculated only with respect to clause (y) of
Principal Distribution Amount and without any
Subordination Increase Amount) for such Payment Date
and (y) the Available Funds for such Payment Date
(the amount of such difference being the "Available
Funds Shortfall"); and
(B) second, any portion of the Total Monthly Excess
Cashflow remaining after the allocations described in
clause (A) above shall be allocated to the Note
Insurer in respect of amounts owed on account of any
Reimbursement Amount pursuant to clause
(b)(iv)(A)(I).
(iii) third, the amount, if any, of the Total Monthly Excess Cashflow on a
Payment Date remaining after the allocations described in clause (ii)
above is the "Net Monthly Excess Cashflow" for such Payment Date; such
Net Monthly Excess Cashflow is required to be allocated in the
following order of priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the allocation of a
Subordination Increase Amount to the payment of the
Monthly Distribution Amount pursuant to clause
(iv)(C) below, any Subordination Deficiency Amount as
of such Payment Date;
(B) second, an amount equal to the lesser of (i) any
portion of the Net Monthly Excess Cashflow remaining
after the applications described in clause (A) above
and (ii) the excess of (a) the Available Funds Cap
Carry-Forward Amount for such Payment Date over (b)
the amount then on deposit in the Available Funds Cap
Carry- Forward Amount Account shall be allocated to
the Available Funds Cap Carry- Forward Amount
Account; and
(C) third, any Net Monthly Excess Cashflow remaining
after the applications described in clauses (A) and
(B) above shall be allocated to the Servicer pursuant
to the clause (iv)(A)(II) below to the extent of any
unreimbursed Delinquency Advances, unreimbursed
Servicing Advances and accrued and unpaid Servicing
Fees, in each case as certified to the Indenture
Trustee by the Servicer to be owing to it as of such
Payment Date;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under Section
3.3 hereof and the prior clauses of this Section 3.5, from amounts
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(including any related Insured Payment which shall be paid only to the
Owners of the Notes) then on deposit in the Note Account, the Indenture
Trustee shall:
(A) distribute (I) to the Note Insurer the amounts
described in clause (ii)(B) above and (II) to the
Servicer the amounts described in clause (iii)(C)
above;
(B) retain in the Note Account, the Current Interest
(including the proceeds of any Insured Payments
relating to interest made by the Note Insurer);
(C) retain in the Note Account, the Principal
Distribution Amount (including the proceeds of any
Insured Payments relating to principal made by the
Note Insurer);
(D) distribute to the Indenture Trustee, for the
reimbursement of expenses of the Indenture Trustee
not reimbursed pursuant to clause (b)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above under Section
3.3 hereof and the prior clauses of this Section 3.5, from amounts then
on deposit in the Note Account, the Indenture Trustee shall distribute
to the Certificate Distribution Account, the Residual Net Monthly
Excess Cashflow, if any, for such Payment Date.
(c) On each Payment Date the Indenture Trustee shall distribute to the
Owners the amount, if any, then on deposit in the Available Funds Cap
Carry-Forward Amount Account.
(d) Notwithstanding clause (b)(iv) above, the aggregate amounts
distributed on all Payment Dates to the Owners of the Notes on account of
principal shall not exceed the Original Note Principal Balance.
Section 3.6. Investment of Accounts. (a) So long as no event
described in Sections 4.20(a) or (b) hereof shall have occurred and be
continuing, and consistent with any requirements of the Code, all or a portion
of the Accounts held by the Indenture Trustee shall be invested and reinvested
by the Indenture Trustee for the benefit of the Owners and the Note Insurer, as
their interests may appear, directed in writing by the Servicer on the Closing
Date and from time to time thereafter, in one or more Eligible Investments
bearing interest or sold at a discount. During the continuance of an event
described in Sections 4.20(a) or (b) hereof and following any removal of the
Servicer, the Note Insurer shall direct such investments. No investment in any
Account shall mature later than the second Business Day preceding the next
Payment Date.
(b) If any amounts are needed for disbursement from any
Account held by the Indenture Trustee and sufficient uninvested funds are not
available to make such disbursement, the Indenture Trustee shall cause to be
sold or otherwise converted to cash a sufficient amount of the investments in
such Account. No investments will be liquidated prior to maturity unless the
proceeds thereof are needed for disbursement.
(c) Subject to the terms of the Indenture, the Indenture
Trustee shall not in any way be held liable by reason of any insufficiency in
any Account held by the Indenture Trustee resulting from any loss on any
Eligible Investment included therein.
(d) The Indenture Trustee shall hold funds in the Accounts
held by the Indenture Trustee uninvested upon the occurrence of either of the
following events:
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(i) the Servicer or the Note Insurer, as the case may
be, shall have failed to give investment directions to the Indenture
Trustee within ten days after receipt of a written request for such
directions from the Indenture Trustee; or
(ii) the Servicer or the Note Insurer, as the case
may be, shall have failed to give investment directions to the
Indenture Trustee with respect to any investment by the Indenture
Trustee that shall mature during the ten-day period described in clause
(i).
(e) For purposes of investment, the Indenture Trustee shall
aggregate all amounts on deposit in each Account. All income or other gain from
investments in any Account shall be deposited in such Account immediately on
receipt, and any loss resulting from such investments shall be charged to the
Seller, and upon request by the Indenture Trustee, the Seller shall reimburse
the Trust Estate for such losses.
(f) Each institution at which the Note Account is maintained
shall invest the funds therein in Eligible Investments, which shall mature not
later than the Business Day next preceding the related Payment Date (except that
if such Eligible Investment is an obligation of the institution that maintains
such account, then such Eligible Investment shall mature not later than such
Payment Date) and, in each case, shall not be sold or disposed of prior to its
maturity. All such Eligible Investments shall be made in the name of the
Indenture Trustee, for the benefit of the Owners and the Note Insurer. All
income and gain (net of any losses) realized from any such investment of funds
on deposit in the Note Account shall be for the benefit of the Servicer as
servicing compensation and shall be remitted to it monthly as provided herein.
The amount of any realized losses in the Note Account incurred in any such
account in respect of any such investments shall promptly be deposited by the
Servicer in the Note Account or paid to the Indenture Trustee as applicable. The
Indenture Trustee in its fiduciary capacity shall not be liable for the amount
of any loss incurred in respect of any investment or lack of investment of funds
held in the Note Account and made in accordance with this Section 3.6(f).
(g) The Servicer shall give notice to the Indenture Trustee,
the Seller, the Issuer, each Rating Agency, and the Note Insurer of any proposed
change of the location of the Note Account not later than 30 days and not more
than 45 days prior to any change thereof.
Section 3.7. Eligible Investments. The following are Eligible
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal funds, Notes of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365 days)
of any domestic bank, the short-term debt obligations of which have been rated
A-1 or better by Standard & Poor's and P-1 by Moody's.
(c) Investment agreements approved by the Note Insurer
provided:
1. The agreement is with a bank or insurance company
which has an unsecured, uninsured and unguaranteed obligation (or
claims-paying ability) rated Aa2 or better by Moody's and AA or better
by Standard & Poor's,
2. Moneys invested thereunder may be withdrawn
without any penalty, premium or charge upon not more than one day's
notice (provided such notice may be amended or canceled at any time
prior to the withdrawal date),
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3. The agreement is not subordinated to any other
obligations of such insurance company or bank,
4. The same guaranteed interest rate will be paid on
any future deposits made pursuant to such agreement, and
5. The Indenture Trustee and the Note Insurer receive
an opinion of counsel that such agreement is an enforceable obligation
of such insurance company or bank.
(d) Commercial paper (having original maturities of not more
than 365 days) rated A-1 or better by Standard & Poor's and P-1 or better by
Moody's.
(e) Investments in no load money market funds rated AAAm or
AAAm-G by Standard & Poor's and Aaa by Moody's.
(f) Investments approved in writing by the Note Insurer and
acceptable to Moody's and Standard & Poor's.
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par.
Section 3.8. Reports by Indenture Trustee. (a) On each Payment
Date the Indenture Trustee shall provide to each Owner, the Owner Trustee, the
Servicer, the Note Insurer, each of the Underwriters, the Servicer, Standard &
Poor's and Moody's a written report (based solely upon the information contained
in the Monthly Servicing Report) in substantially the form set forth as Exhibit
E hereto, as such form may be revised by the Indenture Trustee, the Servicer,
Moody's and Standard & Poor's from time to time, but in every case setting forth
the information requested on Exhibit E hereto and the following information:
(i) the amount of the distribution with respect
to the Notes;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments or Prepaid Installments of principal included therein and
any Subordination Increase Amounts;
(iii) the amount of such distributions allocable
to interest;
(iv) the Note Principal Balance for the Notes as of
such Payment Date together with the principal amount of such Notes
(based on a Note in an original principal amount of $1,000) then
outstanding, in each case after giving effect to any payment of
principal on such Payment Date;
(v) the amount of any Insured Payment included in the
amounts distributed with respect to the Notes on such Payment Date;
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(vi) information to the extent and in the form
furnished by the Seller pursuant to Section 6049(d)(7)(C) of the Code
and the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(vii) the total of any Substitution Amounts and any
Loan Purchase Price amounts included in such distribution;
(viii) the amount of any Subordination Reduction
Amount;
(ix) the amounts, if any, of any Realized Losses for
the related Remittance Period and the cumulative amount of Realized
Losses since the Closing Date;
(x) for the related Remittance Period and
cumulatively since the Closing Date, the number and aggregate Loan
Balance of Mortgage Loans bought back by the Servicer or the Seller
pursuant to Sections 2.4, 2.6 and 4.10 (identified separately for each
such section); and
(xi) the amount of any Available Funds Cap
Carry-Forward Amount.
Items (i) through (iii) above shall be presented on the basis
of a Note having a $1,000 denomination. In addition, by January 31 of each
calendar year following any year during which the Notes are outstanding, the
Indenture Trustee shall furnish a report to each Owner of record at any time
during each calendar year as to the aggregate of amounts reported pursuant to
(i), (ii) and (iii) with respect to the Notes for such calendar year.
(b) In addition, on each Payment Date the Indenture Trustee
will distribute to each Owner, the Owner Trustee, the Note Insurer, each of the
Underwriters, the Servicer, the Seller, Standard & Poor's and Moody's, together
with the information described in Subsection (a) preceding, the following
information as of the last day of the related Remittance Period, which is hereby
required to be prepared by the Servicer and furnished to the Indenture Trustee
for such purpose on or prior to the related Remittance Date:
(i) the total number of Mortgage Loans and the
aggregate Loan Balances thereof, and the percentage (based on the
aggregate Loan Balances of the Mortgage Loans) (a) 30-59 days
Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days
Delinquent;
(ii) the number and aggregate Loan Balances of all
Mortgage Loans and percentage (based on the aggregate Loan Balances of
the Mortgage Loans) in foreclosure proceedings (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i));
(iii) the number, aggregate Loan Balances of all
Mortgage Loans and percentage (based on the aggregate Loan Balances of
the Mortgage Loans) relating to Mortgagors in bankruptcy proceedings
(and whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i));
(iv) the number, aggregate Loan Balances of all
Mortgage Loans and percentage (based on the aggregate Loan Balances of
the Mortgage Loans) relating to REO Properties (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i));
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(v) the aggregate Loan Balance of all Mortgage Loans,
after giving effect to any payment of principal on such Payment Date;
and
(vi) the book value of any REO Property.
Section 3.9. Additional Reports by Indenture Trustee. (a) The
Indenture Trustee shall report to the Owner Trustee, the Seller, the Servicer,
Standard & Poor's, Moody's and the Note Insurer with respect to the amount then
held in each Account (including investment earnings accrued or scheduled to
accrue) held by the Indenture Trustee and the identity of the investments
included therein, as the Seller, the Servicer or the Note Insurer may from time
to time request.
(b) Not later than 20 days after each Payment Date, the
Indenture Trustee shall forward to the Seller, the Servicer and the Note Insurer
a statement, setting forth the status of the Note Account as of the close of
business on the last Business Day of the related Remittance Period showing, for
the period covered by such statement, the aggregate of deposits into and
withdrawals from the Note Account.
ARTICLE IV
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS
Section 4.1. Servicer and Sub-Servicers. (a) Acting directly
or through one or more Sub-Servicers as provided in Section 4.3, the Servicer,
as servicer, shall service and administer the Mortgage Loans in accordance with
this Agreement and with reasonable care, and using that degree of skill and
attention that the Servicer exercises with respect to comparable mortgage loans
that it services for itself or others, and shall have full power and authority,
acting alone, to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
(b) The duties of the Servicer shall include collecting and
posting of all payments, responding to inquiries of Mortgagors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to Mortgagors in
accordance with its customary practices and accounting for collections,
furnishing monthly and annual statements to the Indenture Trustee with respect
to distributions, paying Compensating Interest and making Delinquency Advances
and Servicing Advances pursuant hereto. The Servicer shall follow its customary
standards, policies and procedures in performing its duties as Servicer. The
Servicer shall cooperate with the Indenture Trustee and furnish to the Indenture
Trustee with reasonable promptness information in its possession as may be
necessary or appropriate to enable the Indenture Trustee to perform its tax
reporting duties hereunder. The Indenture Trustee shall furnish the Servicer
with any powers of attorney and other documents necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
hereunder.
(c) Without limiting the generality of the foregoing, the
Servicer (i) shall continue, and is hereby authorized and empowered by the
Indenture Trustee, to execute and deliver, on behalf of itself, the Owners, the
Issuer and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the related Properties; (ii) may consent to any modification of the
terms of any Mortgage Note not expressly prohibited hereby if the effect of any
such modification will not be to affect materially and adversely the security
afforded by the related Property, the timing of receipt of any payments required
hereby or the interests of the Note Insurer.
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(d) The Servicer may, and is hereby authorized to, perform any
of its servicing responsibilities with respect to all or certain of the Mortgage
Loans through a Sub-Servicer as it may from time to time designate but no such
designation of a Sub-Servicer shall serve to release the Servicer from any of
its obligations under this Agreement. Such Sub-Servicer shall have all the
rights and powers of the Servicer with respect to such Mortgage Loans under this
Agreement.
(e) Without limiting the generality of the foregoing, but
subject to Sections 4.13 and 4.14, the Servicer in its own name or in the name
of a Sub-Servicer may be authorized and empowered pursuant to a power of
attorney executed and delivered by the Indenture Trustee to execute and deliver,
on behalf of itself, the Owners, the Issuer and the Indenture Trustee or any of
them, (i) any and all instruments of satisfaction or cancellation or of partial
or full release or discharge and all other comparable instruments with respect
to the Mortgage Loans and with respect to the Properties, (ii) to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Property on behalf of the Indenture Trustee and (iii) to hold
title to any Property upon such foreclosure or deed in lieu of foreclosure on
behalf of the Indenture Trustee; provided, however, that Section 4.14(a) shall
constitute a power of attorney from the Issuer and the Indenture Trustee to the
Servicer to execute an instrument of satisfaction (or assignment of mortgage
without recourse) with respect to any Mortgage Loan paid in full (or with
respect to which payment in full has been escrowed). Subject to Sections 4.13
and 4.14, the Indenture Trustee shall execute a power of attorney to the
Servicer and any Sub-Servicer and furnish them with any other documents as the
Servicer or such Sub-Servicer shall reasonably request to enable the Servicer
and such Sub-Servicer to carry out their respective servicing and administrative
duties hereunder.
(g) The Servicer shall give prompt notice to the Indenture
Trustee, the Issuer and the Note Insurer of any action, of which the Servicer
has actual knowledge, to (i) assert a claim against the Trust or (ii) assert
jurisdiction over the Trust.
(h) Servicing Advances incurred by the Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage Loans (including
any penalties in connection with the payment of any taxes and assessments or
other charges) on any Property shall be recoverable by the Servicer or such
Sub-Servicer to the extent described in Section 4.9(c) and in Section
3.5(b)(iii)(C) hereof.
Section 4.2. Collection of Certain Mortgage Loan Payments. (a)
The Servicer shall, to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any applicable Insurance Policies
follow such collection procedures as it follows from time to time with respect
to mortgage loans in its servicing portfolio that are comparable to the Mortgage
Loans; provided that the Servicer shall always at least follow collection
procedures that are consistent with or better than standard industry practices.
Consistent with the foregoing, the Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if a
Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan; provided, however, the
Servicer shall not reschedule the payment of delinquent payments more than one
time in any twelve (12) consecutive months with respect to any Mortgagor or
(iii) modify payments of monthly principal and interest on any Mortgage Loan
becoming subject to the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended, in accordance with the Servicer's general policies of the
comparable mortgage loans subject to such Act.
(b) The Servicer shall hold in escrow on behalf of the related
Mortgagor all Prepaid Installments received by it, and shall apply such Prepaid
Installments as directed by such Mortgagor and as set forth in the related
Mortgage Note.
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Section 4.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with any institution which is
acceptable to the Note Insurer and which is in compliance with the laws of each
state necessary to enable it to perform its obligations under such Sub-Servicing
Agreement and (x) has (i) been designated an approved seller-servicer by FHLMC
or Fannie Mae for Mortgage Loans and (ii) has equity of at least $5,000,000, as
determined in accordance with generally accepted accounting principles or (y) is
a Servicer Affiliate. The Servicer shall give notice to the Note Insurer and the
Indenture Trustee of the appointment of any Sub-Servicer and shall furnish to
the Note Insurer and the Indenture Trustee a copy of such Sub-Servicing
Agreement. For purposes of this Agreement, the Servicer shall be deemed to have
received payments on Mortgage Loans when any Sub-Servicer has received such
payments. Any such Sub-Servicing Agreement shall be consistent with and not
violate the provisions of this Agreement.
Section 4.4. Successor Sub-Servicers. The Servicer may
terminate any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement and either itself directly service
the related Mortgage Loans or enter into a Sub-Servicing Agreement with a
successor Sub-Servicer that qualifies under Section 4.3.
Section 4.5. Liability of Servicer. The Servicer shall not be
relieved of its obligations under this Agreement notwithstanding any
Sub-Servicing Agreement or any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Sub-Servicer or otherwise,
and the Servicer shall be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Mortgage
Loans. The Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and
nothing contained in such Sub-Servicing Agreement shall be deemed to limit or
modify this Agreement. The Trust shall not indemnify the Servicer for any losses
due to the Servicer's negligence.
Section 4.6. No Contractual Relationship Between Sub-Servicer
and Indenture Trustee or the Owners. Any Sub-Servicing Agreement and any other
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
shall be deemed to be between the Sub-Servicer and the Servicer alone and the
Note Insurer, the Indenture Trustee and the Owners shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to any Sub-Servicer except as set forth in Section 4.7.
Section 4.7. Assumption or Termination of Sub-Servicing
Agreement by Indenture Trustee. In connection with the assumption of the
responsibilities, duties and liabilities and of the authority, power and rights
of the Servicer hereunder by the Indenture Trustee pursuant to Section 4.20, it
is understood and agreed that the Servicer's rights and obligations under any
Sub-Servicing Agreement then in force between the Servicer and a Sub-Servicer
may be assumed or terminated by the Indenture Trustee at its option without the
payment of a fee notwithstanding any contrary provision in any Sub-Servicing
Agreement.
The Servicer shall, upon reasonable request of the Indenture
Trustee, but at the expense of the Servicer, deliver to the assuming party
documents and records relating to each Sub-Servicing Agreement and an accounting
of amounts collected and held by it and otherwise use its best reasonable
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
Section 4.8. Principal and Interest Account.
(a) The Servicer shall establish in the name of the Trust for
the benefit of the Owners of the Notes and the Note Insurer and maintain at one
or more Designated Depository Institutions the Principal and Interest Account.
The funds held in the Principal and Interest Account shall not be
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commingled with any other funds.
Subject to Subsection (c) below, the Servicer and any
Sub-Servicer shall deposit all receipts related to the Mortgage Loans into the
Principal and Interest Account on a daily basis (but no later than the first
Business Day after receipt).
Subject to Subsection (c) below, within one Business Day
following the Closing Date, the Seller and/or the Servicer shall deposit into
the Principal and Interest Account all receipts related to the related Mortgage
Loans received after the Cut-Off Date.
(b) Any investment of funds in the Principal and Interest
Account shall mature or be withdrawable at par on or prior to the immediately
succeeding Remittance Date. All funds in the Principal and Interest Account may
only be held (i) uninvested, up to the limits insured by the FDIC or (ii)
invested in Eligible Investments. The Principal and Interest Account shall be
held in trust in the name of the Trust and for the benefit of the Owners of the
Notes. Any investment earnings on funds held in the Principal and Interest
Account shall be for the account of the Servicer and may only be withdrawn from
the Principal and Interest Account by the Servicer on the second Business Day of
the month for the investment earnings for the previous calendar month. The
Servicer shall withdraw from the Principal and Interest Account, on the second
Business Day of the month, investment earnings for the previous calendar month.
The Servicer shall deposit into the Principal and Interest Account the amount of
all losses on investment of funds in the Principal and Interest Account upon
request from the Indenture Trustee. Any references herein to amounts on deposit
in the Principal and Interest Account shall refer to amounts net of investment
earnings.
(c) The Servicer shall deposit to the Principal and Interest
Account all principal and interest collections on the Mortgage Loans received
after the Cut-Off Date, including any Prepayments and Net Liquidation Proceeds,
all Loan Purchase Prices and Substitution Amounts received or paid by the
Servicer with respect to the Mortgage Loans, other recoveries or amounts related
to the Mortgage Loans received by the Servicer, Compensating Interest and
Delinquency Advances together with any amounts which are reimbursable from the
Principal and Interest Account but net of (i) the Servicing Fee with respect to
each Mortgage Loan and other servicing compensation to the Servicer as permitted
by Section 4.15 hereof, (ii) principal (including Prepayments) due on the
related Mortgage Loans on or prior to the Cut-Off Date, (iii) interest accruing
on the related Mortgage Loans on or prior to the Cut-Off Date and (iv) Net
Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed the Loan
Balance of the related Mortgage Loan.
(d) (i) The Servicer may make withdrawals from the Principal
and Interest Account only for the following purposes:
(A) to effect the timely remittance to the Indenture
Trustee of the Monthly Remittance Amount due on the
Remittance Date;
(B) to reimburse itself pursuant to Section 4.9(a) hereof
for unrecovered Delinquency Advances and Servicing
Advances;
(C) to withdraw investment earnings on amounts on deposit
in the Principal and Interest Account;
(D) to withdraw amounts that have been deposited to the
Principal and Interest Account in error; and
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(E) to clear and terminate the Principal and Interest
Account following the termination of the Trust
pursuant to Article V hereof.
(ii) On the Determination Date of each month, commencing in
_______199_ the Servicer shall send to the Indenture Trustee the Monthly
Exception Report detailing the payments on the Mortgage Loans during the prior
Remittance Period and certifying the amounts and purpose of withdrawals
permitted pursuant to (d) above from the Principal and Interest Account. Such
report shall contain the specified data, as described in Section 4.26 hereof,
and shall be in the form and have the specifications as may be agreed to between
the Servicer, the Note Insurer and the Indenture Trustee from time to time.
(iii) On each Remittance Date, commencing in _______ 1997 the
Servicer shall remit to the Indenture Trustee by wire transfer, or otherwise
make funds available in immediately available funds for deposit to the Note
Account, the Interest Remittance Amount and the Principal Remittance Amount.
Section 4.9. Delinquency Advances, Compensating Interest and
Servicing Advances. (a) The Servicer is required, not later than each Remittance
Date, to deposit into the Principal and Interest Account an amount equal to the
sum of (i) the interest due (net of the Servicing Fees due) but not collected
and (ii) scheduled principal due, but not collected, with respect to Delinquent
Mortgage Loans during the related Due Period but only if, in its good faith
business judgment, the Servicer reasonably believes that such amount will
ultimately be recovered from the related Mortgage Loan. Such amounts are
"Delinquency Advances".
The Servicer shall be permitted to fund its payment of
Delinquency Advances on any Remittance Date and to reimburse itself for any
Delinquency Advances paid from the Servicer's own funds, from collections on any
Mortgage Loan deposited to the Principal and Interest Account subsequent to the
related Due Period and shall deposit into the Principal and Interest Account
with respect thereto (i) collections from the Mortgagor whose Delinquency gave
rise to the shortfall which resulted in such Delinquency Advance and (ii) Net
Liquidation Proceeds recovered on account of the related Mortgage Loan to the
extent of the amount of aggregate Delinquency Advances related thereto. If not
thereto recovered from the related Mortgagor or the related Net Liquidation
Proceeds, Delinquency Advances shall be recoverable pursuant to Section
3.5(b)(iii)(C).
(b) On or prior to each Remittance Date, the Servicer shall
deposit in the Principal and Interest Account with respect to any Paid-in-Full
Mortgage Loan during the related Remittance Period out of its own funds without
any right of reimbursement therefor an amount equal to the difference between
(x) 30 days' interest at such Mortgage Loan's Coupon Rate (less the Servicing
Fee) on the Loan Balance of such Mortgage Loan as of the first day of the
related Remittance Period and (y) to the extent not previously advanced, the
interest (less the Servicing Fee) paid by the Mortgagor with respect to the
Mortgage Loan during such Remittance Period (any such amount paid by the
Servicer, "Compensating Interest"). The Servicer shall in no event be required
to pay Compensating Interest with respect to any Remittance Period in an amount
in excess of the aggregate Servicing Fee received by the Servicer with respect
to all Mortgage Loans for such Remittance Period. Further, the Servicer is not
obligated to cover shortfalls in collections in interest due to Curtailments.
(c) The Servicer will pay all "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) Preservation Expenses, (ii) any enforcement
or judicial proceedings, including foreclosures, and (iii) the management and
liquidation of REO Property, but is only required to pay such costs and expenses
to the extent the Servicer reasonably believes such costs and expenses will
increase Net Liquidation Proceeds on the related Mortgage Loan. Each such amount
so paid will constitute a "Servicing Advance". The Servicer may recover
Servicing Advances (x) from the Mortgagors to the extent permitted by the
Mortgage Loans, from Liquidation Proceeds realized
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upon the liquidation of the related Mortgage Loan, and (y) as provided in
Section 3.5(b)(iii)(C) hereof. In no case may the Servicer recover Servicing
Advances from principal and interest payments on any Mortgage Loan or from any
amounts relating to any other Mortgage Loan except as provided pursuant to
Section 3.5(b)(iii)(C) hereof.
Section 4.10. Purchase of Mortgage Loans. The Servicer may,
but is not obligated to, purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Servicer or by any Sub-Servicer pursuant to Section 4.13. Any
such Loan so purchased shall be purchased by the Servicer not later than the
related Remittance Date at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the Principal and Interest
Account.
Section 4.11. Maintenance of Insurance. (a) The Servicer shall
cause to be maintained with respect to each Mortgage Loan a hazard insurance
policy with a generally acceptable carrier that provides for fire and extended
coverage, and which provides for a recovery by the Servicer on behalf of the
Trust of insurance proceeds relating to such Mortgage Loan in an amount not less
than the least of (i) the outstanding principal balance of the Mortgage Loan,
(ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan at the time of origination relates to
a Property in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards, the Servicer will
cause to be maintained with respect thereto a flood insurance policy in a form
meeting the requirements of the current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for a recovery by the Servicer on behalf of the
Trust of insurance proceeds relating to such Mortgage Loan of not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis and (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973. The Servicer shall indemnify the Trust
and the Note Insurer out of the Servicer's own funds for any loss to the Trust
and the Note Insurer resulting from the Servicer's failure to maintain the
insurance required by this Section.
(c) In the event that the Servicer shall obtain and maintain a
blanket policy insuring against fire, flood and hazards of extended coverage on
all of the Mortgage Loans, then, to the extent such policy names the Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance and otherwise
complies with the requirements of this Section 4.11, the Servicer shall be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage under this Section 4.11, it being understood and
agreed that such blanket policy may contain a deductible clause, in which case
the Servicer shall, in the event that there shall not have been maintained on
the related Property a policy complying with the preceding paragraphs of this
Section 4.11, and there shall have been a loss which would have been covered by
such policy, deposit in the Principal and Interest Account from the Servicer's
own funds the difference, if any, between the amount that would have been
payable under a policy complying with the preceding paragraphs of this Section
4.11 and the amount paid under such blanket policy. Upon the request of the
Indenture Trustee or the Note Insurer, the Servicer shall cause to be delivered
to the Indenture Trustee or the Note Insurer a certified true copy of such
policy.
Section 4.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements. When a Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Mortgage
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Note; provided, however, that the Servicer shall not exercise any such right if
(i) the "due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law or (ii) the Servicer reasonably believes that
to permit an assumption of the Mortgage Loan would not materially and adversely
affect the interest of the Owners or of the Note Insurer. In such event, the
Servicer shall enter into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such Person becomes liable under the Mortgage Note and, unless prohibited
by applicable law or the related Mortgage Loan documents, the Mortgagor remains
liable thereon. If the foregoing is not permitted under applicable law, the
Servicer is authorized to enter into a substitution of liability agreement with
such person, pursuant to which the original Mortgagor is released from liability
and such person is substituted as Mortgagor and becomes liable under the
Mortgage Note; provided, however, that to the extent any such substitution of
liability agreement would be delivered by the Servicer outside of its usual
procedures for mortgage loans held in its own portfolio the Servicer shall,
prior to executing and delivering such agreement, obtain the prior written
consent of the Note Insurer. The Mortgage Loan, as assumed, shall conform in all
respects to the requirements, representations and warranties of this Agreement.
The Servicer shall notify the Indenture Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Indenture Trustee
the original copy of such assumption or substitution agreement, which copy shall
be added by the Indenture Trustee to the related File and which shall, for all
purposes, be considered a part of such File to the same extent as all other
documents and instruments constituting a part thereof. The Servicer shall be
responsible for recording any such assumption or substitution agreements. In
connection with any such assumption or substitution agreement, the required
monthly payment on the related Mortgage Loan shall not be changed but shall
remain as in effect immediately prior to the assumption or substitution, the
stated maturity or outstanding principal amount of such Mortgage Loan shall not
be changed nor shall any required monthly payments of principal or interest be
deferred or forgiven. Any fee collected by the Servicer or the Sub-Servicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Servicer as additional servicing
compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 4.13. Realization Upon Defaulted Mortgage Loans. (a)
The Servicer shall foreclose upon or otherwise comparably effect the ownership
on behalf of the Trust of Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of Delinquent
payments and which the Servicer has not purchased pursuant to Section 4.10. In
connection with such foreclosure or other conversion, the Servicer shall
exercise such of the rights and powers vested in it hereunder, and use the same
degree of care and skill in its exercise or use as prudent mortgage lenders
would exercise or use under the circumstances in the conduct of their own
affairs, including, but not limited to, advancing funds for the payment of
taxes, amounts due with respect to Senior Liens and insurance premiums. Any
amounts so advanced shall constitute "Servicing Advances" within the meaning of
Section 4.9(c) hereof. The Servicer shall sell any REO Property within 23 months
of its acquisition by the Trust, unless the Servicer obtains for the Indenture
Trustee and the Note Insurer an opinion of counsel experienced in federal income
tax matters and reasonably acceptable to the Note Insurer, addressed to the
Indenture Trustee, the Note Insurer and the Servicer, to the effect that the
holding by the Trust of such REO Property for any greater period will not result
in the imposition of taxes on the Trust.
Pursuant to its efforts to sell such REO Property, the
Servicer shall either itself or through an agent selected by the Servicer
protect and conserve such REO Property in the same manner and to such extent as
is customary in the locality where such REO Property is located and may,
incident to its
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conservation and protection of the interests of the Owners, rent the same, or
any part thereof, as the Servicer deems to be in the best interest of the Owners
for the period prior to the sale of such REO Property. The Servicer shall take
into account the existence of any hazardous substances, hazardous wastes or
solid wastes, as such terms are defined in the Comprehensive Environmental
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act of 1976, or other federal, state or local environmental legislation, on a
Property in determining whether to foreclose upon or otherwise comparably
convert the ownership of such Property.
(b) The Servicer shall determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through Indenture
Trustee's sale, foreclosure sale or otherwise, all amounts it expects to recover
from or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan
shall become a "Liquidated Loan".
Section 4.14. Indenture Trustee to Cooperate; Release of
Files. (a) Upon the payment in full of any Mortgage Loan (including the
repurchase of any Mortgage Loan or any liquidation of such Mortgage Loan through
foreclosure or otherwise) or the receipt by the Servicer of a notification that
payment in full will be escrowed in a manner customary for such purposes, the
Servicer shall deliver to the Indenture Trustee a Request for Release. Upon
receipt of such Request for Release, the Custodian, on behalf of the Indenture
Trustee, shall promptly release the related File, in trust to (i) the Servicer,
(ii) an escrow agent or (iii) any employee, agent or attorney of the Indenture
Trustee, in each case pending its release by the Servicer, such escrow agent or
such employee, agent or attorney of the Indenture Trustee, as the case may be.
Upon any such payment in full or the receipt of such notification that such
funds have been placed in escrow, the Servicer is authorized to give, as
attorney-in-fact for the Indenture Trustee and the mortgagee under the Mortgage
which secured the Mortgage Note, an instrument of satisfaction (or assignment of
Mortgage without recourse) regarding the Property relating to such Mortgage,
which instrument of satisfaction or assignment, as the case may be, shall be
delivered to the Person or Persons entitled thereto against receipt therefor of
payment in full, it being understood and agreed that no expense incurred in
connection with such instrument of satisfaction or assignment, as the case may
be, shall be chargeable to the Principal and Interest Account. In lieu of
executing any such satisfaction or assignment, as the case may be, the Servicer
may prepare and submit to the Indenture Trustee a satisfaction (or assignment
without recourse, if requested by the Person or Persons entitled thereto) in
form for execution by the Indenture Trustee with all requisite information
completed by the Servicer; in such event, the Indenture Trustee shall execute
and acknowledge such satisfaction or assignment, as the case may be, and deliver
the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of
any Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Custodian on behalf of the Indenture Trustee shall (except
in the case of the payment or liquidation pursuant to which the related File is
released to an escrow agent or an employee, agent or attorney of the Indenture
Trustee), upon request of the Servicer and delivery to the Custodian of a
Request for Release, release the related File to the Servicer and shall execute
such documents as shall be necessary to the prosecution of any such proceedings,
including, without limitation, an assignment without recourse of the related
Mortgage to the Servicer; provided that there shall not be released and
unreturned at any one time more than 10% of the entire number of Files. The
Indenture Trustee shall complete in the name of the Indenture Trustee any
endorsement in blank on any Mortgage Note prior to releasing such Mortgage Note
to the Servicer. Such receipt shall obligate the Servicer to return the File to
the Custodian when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated in which case, upon receipt of the liquidation
information, in physical or electronic form, the Request for Release shall be
released by the Indenture Trustee to the Servicer.
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(c) The Servicer shall have the right to approve applications
of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
and (iii) removal, demolition or division of properties subject to Mortgages. No
application for approval shall be considered by the Servicer unless: (x) the
provisions of the related Mortgage Note and Mortgage have been complied with;
(y) the Combined Loan-to-Value Ratio (which may, for this purpose, be determined
at the time of any such action in a manner reasonably acceptable to the Note
Insurer) after any release does not exceed the Combined Loan-to-Value Ratio as
of the Cut-Off Date and the Mortgagor's debt-to-income ratio after any release
does not exceed the debt-to-income ratio as of the Cut-Off Date and in no event
exceeds the maximum debt-to-income levels under the related Originator's
underwriting guidelines for a similar credit grade borrower and (z) the lien
priority of the related Mortgage is not adversely affected. Upon receipt by the
Indenture Trustee of an Officer's Certificate executed on behalf of the Servicer
setting forth the action proposed to be taken in respect of a particular
Mortgage Loan and certifying that the criteria set forth in the immediately
preceding sentence have been satisfied, the Indenture Trustee shall execute and
deliver to the Servicer the consent or partial release so requested by the
Servicer. A proposed form of consent or partial release, as the case may be,
shall accompany any Officer's Certificate delivered by the Servicer pursuant to
this paragraph.
(d) No costs associated with the procedures described in this
Section 4.14 shall be an expense of the Trust.
Section 4.15. Servicing Compensation. As compensation for its
activities hereunder, the Servicer shall be entitled to retain the amount of the
Servicing Fee with respect to each Mortgage Loan. Additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, late payment charges, prepayment penalties, any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Principal and Interest Account pursuant to Section 4.8(c)(iv) and similar
items shall, to the extent collected from Mortgagors, be retained by the
Servicer.
Section 4.16. Annual Statement as to Compliance. (a) The
Servicer, at its own expense, will deliver to the Indenture Trustee, the Note
Insurer, Standard & Poor's and Moody's, on or before the last day of December of
each year, commencing in 199_, an Officer's Certificate stating, as to each
signer thereof, that (i) a review of the activities of the Servicer during such
preceding calendar year and of performance under this Agreement has been made
under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement for such year, or, if there has been a default in the
fulfillment of all such obligations, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Servicer to remedy such defaults.
(b) The Servicer shall deliver to the Issuer, the Indenture
Trustee, the Note Insurer, the Owners and the Rating Agencies, promptly after
having obtained knowledge thereof but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or lapse of time, or both, would become an Event
of Servicing Termination.
Section 4.17. Annual Independent Certified Public Accountants'
Reports. On or before the last day of March of each year, commencing in 199_,
the Servicer, at its own expense, shall cause to be delivered to the Indenture
Trustee, the Note Insurer, Standard & Poor's and Moody's a letter or letters of
a firm of independent, nationally- recognized certified public accountants
reasonably acceptable to the Note Insurer stating that such firm has, with
respect to the Servicer's overall servicing operations during the preceding
calendar year, examined such operations in accordance with the requirements of
the Uniform Single Audit Program for Mortgage Bankers, and in either case
stating such firm's conclusions relating thereto.
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Section 4.18. Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Servicer shall provide to the Indenture
Trustee, the Note Insurer, the FDIC and the supervisory agents and examiners of
each of the foregoing access to the documentation regarding the Mortgage Loans
required by applicable state and federal regulations, such access being afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer designated by it.
Upon any change in the format of the computer tape maintained
by the Servicer in respect of the Mortgage Loans, the Servicer shall deliver a
copy of such computer tape to the Indenture Trustee and in addition shall
provide a copy of such computer tape to the Indenture Trustee, and the Note
Insurer at such other times as the Indenture Trustee or the Note Insurer may
reasonably request.
Section 4.19. Assignment of Agreement. The Servicer may not
assign its obligations under this Agreement, in whole or in part, unless it
shall have first obtained the written consent of the Indenture Trustee and the
Note Insurer, which such consent shall not be unreasonably withheld; provided,
however, that any assignee must meet the eligibility requirements set forth in
Section 4.21(f) hereof for a successor servicer. Notice of any such assignment
shall be given by the Servicer to the Indenture Trustee, the Issuer, the Note
Insurer and the Rating Agencies.
Section 4.20. Events of Servicing Termination. (a) The
Indenture Trustee or the Note Insurer (or the Owners with the consent of the
Note Insurer) may remove the Servicer (including any successor entity serving as
the Servicer) upon the occurrence of any of the following events:
(i) The Servicer shall fail to deliver to the
Indenture Trustee any proceeds or required payment, which failure
continues unremedied for five Business Days following written notice to
an Authorized Officer of the Servicer from the Indenture Trustee or
from any Owner;
(ii) The Servicer shall (I) apply for or consent to
the appointment of a receiver, Indenture Trustee, liquidator or
custodian or similar entity with respect to itself or its property,
(II) admit in writing its inability to pay its debts generally as they
become due, (III) make a general assignment for the benefit of
creditors, (IV) be adjudicated a bankrupt or insolvent, (V) commence a
voluntary case under the federal bankruptcy laws of the United States
of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding or (VI) take
corporate action for the purpose of effecting any of the foregoing;
(iii) If without the application, approval or consent
of the Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of
a Indenture Trustee, receiver, liquidator, custodian or similar entity
with respect to the Servicer or of all or any substantial part of its
assets, or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by the
Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B)
continue undismissed or pending and unstayed for any period of
seventy-five (75) consecutive days;
(iv) The Servicer shall fail to perform any one or
more of its obligations hereunder (other than the obligations set out
in (i) above) and shall continue in default thereof for a period of
sixty (60) days after the earlier of (x) notice by the Indenture
Trustee or the Note Insurer
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of said failure or (y) actual knowledge of an officer of the Servicer;
provided, however, that if the Servicer can demonstrate to the
reasonable satisfaction of the Note Insurer that it is diligently
pursuing remedial action, then the cure period may be extended with the
written approval of the Note Insurer; or
(v) The Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 2.2 which
materially and adversely affects the interests of the Owners or Note
Insurer for a period of sixty (60) days after the Servicer's discovery
or receipt of notice thereof; provided, however, that if the Servicer
can demonstrate to the reasonable satisfaction of the Note Insurer that
it is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Note Insurer.
(b) The Note Insurer may remove the Servicer upon the
occurrence of any of the following events:
(i) a Total Available Funds Shortfall; provided,
however, that the Note Insurer shall have no right to remove the
Servicer under this clause (i) if the Servicer can demonstrate to the
reasonable satisfaction of the Note Insurer that such event was due to
circumstances beyond the control of the Servicer;
(ii) the failure by the Servicer to make any required
Servicing Advance;
(iii) the failure by the Servicer to perform any one
or more of its obligations hereunder, which failure materially and
adversely affects the interests of the Note Insurer, and the
continuance of such failure for a period of 30 days or such longer
period as agreed to in writing by the Note Insurer.
(iv) the failure by the Servicer to make any required
Delinquency Advance or to pay any Compensating Interest;
(v) if on any Payment Date the Pool Rolling Three
Month Delinquency Rate exceeds ___%;
(vi) if on any Payment Date occurring in _________ of
any year, commencing in _________ 199_, the aggregate Pool Cumulative
Realized Losses over the prior twelve month period exceed ___% of the
average Pool Principal Balance as of the close of business on the last
day of each of the twelve preceding Remittance Periods; or
(vii) (a) if on any of the first 60 Payment Dates
from the Closing Date the aggregate Pool Cumulative Expected Losses for
all prior Remittance Periods since the Closing Date exceed ___% of the
Pool Principal Balance as of the Cut-Off Date and (b) if on any Payment
Date thereafter the aggregate Pool Cumulative Expected Losses for all
prior Remittance Periods from the Closing Date exceed ___% of the Pool
Principal Balance as of the Cut-Off Date, provided, however, with
respect to clauses (v), (vi) and (vii), if the Servicer can demonstrate
to the reasonable satisfaction of the Note Insurer that any such event
was due to circumstances beyond the control of the Servicer, such event
shall not be considered an event of termination of the Servicer.
Upon the Indenture Trustee's determination that a required Delinquency
Advance or payment of Compensating Interest has not been made by the Servicer,
the Indenture Trustee shall so notify in writing an Authorized Officer of the
Servicer and the Note Insurer as soon as is reasonably practical.
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(c) In the case of clauses (i), (ii), (iii), (iv) or (v) of
Subsection (b) the Owners of Notes evidencing not less than 33 1/3% of the
aggregate Note Principal Balance (with the consent of the Note Insurer) by
notice then given in writing to the Servicer (and a copy to the Indenture
Trustee) may terminate all of the rights and obligations of the Servicer under
this Agreement; provided, however, that the responsibilities and duties of the
initial Servicer with respect to the repurchase of Mortgage Loans pursuant to
Section 2.4 shall not terminate. The Indenture Trustee shall mail a copy of any
notice given by it hereunder to the Rating Agencies. On or after the receipt by
the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Notes or the Mortgage Loans or
otherwise, shall without further action pass to and be vested in the Indenture
Trustee (for this purpose, the term includes an affiliate thereof) or such
successor Servicer as may be appointed hereunder, and, without limitation, the
Indenture Trustee is hereby authorized and empowered (which authority and power
are coupled with an interest and are irrevocable) to execute and deliver, on
behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice or
termination, whether to complete the transfer and endorsement of the Mortgage
Loans and related documents or otherwise. The predecessor Servicer shall
cooperate with the successor Servicer or the Indenture Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement including the transfer to the successor Servicer or to the
Indenture Trustee for administration by it of all cash accounts that shall at
the time be held by the predecessor Servicer for deposit or shall thereafter be
received with respect to a Mortgage Loan. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring the Files
to the successor Servicer and amending this Agreement to reflect such succession
as Servicer pursuant to this Section 4.20 shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs and
expenses.
(d) If any event described in subsections (a) or (b) above
occurs and is continuing, during the 30 day period following receipt of notice,
the Indenture Trustee and the Note Insurer shall cooperate with each other to
determine if the occurrence of such event is more likely than not the result of
the acts or omissions of the Servicer or more likely than not the result of
events beyond the control of the Servicer. If the Indenture Trustee and the Note
Insurer conclude that the event is the result of the latter, the Servicer may
not be terminated, unless and until some other event set forth in subsection (a)
or (b) has occurred and is continuing. If the Indenture Trustee and the Note
Insurer conclude that the event is the result of the former, the Note Insurer
may terminate the Servicer in accordance with this Section, and the Indenture
Trustee shall act as successor Servicer.
If the Indenture Trustee and the Note Insurer cannot agree,
and the basis for such disagreement is not arbitrary or unreasonable, as to the
cause of the event, the decision of the Note Insurer shall control; provided,
however, that if the Note Insurer decides to terminate the Servicer, the
Indenture Trustee shall be relieved of its obligation to assume the servicing or
to appoint a successor, which shall be the exclusive obligation of the Note
Insurer.
The Note Insurer agrees to use its best efforts to inform the
Indenture Trustee of any materially adverse information regarding the Servicer's
servicing activities that comes to the attention of the Note Insurer from time
to time.
Section 4.21. Resignation of Servicer and Appointment of
Successor. (a) Upon the Servicer's receipt of notice of termination pursuant to
Section 4.20 or the Servicer's resignation in accordance with the terms of this
Section 4.21, the predecessor Servicer shall continue to perform its functions
as Servicer under this Agreement, in the case of termination, only until the
date specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the earlier of (x) the date 45 days from the delivery to the
Note Insurer and the Indenture
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Trustee of written notice of such resignation (or written confirmation of such
notice) in accordance with the terms of this Agreement and (y) the date upon
which the predecessor Servicer shall become unable to act as Servicer, as
specified in the notice of resignation and accompanying opinion of counsel. All
collections then being held by the predecessor Servicer prior to its removal and
any collections received by the Servicer after removal or resignation shall be
endorsed by it to the Indenture Trustee and remitted directly and immediately to
the Indenture Trustee or the successor Servicer. In the event of the Servicer's
resignation or termination hereunder, the Indenture Trustee shall appoint a
successor Servicer and the successor Servicer shall accept its appointment by a
written assumption in form acceptable to the Indenture Trustee and the Note
Insurer, with copies to the Note Insurer and the Rating Agencies. Pending such
appointment, the Indenture Trustee shall act as the Servicer hereunder.
(b) The Servicer shall not resign from the obligations and
duties hereby imposed on it, except (i) upon determination that its duties
hereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it,
the other activities of the Servicer so causing such a conflict being of a type
and nature carried on by the Servicer at the date of this Agreement or (ii) upon
written consent of the Note Insurer and the Indenture Trustee. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an opinion of counsel to such effect which shall be delivered to the Indenture
Trustee and the Note Insurer.
(c) No removal or resignation of the Servicer shall become
effective until the Indenture Trustee or a successor Servicer shall have assumed
the Servicer's responsibilities and obligations in accordance with this Section.
(d) Upon removal or resignation of the Servicer, the Servicer
also shall promptly deliver or cause to be delivered to a successor Servicer or
the Indenture Trustee all the books and records (including, without limitation,
records kept in electronic form) that the Servicer has maintained for the
Mortgage Loans, including all tax bills, assessment notices, insurance premium
notices and all other documents as well as all original documents then in the
Servicer's possession.
(e) Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Indenture Trustee and remitted
directly and immediately to the Indenture Trustee, or the successor Servicer.
(f) Upon removal or resignation of the Servicer, the Indenture
Trustee (x) shall solicit bids for a successor Servicer as described below and
(y) pending the appointment of a successor Servicer as a result of soliciting
such bids, shall serve as Servicer. The Indenture Trustee shall, if it is unable
to obtain a qualifying bid and is prevented by law from acting as Servicer, (I)
appoint, or petition a court of competent jurisdiction to appoint, any housing
and home finance institution, bank or mortgage servicing institution which has
been designated as an approved seller-servicer by Fannie Mae or FHLMC for second
mortgage loans and having equity of not less than $15,000,000 or such lower
level as may be acceptable to the Note Insurer as determined in accordance with
generally accepted accounting principles as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder and (II) give notice thereof to the
Note Insurer and Rating Agencies. The compensation of any successor Servicer
(including, without limitation, the Indenture Trustee) so appointed shall be the
Servicing Fee, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Sections 4.8
and 4.15; provided, however, that if the Indenture Trustee acts as successor
Servicer, then the former Servicer agrees to pay to the Indenture Trustee at
such time that the Indenture Trustee becomes such successor Servicer a set-up
fee of fifteen dollars ($15.00) for each Mortgage Loan then included in the
Trust Estate. The Indenture Trustee shall be obligated to serve as
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successor Servicer whether or not the fee described in the preceding sentence is
paid by the Seller, but shall in any event be entitled to receive, and to
enforce payment of, such fee from the former Servicer.
(g) In the event the Indenture Trustee solicits bids as
provided above, the Indenture Trustee shall solicit, by public announcement,
bids from housing and home finance institutions, banks and mortgage servicing
institutions meeting the qualifications set forth above. Such public
announcement shall specify that the successor Servicer shall be entitled to the
full amount of the aggregate Servicing Fees as servicing compensation, together
with the other servicing compensation in the form of assumption fees, late
payment charges or otherwise as provided in Sections 4.8 and 4.15. Within thirty
days after any such public announcement, the Indenture Trustee shall negotiate
and effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
satisfactory bid as to the price they will pay to obtain such servicing. The
Indenture Trustee shall deduct from any sum received by the Indenture Trustee
from the successor to the Servicer in respect of such sale, transfer and
assignment all costs and expenses of any public announcement and of any sale,
transfer and assignment of the servicing rights and responsibilities hereunder.
After such deductions, the remainder of such sum shall be paid by the Indenture
Trustee to the Servicer at the time of such sale.
(h) The Indenture Trustee and such successor shall take such
action consistent with this Agreement as shall be necessary to effectuate any
such succession, including the notification to all Mortgagors of the transfer of
servicing if such notification is not done by the Servicer as required by
subsection (j) below. The Servicer agrees to cooperate with the Indenture
Trustee and any successor Servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Indenture Trustee or such successor Servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the Indenture
Trustee or such successor Servicer, as applicable, all amounts which then have
been or should have been deposited in the Principal and Interest Account by the
Servicer or which are thereafter received with respect to the Mortgage Loans.
Neither the Indenture Trustee nor any other successor Servicer shall be held
liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivery, cash, documents or records to it
or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer.
(i) The Indenture Trustee or any other successor Servicer,
upon assuming the duties of Servicer hereunder, shall immediately make all
Delinquency Advances and pay all Compensating Interest which the Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Indenture Trustee is acting as successor Servicer, the
Indenture Trustee shall only be required to make Delinquency Advances (including
the Delinquency Advances described in this clause (i)) if, in the Indenture
Trustee's reasonable good faith judgment, such Delinquency Advances will
ultimately be recoverable from the Mortgage Loans.
(j) The Servicer which is being removed or is resigning shall
give notice to the Mortgagors and to the Rating Agencies of the transfer of the
servicing to the successor Servicer.
(k) Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer and shall be subject to
all the responsibilities, duties and liabilities of the predecessor Servicer
including, but not limited to, the maintenance of the hazard insurance
policy(ies), the fidelity bond and an errors and omissions policy pursuant to
Section 4.23 and shall be entitled to the Monthly Servicing Fee and all of the
rights granted to the predecessor Servicer by the terms and provisions of this
Agreement. The appointment of a successor Servicer shall not affect any
liability of the predecessor Servicer which may have arisen under this Agreement
prior to its termination as Servicer (including, without
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limitation, any deductible under an insurance policy) nor shall any successor
Servicer be liable for any acts or omissions of the predecessor Servicer or for
any breach by such Servicer of any of its representations or warranties
contained herein or in any related document or agreement.
(l) The Indenture Trustee shall give notice to the Note
Insurer, Moody's and Standard & Poor's and the Owners of the occurrence of any
event specified in Section 4.20 of which the Indenture Trustee has actual
knowledge.
Section 4.22. Waiver of Past Events of Servicing Termination.
Subject to the rights of the Note Insurer pursuant to Section 4.20 to terminate
all of the rights and obligations of the Servicer under this Agreement, the
Owners of at least 51% of the Note Principal Balance may, on behalf of all
Owners of Notes, waive any default by the Servicer in the performance of its
obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the Principal and Interest Account in
accordance with this Agreement. Upon any such waiver of a past default, such
default shall cease to exist, and any Event of Servicing Termination arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
Section 4.23. Inspections by Note Insurer; Errors and
Omissions Insurance. (a) At any reasonable time and from time to time upon
reasonable notice, the Note Insurer, the Indenture Trustee, or any agents or
representatives thereof may inspect the Servicer's servicing operations and
discuss the servicing operations of the Servicer with any of its officers or
directors. The costs and expenses incurred by the Servicer or its agents or
representatives in connection with any such examinations or discussions shall be
paid by the Servicer.
(b) The Servicer agrees to maintain errors and omissions
coverage and a fidelity bond, each at least to the extent generally maintained
by prudent mortgage loan servicers having servicing portfolios of a similar
size.
Section 4.24. Merger, Conversion, Consolidation or Succession
to Business of Servicer. Any corporation into which the Servicer may be merged
or converted or with which it may be consolidated, or corporation resulting from
any merger, conversion or consolidation to which the Servicer shall be a party
or any corporation succeeding to all or substantially all of the business of the
Servicer shall be the successor of the Servicer hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto provided that such corporation meets the qualifications set forth in
Section 4.21(f).
Section 4.25. Notices of Material Events. The Servicer shall
give prompt notice to the Note Insurer, the Indenture Trustee, the Issuer, the
Owner Trustee, Moody's and Standard & Poor's of the occurrence of any of the
following events:
(a) Any default or any fact or event which results, or which
with notice or the passage of time, or both, would result in the occurrence of a
default by the Seller, any Originator or the Servicer under any Operative
Document or would constitute a material breach of a representation, warranty or
covenant under any Operative Document;
(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Seller or the Servicer in any federal, state or local court or before any
governmental body or agency or before any arbitration board or any such
proceedings threatened by any governmental agency, which, if adversely
determined, would have a material adverse effect upon any the Seller's or the
Servicer's ability to perform its obligations under any Operative Document;
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(c) The commencement of any proceedings by or against the
Seller or the Servicer under any applicable bankruptcy, reorganization,
liquidation, insolvency or other similar law now or hereafter in effect or of
any proceeding in which a receiver, liquidator, Indenture Trustee or other
similar official shall have been, or may be, appointed or requested for the
Seller or the Servicer; and
(d) The receipt of notice from any agency or governmental body
having authority over the conduct of any of the Seller's or the Servicer's
business that the Seller or the Servicer is to cease and desist, or to undertake
any practice, program, procedure or policy employed by the Seller or the
Servicer in the conduct of the business of any of them, and such cessation or
undertaking will materially and adversely affect the conduct of the Seller's or
the Servicer's business or its ability to perform under the Operative Documents
or materially and adversely affect the financial affairs of the Seller or the
Servicer.
Section 4.26. Monthly Servicing Report and Servicing
Certificate. (a) The Servicer shall, not later than the related Determination
Date, deliver to the Indenture Trustee and the Note Insurer a Monthly Servicing
Report relating to the Mortgage Loans stating the following:
(i) As to the related Due Period, the Interest
Remittance Amount (in both cases specifying the (a) scheduled interest
collected; (b) Delinquency Advances relating to interest; and (c)
Compensating Interest paid) and the Principal Remittance Amount (in
both cases specifying the (1) scheduled principal collected; (2)
Delinquency Advance relating to Mortgage principal; (3) Prepayments;
(4) Loan Balance of Loans repurchased; (5) Substitution Amounts; and
(6) Net Liquidation Proceeds (related to principal));
(ii) With respect to the related Remittance Period,
the Servicing Fee payable to the Servicer;
(iii) With respect to the related Remittance Period,
the net scheduled principal and interest payments remitted by the
Servicer to the Principal and Interest Account;
(iv) The scheduled principal and interest payments
on the Mortgage Loans that were not made by the related Mortgagors as
of the last day of the related Remittance Period;
(v) The number and aggregate Loan Balances
(computed in accordance with the terms of the Mortgage Loans) and the
percentage of the total number of Mortgage Loans and of the Loan
Balance which they represent of Mortgage Loans Delinquent, if any, (i)
30-59 days, (ii) 60-89 days and (iii) 90 days or more, respectively, as
of the last day of the related Remittance Period;
(vi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in foreclosure and the book value (within the
meaning of 12 Code of Federal Regulations Section 571.13 or any
comparable provision) of any real estate acquired through foreclosure
or deed in lieu of foreclosure, including REO Properties as of the last
day of the related Remittance Period;
(vii) The Loan Balances (immediately prior to being
classified as Liquidated Mortgage Loans) of Liquidated Mortgage Loans
as of the last day of the related Remittance Period;
(viii) Liquidation Proceeds received during the
related Remittance Period;
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(ix) The amount of any Liquidation Expenses being
deducted from Liquidation Proceeds or otherwise being charged to the
Principal and Interest Account with respect to such Determination Date;
(x) Liquidation Expenses incurred during the
related Remittance Period which are not being deducted from Liquidation
Proceeds or otherwise being charged to the Principal and Interest
Account with respect to such Determination Date;
(xi) Net Liquidation Proceeds as of the last day of
the related Remittance Period;
(xii) Insurance payments received from Insurance
Policies during the related Remittance Period;
(xiii) The number of Mortgage Loans and the
aggregate scheduled Loan Balances as of the last day of the Due Period
relating to the Payment Date;
(xiv) The Total Available Funds for each Remittance
Date;
(xv) The number and aggregate Loan Balances and
Loan Purchase Prices of Mortgage Loans required to be repurchased by
the Seller or purchased by the Servicer as of the Replacement Cut-Off
Date occurring during the Remittance Period preceding such Date;
(xvi) The number and aggregate Loan Balances of
Mortgage Loans (at the time they became Defaulted Mortgage Loans) which
are being carried as REO Properties;
(xvii) The amount of any Delinquency Advances made
by the Servicer during the related Remittance Period and any
unreimbursed Delinquency Advances as of such Payment Date;
(xviii) The weighted average Coupon Rates of the
Mortgage Loans;
(xix) The Monthly Exception Report;
(xx) The amount of any Substitution Amounts
delivered by the Seller;
(xxi) The number and aggregate Loan Balances of
Mortgage Loans, if any, in bankruptcy proceedings as of the last day of
related Remittance Period;
(xxii) The amount of unreimbursed Delinquency
Advances made by the Servicer;
(xxiii) The amounts, if any, of the Realized Losses
for the related Remittance Period and the cumulative amount of Realized
Losses since the Closing Date.
(xxiv) The amount of unreimbursed Servicing
Advances made by the Servicer;
(xxv) Unpaid Servicing Fees;
(xxvi) The amount of Compensating Interest to be
paid by the Servicer during the related Remittance Period;
(xxvii) The weighted average net Coupon Rate of the
Mortgage Loans;
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(xxviii) For the related Remittance Period and
cumulatively since the Closing Date, the number and aggregate Loan
Balance of Mortgage Loans bought back by the Servicer or the Seller
pursuant to Section 2.4, 2.6 and 4.10 hereof (identified separately for
each such section).
(xxix) Any other information reasonably requested by the
Note Insurer or the Indenture Trustee; and
(xxx) The aggregate actual Loan Balance as of the last
day of the Due Period relating to the Payment Date.
(b) On each Payment Date, the Indenture Trustee shall provide
to the Note Insurer, each of the Underwriters, the Seller, Standard & Poor's and
Moody's a written report in substantially the form set forth as Exhibit E hereto
(the "Servicing Certificate"), as such form may be revised by the Indenture
Trustee, the Servicer, Moody's and Standard & Poor's from time to time, but in
every case setting forth the information required under Section 3.8 hereof,
based solely on information contained in the Monthly Servicing Report.
Section 4.27. Indemnification by the Seller. The Seller agrees
to indemnify and hold the Indenture Trustee, the Note Insurer and each Owner
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Indenture Trustee, the Note Insurer and any Owner may sustain in any
way related to the failure of the Seller to perform its duties under this
Agreement. A party against whom a claim is brought shall immediately notify the
other parties and the Rating Agencies if a claim is made by a third party with
respect to this Agreement, and the Seller shall assume (with the consent of the
Note Insurer and the Indenture Trustee) the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Note Insurer, the Servicer, the Seller, the Indenture Trustee and/or
Owner in respect of such claim.
Section 4.28. Indemnification by the Servicer. The Servicer
agrees to indemnify and hold the Indenture Trustee, the Note Insurer and each
Owner harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Note Insurer and any Owner may
sustain in any way related to the failure of the Servicer to perform its duties
and service the Mortgage Loans in compliance with the terms of this Agreement. A
party against whom a claim is brought shall immediately notify the other parties
and the Rating Agencies if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Indenture
Trustee) the defense of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Note Insurer,
the Servicer, the Indenture Trustee and/or Owner in respect of such claim.
ARTICLE V
TERMINATION
Section 5.1. Termination. This Agreement will terminate upon
notice to the Indenture Trustee of either: (a) the later of (i) the satisfaction
and discharge of the Indenture pursuant to Section 4.1 of the Indenture or (ii)
the disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder and the payment of all amounts due and
payable to the Indenture Trustee, the Owner Trustee, the Issuer, the Custodian
and the Note Insurer; or (b) the mutual consent of the Servicer, the Seller, the
Note Insurer and all Owners in writing.
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Section 5.2. Termination Upon Option of Servicer. (a) On any
Remittance Date on or after the Redemption Date, the Servicer acting directly or
through one or more affiliates may effect early redemption or termination of the
Notes by providing notice thereof to the Indenture Trustee, Owner Trustee and
Note Insurer. Such holders may purchase the Trust Estate at a price equal to the
sum of (v) the greater of (i) 100% of the aggregate Loan Balances of the related
Mortgage Loans as of the Due Date which immediately follows the last day of the
related Remittance Period immediately preceding the day of purchase minus the
amount actually remitted by the Servicer representing collections of principal
on the Mortgage Loans during the related Remittance Period and Due Period and
(ii) the greater of (A) the fair market value of such Mortgage Loans
(disregarding accrued interest) and (B) the aggregate outstanding Note Principal
Balance, (w) one month's interest on the purchase price computed at the Note
Rate, (x) any Available Funds Cap Carry-Forward Amount at such time, (y) the
related Reimbursement Amount, if any, as of such Remittance Date and (z) the
aggregate amount of any Delinquency Advances and Servicing Advances remaining
unreimbursed, together with any accrued and unpaid Servicing Fees, as of such
Remittance Date (such amount, the "Termination Price"). In connection with such
purchase, the Servicer shall remit to the Indenture Trustee all amounts then on
deposit in the Principal and Interest Account for deposit to the Note Account,
which deposit shall be deemed to have occurred immediately preceding such
purchase.
(b) Promptly following any such purchase, the Indenture
Trustee will release the Files to the Servicer, or otherwise upon their order,
in a manner similar to that described in Section 4.14 hereof.
(c) If the Servicer does not exercise its option pursuant to
this Section 5.2 with respect to the Trust Estate, then the Note Insurer may do
so on the same terms.
Section 5.3. Disposition of Proceeds. The Indenture Trustee
shall, upon receipt thereof, deposit the proceeds of any liquidation of the
Trust Estate pursuant to this Article V to the Note Account; provided, however,
that any amounts representing Servicing Fees, unreimbursed Delinquency Advances
or unreimbursed Servicing Advances theretofore funded by the Servicer from the
Servicer's own funds shall be paid by the Indenture Trustee to the Servicer from
the proceeds of the Trust Estate.
Section 5.4. Netting of Amounts. If any Person paying the
Termination Price would receive a portion of the amount so paid, such Person may
net any such amount against the Termination Price otherwise payable.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Acts of Owners. Except as otherwise specifically
provided herein, whenever Owner action, consent or approval is required under
this Agreement, such action, consent or approval shall be deemed to have been
taken or given on behalf of, and shall be binding upon, all Owners if the Owners
of the majority of the Percentage Interest of the Notes agree to take such
action or give such consent or approval.
Section 6.2 Recordation of Agreement. To the extent permitted
by applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the Properties are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer at the Owners' expense on direction of the Owners of the majority of
the Percentage Interest of the Notes or the Note Insurer, but only when
accompanied by
54
<PAGE>
an opinion of counsel to the effect that such recordation materially and
beneficially affects the interests of the Owners or is necessary for the
administration or servicing of the Mortgage Loans.
Section 6.3 Duration of Agreement. This Agreement shall
continue in existence and effect until terminated as herein provided.
Section 6.4 Successors and Assigns. All covenants and
agreements in this Agreement by any party hereto shall bind its successors and
assigns, whether so expressed or not.
Section 6.5 Severability. In case any provision in this
Agreement or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 6.6. Benefits of Agreement. Nothing in this Agreement
or in the Notes, expressed or implied, shall give to any Person, other than the
Owners, the Note Insurer and the parties hereto and their successors hereunder,
any benefit or any legal or equitable right, remedy or claim under this
Agreement.
Section 6.7. Legal Holidays. In any case where the date of any
Remittance Date, any Payment Date, any other date on which any distribution to
any Owner is proposed to be paid or any date on which a notice is required to be
sent to any Person pursuant to the terms of this Agreement shall not be a
Business Day, then (notwithstanding any other provision of the Notes or this
Agreement) payment or mailing need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect as if made or
mailed on the nominal date of any such Remittance Date, such Payment Date or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
Section 6.8. Governing Law. In view of the fact that Owners
are expected to reside in many states and outside the United States and the
desire to establish with certainty that this Agreement will be governed by and
construed and interpreted in accordance with the law of a state having a
well-developed body of commercial and financial law relevant to transactions of
the type contemplated herein, this Agreement and each Note shall be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed therein.
Section 6.9. Counterparts. This instrument may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 6.10. Amendment. (a) The Indenture Trustee, the
Seller, the Issuer and the Servicer, may at any time and from time to time, with
the prior approval of the Note Insurer but without the giving of notice to or
the receipt of the consent of the Owners, amend this Agreement for the purposes
of (i) curing any ambiguity; (ii) correcting or supplementing any provisions of
this Agreement which are inconsistent with any other provisions of this
Agreement or adding provisions to this Agreement which are not inconsistent with
the provisions of this Agreement; (iii) adding any other provisions with respect
to matters or questions arising under this Agreement; or (iv) for any other
purpose, provided that in the case of clause (iv), (A) prior to the
effectiveness of such amendment, the Seller delivers an opinion of counsel
acceptable to the Indenture Trustee and the Note Insurer that such amendment
will not adversely affect in any material respect the interest of the Owners and
the Note Insurer and (B) delivers a letter from each Rating Agency stating that
such amendment will not result in a withdrawal or reduction of the rating of the
55
<PAGE>
Notes without regard to the Note Insurance Policy. Notwithstanding anything to
the contrary, no such amendment shall (a) change in any manner the amount of, or
delay the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Note, (b) change the percentages of
Percentage Interest which are required to consent to any such amendments,
without the consent of the Owners of all Notes affected then outstanding or (c)
which affects in any manner the terms or provisions of the Note Insurance
Policy.
(b) This Agreement may be amended from time to time by the
Servicer, the Seller, the Issuer and the Indenture Trustee with the consent of
the Note Insurer (which consent shall not be withheld if, in an opinion of
counsel addressed to the Indenture Trustee and the Note Insurer, failure to
amend would adversely affect the interests of the Owners) and the Owners of 66
2/3% of the Notes for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Owners; provided, however, that no such amendment
shall be made that no such amendment shall reduce in any manner the amount of,
or delay the timing of, payments received on Mortgage Loans which are required
to be distributed on any Notes without the consent of the Owner of such Notes or
reduce the percentage for each Class the Owners of which are required to consent
to any such amendment without the consent of the Owners of 100% of the Notes.
(c) The Note Insurer, the Owners, Moody's and Standard &
Poor's shall be provided with copies of any amendments to this Agreement,
together with copies of any opinions or other documents or instruments executed
in connection therewith.
Section 6.11. Specification of Certain Tax Matters. Each Owner
shall provide the Indenture Trustee with a completed and executed From W-9 prior
to purchasing a Note. The Indenture Trustee shall comply with all requirements
of the Code, and applicable state and local law, with respect to the withholding
from any distributions made to any Owner of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith.
Section 6.12. The Note Insurer. Any right conferred to the
Note Insurer shall be suspended during any period in which there exists a Note
Insurer Default. During any period of suspension the Note Insurer's rights
hereunder shall vest in the Owners of the Notes and shall be exercisable by the
Owners of at least a majority in Percentage Interest of the Notes then
Outstanding. At such time as the Notes are no longer outstanding hereunder and
the Note Insurer has been reimbursed for all Insured Payments to which it is
entitled hereunder, the Note Insurer's rights hereunder shall terminate.
Section 6.13. Third Party Rights. The Indenture Trustee, the
Seller, the Issuer, the Depositor, the Servicer, and the Owners agree that the
Note Insurer shall be deemed a third-party beneficiary of this Agreement as if
it were a party hereto.
Section 6.14. Usury. The amount of interest payable or paid on
any Note under the terms of this Agreement shall be limited to an amount which
shall not exceed the maximum nonusurious rate of interest allowed by the
applicable laws of the State of New York or any applicable law of the United
States permitting a higher maximum nonusurious rate that preempts such
applicable New York laws, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any Note exceeds the Highest Lawful Rate, the Trust stipulates that such excess
amount will be deemed to have been paid to the Owner of such Note as a result of
an error on the part of the Indenture Trustee acting on behalf of the Trust and
the Owner receiving such excess payment shall promptly, upon discovery of such
error or upon notice thereof from the Indenture Trustee on behalf of the Trust,
refund the amount of such excess or, at the option of such Owner, apply the
excess to the payment of principal of such Note, if any, remaining unpaid. In
addition, all sums paid or agreed to be paid to the Indenture Trustee for
56
<PAGE>
the benefit of Owners of Notes for the use, forbearance or detention of money
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such Notes.
Section 6.15. No Petition. The Indenture Trustee, by entering
into this Agreement, and each Owner, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Seller, the Servicer
or the Issuer, or join in any institution against the Seller, the Servicer or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Agreement or any of the Operative Documents.
Section 6.16. Notices. All notices hereunder shall be given as
follows, until any superseding instructions are given to all other Persons
listed below:
The Indenture Trustee:
---------------------------------------
---------------------------------------
---------------------------------------
Attention:
-----------------------------
Tel:
-----------------------------------
Fax:
-----------------------------------
The Seller: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Director, Secondary Marketing
Tel: (714) 224-8357
Fax: (714) 224-8366
The Servicer: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, California 92614-6203
Attention: Manager, Investor Reporting
Tel: (714) 224-8357
Fax: (714) 224-8366
The Note Insurer:
---------------------------------------
---------------------------------------
---------------------------------------
Attention:
-----------------------------
Tel:
-----------------------------------
Fax:
-----------------------------------
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Home Equity Monitoring
Department
57
<PAGE>
Standard & Poor's: Standard & Poor's, A Division of
The McGraw-Hill Companies
25 Broadway
New York, New York 10004
Attention: Residential Mortgage
Surveillance Dept.
Underwriters:
------------------------------------
------------------------------------
------------------------------------
Attention:
--------------------------
Tel:
-------------------------------
Fax:
--------------------------------
58
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Indenture
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
By:
------------------------------------------
as Owner Trustee
By:
------------------------------------------
Name
----------------------------------------
Title:
---------------------------------------
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
----------------------------------------------
as Indenture Trustee
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
59
<PAGE>
STATE OF _________________ )
: ss.:
COUNTY OF _______________ )
On the day of ________, 199_, before me personally came
______________, to me known, who, being by me duly sworn did depose and say that
he/she resides at __________________ ___________________; that he/she is a
______________________________ of ________________________, [a Delaware banking
corporation] described in and that executed the above instrument as Owner
Trustee; and that he/she signed his/her name thereto by order of the Board of
Directors of said Delaware banking corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
------------------------------------------
Notary Public
<PAGE>
STATE OF _________________ )
: ss.:
COUNTY OF _______________ )
On the ____ day of _________, 199_, before me, personally came
____________, to me known, who being by me duly sworn did depose and say that
his office is located at _____________________________; that he is a
_____________ of ________________________, the ________________ corporation
described herein and that he executed the above instrument as Indenture Trustee;
and that he signed his name thereto under the authority granted by the Board of
Directors of said ________________ corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
------------------------------------------
Notary Public
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the ____ day of _________, 199_, before me, a Notary Public,
personally appeared __________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARIAL SEAL]
------------------------------------------
Notary Public
<PAGE>
EXHIBIT B
CERTIFICATE RE: PREPAID LOANS
I, ______________, ______________ of First Alliance Mortgage
Company, a California corporation, (the "Seller"), hereby certify that between
the "Cut-Off Date" (as defined in the Sale and Servicing Agreement dated as of
________________ __, 199_ among the Seller the Seller in its capacity as
servicer (the "Servicer") and ________________________, a ________________
corporation, in its capacity as indenture trustee (the "Indenture Trustee")) and
the "Closing Date" the following schedule of "Mortgage Loans" have been prepaid
in full.
Dated:
-----------------
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
B-1
<PAGE>
EXHIBIT C
INITIAL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of the
________________, a ________________ corporation, acting in its capacity as
custodian (the "Custodian") on behalf of ________________________, a
________________ corporation, the indenture trustee (the "Indenture Trustee") of
a certain pool of mortgage loans (the "Pool") heretofore conveyed in trust to
the Custodian, on behalf of Indenture Trustee, pursuant to that certain Sale and
Servicing Agreement dated as of _________ _, 199_ (the "Sale and Servicing
Agreement") by and among First Alliance Mortgage Company, a California
corporation (the "Seller"), the Seller, in its capacity as servicer (the
"Servicer") and the Indenture Trustee;
WHEREAS, the Custodian, on behalf of the Indenture Trustee, is
required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review
the Files relating to the Pool on or before the Closing Date; and
WHEREAS, Section 2.6 of the Sale and Servicing Agreement
requires the Custodian, on behalf of the Indenture Trustee, to deliver this
Initial Certification upon the satisfaction of certain conditions set forth
therein.
NOW, THEREFORE, the Custodian, on behalf of the Indenture
Trustee, hereby certifies with respect to each Mortgage Loan listed in the
Schedule of Mortgage Loans (other than any Mortgage Loan paid in full), which is
attached hereto, that all documents required to be delivered to it pursuant to
the Sale and Servicing Agreement are in its possession, such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and based on its examination and only as to the foregoing documents, the
information set forth on the Schedule of Mortgage Loans as to loan number and
address accurately reflects information set forth in the File, except as
attached thereto.
-------------------------------,
as Custodian
By:
----------------------------
Dated:
-----------------------
[Attached Exception List]
C-1
<PAGE>
EXHIBIT D
FINAL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of the
________________________ a _______________banking corporation, acting in its
capacity as custodian (the "Custodian") on behalf of ________________________, a
_______________ _______________ corporation, the indenture trustee (the
"Indenture Trustee") of a certain pool of mortgage loans (the "Pool") heretofore
conveyed in trust to the Custodian, on behalf of the Indenture Trustee, pursuant
to that certain Sale and Servicing Agreement dated as of ________________ __,
199_ (the "Sale and Servicing Agreement") by and among First Alliance Mortgage
Company, a California corporation (the "Seller"), the Seller, in its capacity as
servicer (the "Servicer") and the Indenture Trustee;
WHEREAS, the Custodian, on behalf of the Indenture Trustee, is
required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review
the Files relating to the Pool within a specified period following the Closing
Date and to notify the Seller promptly of any defects with respect to the Pool,
and the Seller is required to remedy such defects or take certain other action,
all as set forth in Section 2.6 of the Sale and Servicing Agreement; and
WHEREAS, Section 2.6 of the Sale and Servicing Agreement
requires the Custodian, on behalf of the Indenture Trustee, to deliver this
Final Certification upon the satisfaction of certain conditions set forth
therein.
NOW, THEREFORE, the Custodian, on behalf of the Indenture
Trustee, hereby certifies that it has determined that all required documents (or
certified copies of documents listed in Section 2.5 of the Sale and Servicing
Agreement) have been executed or received, and that such documents relate to the
Mortgage Loans identified in the Schedule of Mortgage Loans pursuant to Section
2.5(a) of the Sale and Servicing Agreement or, in the event that such documents
have not been executed and received or do not so relate to such Mortgage Loans,
any remedial action by the Seller pursuant to Section 2.6 of the Sale and
Servicing Agreement has been completed. The Custodian makes no certification
hereby, however, with respect to any intervening assignments or assumption and
modification agreements.
By:
----------------------------
Title:
-------------------------
Dated:
D-1
<PAGE>
EXHIBIT E
FORM OF
MONTHLY REPORT
FIRST ALLIANCE MORTGAGE COMPANY
MORTGAGE LOAN ASSET BACKED NOTE
SERIES 199_-_
E-1
<PAGE>
EXHIBIT F
FORM OF REQUEST FOR RELEASE
To:
---------------------
---------------------
---------------------
Attn: First Alliance Mortgage Loan Trust, Series 199_-_
Date: _______________
In connection with the administration of the mortgage loans
held by you as Custodian under a certain Sale and Servicing Agreement dated as
of ________________ __, 199_ and by and among First Alliance Mortgage Company,
the Seller in its capacity as servicer (the "Servicer"), and _______________, in
its capacity as Indenture Trustee (the "Agreement"), the Servicer hereby
requests a release of the File held by you as Custodian, on behalf of the
Indenture Trustee, with respect to the following described Mortgage Loan for the
reason indicated below:
Mortgagor's Name:
Loan No.:
--------------------------
Reason for requesting file:
_______ 1. Mortgage Loan paid in full.
(The Servicer hereby certifies that all amounts received
in connection with the loan have been or will be credited
to the Note Account (whichever is applicable) pursuant to
the Agreement.)
_______ 2. Mortgage Loan repurchased pursuant to Section 2.3, 2.4, 2.6(b)
or 2.10(b) of the Agreement.
(The Servicer hereby certifies that the Loan Purchase
Price has been or will be paid to the Note Account
pursuant to the Agreement.)
_______ 3. Mortgage Loan substituted.
(The Servicer hereby certifies that a Qualified
Replacement Mortgage has been or will be assigned and
delivered to you along with the related File pursuant to
the Agreement.)
_______ 4. The Mortgage Loan is being foreclosed.
_______ 5. Other. (Describe).
F-1
<PAGE>
The undersigned acknowledges that the above File will be held by the
undersigned in accordance with the provisions of the Agreement and will be
returned to you, except if the Mortgage Loan has been paid in full, or
repurchased or substituted for by a Qualified Replacement Mortgage (in which
case the File will be retained by us permanently) and except if the Mortgage
Loan is being foreclosed (in which case the File will be returned when no longer
required by us for such purpose).
Capitalized terms used herein shall have the meanings ascribed to them
in the Agreement.
FIRST ALLIANCE MORTGAGE COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
F-2
Exhibit 10.2
TRUST AGREEMENT
between
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
and
------------------------------
as Owner Trustee
Dated as of _______________ __, 199_
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE...............................................................1
SECTION 1.1 Capitalized Terms.............................................................1
SECTION 1.2 Other Definitional Provisions.................................................3
ARTICLE II
ORGANIZATION.............................................................................................5
SECTION 2.1 Name..........................................................................5
SECTION 2.2 Office........................................................................5
SECTION 2.3 Purpose and Powers............................................................5
SECTION 2.4 Appointment of Owner Trustee..................................................6
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate........................6
SECTION 2.6 Declaration of Trust..........................................................6
SECTION 2.7 Liability of the Holders......................................................6
SECTION 2.8 Title to Trust Property.......................................................6
SECTION 2.9 Situs of Trust................................................................7
SECTION 2.10 Representations and Warranties of the Seller..................................7
SECTION 2.11 Covenant of the Seller........................................................8
SECTION 2.12 Federal Income Tax Allocations................................................8
ARTICLE III
THE CERTIFICATES.........................................................................................9
SECTION 3.1 Initial Certificate Ownership.................................................9
SECTION 3.2 Form of the Certificates......................................................9
SECTION 3.3 Execution, Authentication and Delivery........................................9
SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates...........9
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates............................10
SECTION 3.6 Persons Deemed Certificateholders............................................11
SECTION 3.7 Access to List of Holders' Names and Addresses...............................11
SECTION 3.8 Maintenance of Office For Surrenders.........................................11
SECTION 3.9 Appointment of Trust Paying Agent............................................12
SECTION 3.10 Reserved.....................................................................12
SECTION 3.11 Restriction on Transfers of Certificate......................................12
ARTICLE IV
ACTIONS BY OWNER TRUSTEE................................................................................15
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters.......................15
SECTION 4.2 Action by Holders with Respect to Certain Matters............................16
SECTION 4.3 Action by Holders with Respect to Bankruptcy.................................17
SECTION 4.4 Restrictions on Holders' Power...............................................17
SECTION 4.5 Majority Control.............................................................17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES.......................................................18
SECTION 5.1 Establishment of Certificate Distribution Account............................18
SECTION 5.2 Application of Trust Funds...................................................18
SECTION 5.3 Method of Payment............................................................19
SECTION 5.4 Segregation of Moneys; No Interest...........................................19
SECTION 5.5 Accounting and Reports to the Certificateholders,
the Internal Revenue Service and Others.............................19
SECTION 5.6 Signature on Returns; Tax Matters Partner....................................19
ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE...............................................................20
SECTION 6.1 General Authority............................................................20
SECTION 6.2. General Duties...............................................................20
SECTION 6.3 Action upon Instruction by Owners............................................20
SECTION 6.4 No Duties Except as Specified in this Agreement,
the Documents or in Instructions.....................................21
SECTION 6.5 No Action Except Under Specified Documents or Instructions...................21
SECTION 6.6 Restrictions.................................................................22
ARTICLE VII
CONCERNING THE OWNER TRUSTEE............................................................................23
SECTION 7.1 Acceptance of Trusts and Duties..............................................23
SECTION 7.2 Furnishing of Documents......................................................24
SECTION 7.3 Representations and Warranties of Owner Trustee..............................25
SECTION 7.4 Reliance; Advice of Counsel..................................................25
SECTION 7.5 Owner Trustee May Own Certificates and Notes.................................26
SECTION 7.6 Licenses.....................................................................26
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE...........................................................................27
SECTION 8.1 Owner Trustee's Fee and Expenses.............................................27
SECTION 8.2 Indemnification..............................................................27
SECTION 8.3 Payments to the Owner Trustee................................................27
ARTICLE IX
TERMINATION OF TRUST AGREEMENT..........................................................................28
SECTION 9.1 Termination of Trust Agreement...............................................28
SECTION 9.2 Reserved.....................................................................28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................29
SECTION 10.1 Eligibility Requirements for Owner Trustee...................................29
SECTION 10.2 Resignation or Removal of Owner Trustee......................................29
SECTION 10.3 Successor Owner Trustee......................................................30
SECTION 10.4 Merger or Consolidation of Owner Trustee.....................................30
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee................................30
ARTICLE XI
MISCELLANEOUS...........................................................................................32
SECTION 11.1 Amendments Without Consent of Certificateholders
or Owners of the Notes..............................................32
SECTION 11.2 Amendments With Consent of Certificateholders................................32
SECTION 11.3 Form of Amendments...........................................................32
SECTION 11.4 No Legal Title to Owner Trust Estate.........................................33
SECTION 11.5 Limitations on Rights of Others..............................................33
SECTION 11.6 Notices......................................................................33
SECTION 11.7 Severability.................................................................33
SECTION 11.8 Counterparts.................................................................34
SECTION 11.9 Successors and Assigns.......................................................34
SECTION 11.10 No Petition Covenant.........................................................34
SECTION 11.11 No Recourse..................................................................34
SECTION 11.12 Headings.....................................................................34
SECTION 11.13 Governing Law................................................................34
SECTION 11.14 Reserved.....................................................................35
SECTION 11.15 Third-Party Beneficiary......................................................35
SECTION 11.16 Suspension and Termination of Note Insurer's Rights..........................35
</TABLE>
iii
<PAGE>
TRUST AGREEMENT, dated as of _______________ __, 199_, between FIRST
ALLIANCE MORTGAGE COMPANY, a California corporation (the "Seller") and
______________________________, a ____________________ corporation, not in its
individual capacity but solely as Owner Trustee (the "Owner Trustee").
The Seller and the Owner Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Bankruptcy Action" shall have the meaning assigned to such
term in Section 4.1 hereof.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
I the Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be
amended from time to time.
"Certificate" shall mean a certificate evidencing the
beneficial interest of a Certificateholder in the Trust, substantially in the
form attached hereto as Exhibit B.
"Certificate Distribution Account" shall have the meaning
assigned to such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit A to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose
name a Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
______________________________; or at such other address in the State of
Delaware as the Owner Trustee may designate by notice to the
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Owners and the Seller, or the principal corporate trust office of any successor
Owner Trustee (the address (which shall be in the State of Delaware) of which
the successor owner trustee will notify the Owners, the Holders and the Seller).
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Indenture" shall mean the Indenture, dated as of
_______________ __, 199_, between the Issuer and the Indenture Trustee.
"Indenture Trustee" means ____________________________, as
Indenture Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement,
dated as of ___________________ ___, 199_, among the Seller, the Servicer, the
Indenture Trustee and the Note Insurer.
"Issuer" shall mean First Alliance Mortgage Loan Owner Trust
199_-_, the Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set
forth in Section 3.11.
"Non-U.S. Person" shall mean an individual, corporation,
partnership or other person other than 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 or trust that is subject to U.S. federal income tax regardless of the
source of its income.
"Note Insurer" shall mean ________________________________ and
its successors and assigns.
"Operative Documents" shall mean this Agreement, the Custodial
Agreement, the Indenture, the Insurance Agreement, the Sale and Servicing
Agreement and the other documents and certificates delivered in connection
therewith.
"Owner" shall mean each holder of a Note.
"Owner Trust Estate" shall mean the Trust Estate (as defined
in the Indenture), including the contribution of $1 referred to in Section 2.5
hereof.
"Owner Trustee" shall mean _________________________, a
__________________ corporation, not in its individual capacity but solely as
owner trustee under this Agreement, and any successor owner trustee hereunder.
"Percentage Interest" shall mean with respect to each
Certificate, the percentage portion of all of the Certificates evidenced thereby
as stated on the face of such Certificate.
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"Prospective Holder" shall have the meaning set forth in
Section 3.11(a).
"Rating Agency Condition" means, with respect to any action to
which a Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or such shorter period as is acceptable to each Rating Agency)
prior notice thereof and that each of the Rating Agencies shall have notified
the Seller, the Servicer, the Note Insurer, the Owner Trustee and the Issuer in
writing that such action will not result in a reduction or withdrawal of the
then current rating of the Notes.
"Record Date" shall mean as to each Payment Date the last
Business Day of the month immediately preceding the month in which such Payment
Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement dated as of the date hereof, among the Issuer, the Seller,
the Servicer and the Indenture Trustee.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Seller" shall mean First Alliance Mortgage Company, a
California corporation.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Paying Agent" shall mean the Indenture Trustee or any
successor in interest thereto or any other paying agent or co-paying agent
appointed pursuant to Section 3.9 and authorized by the Issuer to make payments
to and distributions from the Certificate Distribution Account, including
payment of principal of or interest on the Certificates on behalf of the Issuer.
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Sale and Servicing Agreement
or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to
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them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
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ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "First
Alliance Mortgage Loan Owner Trust 199_-_", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued on behalf of the Trust.
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders,
the Note Insurer, the Owners and the Seller.
SECTION 2.3 Purpose and Powers. The purpose of the Trust is to engage
in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Seller, as their
interests may appear pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate pursuant to the terms of the Indenture and to
hold, manage and distribute to the Certificateholders pursuant to the
terms of the Sale and Servicing Agreement any portion of the Owner
Trust Estate released from the lien of, and remitted to the Trust
pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Operative Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Operative Documents, to
engage in such other activities as may be required in connection with
conservation of the assets of the Trust and the making of distributions
to the Certificateholders and the Owners of the Notes.
The Trust is hereby authorized to engage in the foregoing activities
and shall not engage in any activity other than in connection with the foregoing
or other than as required or authorized by the terms of this Agreement or the
Operative Documents.
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SECTION 2.4 Appointment of Owner Trustee. The Seller hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein. The Owner Trustee
hereby accepts its appointment subject to the terms and conditions hereof.
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate. The
Seller hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Seller, as of the date hereof, of the
foregoing contribution which shall constitute the initial Owner Trust Estate and
shall be deposited in the Certificate Distribution Account. The Seller or the
Seller shall pay the organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Operative Documents. It is the
intention of the parties hereto that the Trust shall constitute a business trust
under the Business Trust Statute and that this Agreement shall constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for federal and state income and state and local franchise tax
purposes, the Trust shall not be treated as (i) an association subject
separately to taxation as a corporation, (ii) a "publicly traded partnership" as
defined in Treasure Regulation Section 1.7704-1 or (iii) a "taxable mortgage
pool" as defined in Section 7701(i) of the Code, and that the Notes shall be
debt, and the provisions of this Trust Agreement shall be interpreted to further
this intention. Except as otherwise provided in this Trust Agreement, the rights
of the Certificateholders will be those of equity owners of the Trust. Effective
as of the date hereof, the Owner Trustee shall have the rights, powers and
duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust. The Owner Trustee shall file the
Certificate of Trust pursuant to the Business Trust Statute with the Secretary
of State.
SECTION 2.7 Liability of the Holders. No Certificateholder shall have
any personal liability for any liability or obligation of the Trust.
SECTION 2.8. Title to Trust Property.
(a) Subject to the Indenture, legal title to all of the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. No transfer by operation of law or otherwise of
any interest of the Certificateholders shall operate to terminate this Agreement
or the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of any part of the Owner Trust Estate.
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SECTION 2.9 Situs of Trust. The Trust shall be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. The Trust shall not have any employees; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee from having
employees within or without the State of Delaware. Payments shall be received by
the Trust only in Delaware or New York, and payments will be made by the Trust
only from Delaware or New York. The only office of the Trust shall be the
Corporate Trust Office in Delaware.
SECTION 2.10 Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Owner Trustee and the Note Insurer that:
(a) The Seller has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
California, with power and authority to own its properties and to
conduct its business as such properties are presently owned and such
business is presently conducted.
(b) The Seller is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business requires such qualifications.
(c) The Seller has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Seller has full
power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust, and the Seller has duly
authorized such sale and assignment to the Trust by all necessary
corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Seller by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms and provisions
of or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or by-laws of the Seller, or any
indenture, agreement or other instrument to which the Seller is a party
or by which it is bound; nor result in the creation or imposition of
any lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Operative Documents); nor violate any law or, to the best of the
Seller's knowledge, any order, rule or regulation applicable to the
Seller of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or any of its properties.
(e) There are no proceedings or investigations pending or
notice of which has been received in writing before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties:
(i) asserting the invalidity of this Agreement, (ii) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or
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ruling that might materially and adversely affect the performance by
the Seller of its obligations under, or the validity or enforceability
of, this Agreement.
(f) The representations and warranties of the Seller in
Section 2.1 of the Sale and Servicing Agreement are true and correct.
(g) The Trust is not required to register as an investment
company under the Investment Company Act and is not under the control
of a Person required to so register.
SECTION 2.11 Covenant of the Seller. The Seller covenants with the
Owner Trustee and the Note Insurer that during the continuance of this Agreement
it will comply in all respects with the provisions of its Articles of
Incorporation in effect from time to time.
SECTION 2.12 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Certificateholders, pro rata.
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ARTICLE III
THE CERTIFICATES
SECTION 3.1 Initial Certificate Ownership. Upon the formation of the
Trust by the contribution by the Seller pursuant to Section 2.5 and until the
issuance of the Certificates, the Seller shall be the sole owner of the Trust.
SECTION 3.2 Form of the Certificates.
(a) The Certificates shall be issued without a principal
amount. The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized signatory of the Owner Trustee.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust shall be valid, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates.
(b) The Certificates shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders) all as determined by the authorized signatory
of the Owner Trustee or the Owner Trustee's authenticating agent executing such
Certificates, as evidenced by their execution of such Certificates.
(c) A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon such transferee's acceptance
of a Certificate duly registered in such transferee's name pursuant to Section
3.4.
SECTION 3.3 Execution, Authentication and Delivery. Concurrently with
the initial sale of the Mortgage Loans by the Seller to the Trust pursuant to
the Sale and Servicing Agreement, the Owner Trustee shall execute, or cause its
authenticating agent to execute the Certificates representing 100% of the
Percentage Interests of the Trust to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Seller, signed
by an Authorized Officer of the Seller, without further corporate action by the
Seller. No Certificate shall entitle its Holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit B, executed by the Owner Trustee or the Owner Trustee's
authenticating agent, by manual or facsimile signature. Such authentication
shall constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
SECTION 3.4 Registration; Registration of Transfer and Exchange of
Certificates.
The Certificate Registrar shall cause to be kept at its office or
agency in New York, New York, or at its designated agent, a Certificate Register
in which, subject to such reasonable
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regulations as it may prescribe, it shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
Upon any resignation of a Certificate Registrar, the Owner Trustee shall
promptly appoint a successor or, if it elects not to make such an appointment,
assume the duties of the Certificate Registrar. The Owner Trustee shall be the
initial Certificate Registrar.
Subject to Section 3.11, upon surrender for registration of transfer of
any Certificate at the office or agency of the Owner Trustee maintained pursuant
to Section 3.8, the Owner Trustee shall execute, and the Owner Trustee or its
authenticating agent shall authenticate and deliver in the name of the
designated transferee or transferees, a new Certificate or Certificates of the
same Percentage Interest and dated the date of authentication by the Owner
Trustee or such authenticating agent.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of a like aggregate Percentage Interest, upon surrender of
the Certificates to be exchanged at such office. Whenever any Certificates are
so surrendered for exchange, the Owner Trustee or its authenticating agent shall
execute, authenticate and deliver the Certificates which the Certificateholder
making the exchange is entitled to receive.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be marked "canceled" by the Owner Trustee.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of Certificates for a period of 15 days preceding the due
date for any payment with respect to the Certificates.
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates.
(a) If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Certificate Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate, and (ii)
there is delivered to the Certificate Registrar, the Owner Trustee and the Trust
such security or indemnity as may be required by them to hold each of them
harmless, then, in the absence of notice to the Certificate Registrar or the
Owner Trustee that such Certificate has been acquired by a bona fide purchaser,
the Owner Trustee shall execute on behalf of the Trust and the Owner Trustee or
the Owner Trustee's authenticating agent shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a replacement Certificate of a like Percentage Interest; provided,
however, that if any such destroyed, lost or stolen Certificate, but not a
mutilated Certificate, shall have become or within seven days shall be due and
payable, then instead of issuing a replacement Certificate the Owner Trustee may
pay such destroyed, lost or stolen Certificate when so due or payable.
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(b) In connection with the issuance of any replacement
Certificate under this Section 3.5, the Owner Trustee or the Certificate
Registrar may require the payment by the Holder of such Certificate of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Owner Trustee and the Certificate Registrar) connected
therewith.
(c) Any duplicate Certificate issued pursuant to this Section
3.5 in replacement of any mutilated, destroyed, lost or stolen Certificate shall
constitute an original additional contractual obligation of the Trust, whether
or not the mutilated, destroyed, lost or stolen Certificate shall be found at
any time or be enforced by anyone, and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
duly issued hereunder.
(d) The provisions of this Section 3.5 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Certificates.
SECTION 3.6 Persons Deemed Certificateholders. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Paying Agent may treat the Person in whose name
any Certificate shall be registered in the Certificate Registrar as the owner of
such Certificate for the purpose of receiving distributions pursuant to Article
V and for all other purposes whatsoever, and neither the Owner Trustee, nor the
Certificate Registrar nor the Trust Paying Agent shall be affected by any notice
to the contrary.
SECTION 3.7 Access to List of Holders' Names and Addresses. The Owner
Trustee shall furnish or cause to be furnished to the Servicer and the Seller,
within 15 days after receipt by the Owner Trustee of a request therefor from the
Servicer or the Seller in writing, a list, in such form as the Servicer or the
Seller may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Holders of Certificates together evidencing a
Percentage Interest totaling not less than 25% apply in writing to the Owner
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Servicer, the
Seller, the Certificate Registrar or the Owner Trustee accountable by reason of
the disclosure of its name and address, regardless of the source from which
information was derived.
SECTION 3.8 Maintenance of Office For Surrenders. The Owner Trustee
shall maintain an office or offices or agency or agencies where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certificates and the
Operative Documents may be served. The Owner Trustee
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initially designates ________________________________ as its principal office
for such purposes. The Owner Trustee shall give prompt written notice to the
Seller and to the Certificateholders and Owners of any change in the location of
the Certificate Register or any such office or agency.
SECTION 3.9 Appointment of Trust Paying Agent. The Owner Trustee hereby
appoints ____________________________ as the Trust Paying Agent under this
Agreement. The Trust Paying Agent shall make distributions to Certificateholders
from the Certificate Distribution Account pursuant to Section 5.2 and shall
report the amounts of such distributions to the Owner Trustee and the Servicer.
The Trust Paying Agent shall have the revocable power to withdraw funds from the
Certificate Distribution Account for the purpose of making the distributions
referred to above. The Owner Trustee may revoke such power and remove the Trust
Paying Agent if the Owner Trustee determines in its sole discretion that the
Trust Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. If ____________________________ shall no
longer be the Trust Paying Agent, the Owner Trustee shall appoint a successor to
act as Trust Paying Agent (which shall be a bank or trust company acceptable to
the Seller, the Note Insurer and the Rating Agencies). The Owner Trustee shall
cause such successor Trust Paying Agent or any additional Trust Paying Agent
appointed by the Owner Trustee to execute and deliver to the Owner Trustee an
instrument in which such successor Trust Paying Agent or additional Trust Paying
Agent shall agree with the Owner Trustee that as Trust Paying Agent, such
successor Trust Paying Agent or additional Trust Paying Agent shall hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be paid
to such Holders. The Trust Paying Agent shall return all unclaimed funds to the
Owner Trustee and upon removal of a Trust Paying Agent such Trust Paying Agent
shall also return all funds in its possession to the Owner Trustee. The
provisions of Article VI shall apply to the Owner Trustee also in its role as
Trust Paying Agent, for so long as the Owner Trustee shall act as Trust Paying
Agent and, to the extent applicable, to any other Trust Paying Agent (including
____________________________) appointed hereunder. Any reference in this
Agreement to the Trust Paying Agent shall include any co-paying agent unless the
context requires otherwise.
SECTION 3.10 Reserved.
SECTION 3.11 Restriction on Transfers of Certificate.
(a) Each prospective purchaser and any subsequent transferee
of a Certificate (each, a "Prospective Holder"), other than the Seller, shall
represent and warrant, in writing, to the Owner Trustee and the Certificate
Registrar and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), and is aware that the seller of the
Certificate may be relying on the exemption from the registration
requirements of the Securities Act provided by Rule 144A and is
acquiring such Certificate for its own account or for the account of
one or more qualified institutional buyers for whom it is authorized to
act, or (B) a Person involved in the organization or operation of the
Trust or an affiliate of such Person within the meaning of Rule 3a-7 of
the Investment Company Act of 1940, as amended (including, but not
limited to, the Seller).
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(ii) Such Person understands that the Certificate
has not been and will not be registered under the Securities
Act and may be offered, sold, pledged or otherwise transferred
only to a person whom the seller reasonably believes is (A) a
qualified institutional buyer or (B) a Person involved in the
organization or operation of the Trust or an affiliate of such
Person, in a transaction meeting the requirements of Rule 144A
under the Securities Act and in accordance with any applicable
securities laws of any state of the United States.
(iii) Such Person understands that the Certificate
bears a legend to the following effect:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN
A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON
INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN
AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE 3a-7 OF
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT
NOT LIMITED TO, FIRST ALLIANCE MORTGAGE COMPANY) IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED
TO REGISTER THIS CERTIFICATE UNDER THE ACT OR ANY STATE
SECURITIES LAWS."
(b) Each Prospective Holder, other than the Seller, shall
either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their
respective successors that (1) the Prospective Holder is not
an "employee benefit plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit
plan, a "Plan") and is not directly or indirectly purchasing
such Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan,
or (2) either (I) the Prospective Holder is acquiring such
Certificate for its own account and no part of the assets used
to acquire such Certificate constitutes assets of a Plan, or
(II) the source of funds to be used to
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acquire such Certificate is an "insurance company general
account," within the meaning of Prohibited Transaction Class
Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) (the
"Exemption"), and there is no Plan with respect to which the
amount of such general account's reserves for the contract(s)
held by or on behalf of such Plan (determined under Section
807(d) of the Code), together with the amount of the reserves
of the contract(s) held by or on behalf of any other Plans
(determined under section 807(d) of the Code) maintained by
the same employer (or an affiliate thereof as defined in
Section V(a)(1) of the Exemption) or by the same employee
organization, exceed 10% of the total of all liabilities of
such general account; or
(ii) furnish to the Owner Trustee and the
Certificate Registrar and any of their respective successors an opinion
of counsel acceptable to such persons that (A) the proposed issuance or
transfer of the Certificate to such Prospective Holder will not cause
any assets of the Trust to be deemed assets of a Plan, or (B) the
proposed issuance or transfer of the Certificate will not cause the
Owner Trustee or the Certificate Registrar or any of their respective
successors to be a fiduciary of a Plan within the meaning of Section
3(21) of ERISA and will not give rise to a transaction described in
Section 406 of ERISA or Section 4975(c)(1) of the Code for which a
statutory or administrative exemption is unavailable.
(c) By its acceptance of a Certificate, each Prospective
Holder agrees and acknowledges that no legal or beneficial interest in
all or any portion of any Certificate may be transferred directly or
indirectly to (i) an entity that holds residual securities as nominee
to facilitate the clearance and settlement of such securities through
electronic book-entry changes in accounts of participating
organizations (a "Book-Entry Nominee"), or (ii) an individual,
corporation, partnership or other person unless such transferee is not
a Non-U.S. Person (any such person being referred to herein as a
"Non-permitted Foreign Holder"), and any such purported transfer shall
be void and have no effect.
(d) The Owner Trustee shall not execute, and shall not
countersign and deliver, a Certificate in connection with any transfer
thereof unless the transferor shall have provided to the Owner Trustee
a certificate, signed by the transferee, that it is not a Book-Entry
Nominee or a Non- permitted Foreign Holder, which certificate shall
contain the consent of the transferee to any amendments of this
Agreement as may be required to effectuate further the foregoing
restrictions on transfer of the Certificate to Book-Entry Nominees or
Non-permitted Foreign Holders, and an agreement by the transferee that
it will not transfer a Certificate without providing to the Owner
Trustee a certificate in the form provided above.
(e) The Certificates shall bear an additional legend referring
to the restrictions contained in paragraph (b) above.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters. The
Owner Trustee shall not take action with respect to the following matters,
unless (i) the Owner Trustee shall have notified the Certificateholders and the
Note Insurer in writing of the proposed action at least 30 days before the
taking of such action, and (ii) neither the Certificateholders nor the Note
Insurer shall have notified the Owner Trustee in writing prior to the 30th day
after such notice is given that such Certificateholders or the Note Insurer have
withheld consent or provided alternative direction (any directions by the
Certificateholders shall require the prior consent of the Note Insurer):
(a) the initiation of any claim or lawsuit by the Trust
(except claims and law suits brought in connection with the collection of the
Mortgage Loans) or the compromise of any action, claim or lawsuit brought by or
against the Trust (except claims and law suits brought in connection with the
collection of the Mortgage Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust, (except to the extent such amendment is required under the
Business Trust Statute);
(c) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is required;
(d) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is not required and such amendment materially adversely affects
the interest of the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement
of a successor Certificate Registrar or Trust Paying Agent, or the consent to
the assignment by the Note Registrar, Paying Agent or Indenture Trustee or
Certificate Registrar or Trust Paying Agent of its obligations under the
Indenture or this Agreement, as applicable;
(f) the consent to the calling or waiver of any default of any
Operative Document;
(g) the consent to the assignment of the Indenture Trustee or
Servicer of their respective obligations under the Operative Document;
(h) except as provided in Article IX hereof, dissolve,
terminate or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's assets to
any other entity;
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(j) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement;
(k) do any act that conflicts with any other Operative
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust as described in Section 2.3 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth
in this Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness and any operating expenses from its
own funds, and the Trust shall not pay the indebtedness, operating expenses or
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Seller and the Servicer.
The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders with the consent of the Note Insurer, and to the
extent otherwise consistent with the Operative Documents, to (i) remove or
replace the Servicer or the Indenture Trustee, (ii) institute proceedings to
have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent
to the institution of bankruptcy or insolvency proceedings against the Trust,
(iv) file a petition or consent to a petition seeking reorganization or relief
on behalf of the Trust under any applicable federal or state law relating to
bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or any similar official) of the Trust or a substantial
portion of the property of the Trust, (vi) make any assignment for the benefit
of the Trust's creditors, (vii) cause the Trust to admit in writing its
inability to pay its debts generally as they become due, (viii) take any action,
or cause the Trust to take any action, in furtherance of any of the foregoing
(any of the above, a "Bankruptcy Action"). So long as the Indenture remains in
effect and no Note Insurer Default exists, no Certificateholder shall have the
power to take, and shall not take, any Bankruptcy Action with respect to the
Trust or the Seller or direct the Owner Trustee to take any Bankruptcy Action
with respect to the Trust or the Seller.
SECTION 4.2 Action by Holders with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the direction of the
Certificateholders and with the consent of the Note Insurer, to remove the
Servicer under the Sale and Servicing Agreement. The
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Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Certificateholders and only after
obtaining the consent of the Note Insurer.
SECTION 4.3 Action by Holders with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the consent and approval of the Note
Insurer, the unanimous prior approval of all Certificateholders and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
SECTION 4.4 Restrictions on Holders' Power. The Certificateholders
shall not direct the Owner Trustee to take or refrain from taking any action if
such action or inaction would be contrary to any obligation of the Trust or the
Owner Trustee under this Agreement or any of the Operative Documents or would be
contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any
such direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein any
action that may be taken or consent that may be given or withheld or written
notice delivered by the Certificateholders under this Agreement may be taken by
Holders of Certificates representing more than a majority of the Certificates.
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ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES
SECTION 5.1 Establishment of Certificate Distribution Account. The
Owner Trustee shall cause the Servicer, for the benefit of the
Certificateholders, to establish and maintain with ____________________________
for the benefit of the Owner Trustee a Trust Account which while the Trust
Paying Agent holds such Account shall be entitled "CERTIFICATE DISTRIBUTION
ACCOUNT, ______________________________ AS TRUST PAYING AGENT, IN TRUST FOR THE
FIRST ALLIANCE [ADJUSTABLE] [FIXED] RATE MORTGAGE LOAN ASSET BACKED
CERTIFICATES, SERIES 199_-_." Funds shall be deposited in the Certificate
Distribution Account as required by the Sale and Servicing Agreement.
All of the right, title and interest of the Owner Trustee in all funds
on deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof shall be held for the benefit of the Certificateholders. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee for the benefit of the Certificateholders.
SECTION 5.2 Application of Trust Funds.
(a) On each Payment Date, the Owner Trustee shall direct the
Trust Paying Agent to distribute to the Certificateholders from amounts on
deposit in the Certificate Distribution Account the distributions as provided in
Section 3.5(b)(v) of the Sale and Servicing Agreement with respect to such
Payment Date.
(b) Reserved.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a Certificateholder, such tax
shall reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Owner Trustee is hereby authorized and
directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Owner Trustee
from contesting any such tax in appropriate proceedings, and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Holder at the time it is withheld by the
Trust and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a non-U.S. Holder), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that a Certificateholder wishes to apply for a refund of any such
withholding tax, the Owner Trustee shall reasonably cooperate with such
Certificateholder in making such claim so long as such Certificateholder agrees
to reimburse the Owner Trustee for any out-of-pocket expenses incurred.
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SECTION 5.3 Method of Payment. Distributions required to be made to
Certificateholders on any Payment Date shall be made to each Certificateholder
of record on the immediately preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date, or,
if not, by check mailed to such Certificateholder at the address of such
Certificateholder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections 5.1
and 5.2, moneys received by the Trust Paying Agent hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law and shall be invested in Eligible Investments maturing
no later than one Business Day prior to the related Payment Date at the
direction of the Seller. The Trust Paying Agent shall not be liable for payment
of any interest or losses in respect of such moneys. Investment gains shall be
for the account of and paid to the Certificateholders.
SECTION 5.5 Accounting and Reports to the Certificateholders, the
Internal Revenue Service and Others. The Owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis on the
accrual method of accounting, and such books shall be maintained separately from
those of any other entity and reflect the separate interest of the Trust, (b)
deliver to each Certificateholder, as may be required by the Code and applicable
Treasury Regulations, such information as may be required (including Schedule
K-1) to enable such Certificateholder to prepare its federal and state income
tax returns, (c) file such tax returns relating to the Trust (including a
partnership information return, IRS Form 1065), and make such elections as may
from time to time be required or appropriate under any applicable state or
federal statute or rule or regulation thereunder so as to maintain the Trust's
characterization as a partnership for federal income tax purposes, (d) cause
such tax returns to be signed in the manner required by law and (e) collect or
cause to be collected any withholding tax with respect to income or
distributions to Certificateholders. The Owner Trustee shall elect under Section
1278 of the Code to include in income currently any market discount that accrues
with respect to the Mortgage Loans. The Owner Trustee shall not make the
election provided under Section 754 of the Code.
SECTION 5.6 Signature on Returns; Tax Matters Partner.
(a) The Owner Trustee shall sign on behalf of the Trust the
tax returns of the Trust, unless applicable law requires a Certificateholder to
sign such documents, in which case such documents shall be signed by the Seller.
(b) The Seller shall be designated the "tax matters partner"
of the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable
Treasury Regulations.
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ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the
Certificates and the Operative Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Operative Documents to which the Trust is to be a party and any amendment or
other agreement or instrument described in Article III, in each case, in such
form as the Seller shall approve, as evidenced conclusively by the Owner
Trustee's execution thereof, and, on behalf of the Trust, to direct the
Indenture Trustee to authenticate and deliver the Notes in the aggregate
principal amount of $________________. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust, pursuant to the Operative Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Operative
Documents to which the Trust is a party and to administer the Trust in the
interest of the Certificateholders, and in accordance with the provisions of
this Agreement; and
(b) to obtain and preserve, the Trust's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, and each other instrument and agreement included in the Owner Trust
Estate.
SECTION 6.3 Action upon Instruction by Owners.
(a) Subject to Article IV, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not
be required to take any action hereunder or under any Operative Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Operative Document or
is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Operative Document, or is unsure as to the application, intent,
interpretation or meaning of any provision of this agreement or the Operative
Documents, the Owner Trustee shall promptly give notice (in such form as shall
be appropriate under the circumstances) to the Note Insurer and the
Certificateholders requesting instruction as to the course of action to be
adopted, and, to the extent the Owner Trustee acts in good
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faith in accordance with any such instruction received, the Owner Trustee shall
not be liable on account of such action to any Person. If the Owner Trustee
shall not have received appropriate instructions within ten days of such notice
(or within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action which is consistent, in its
view, with this Agreement or the Operative Documents, and as it shall deem to be
the best interests of the Certificateholders, and the Owner Trustee shall have
no liability to any Person for any such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Operative Document or any
such provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Operative
Documents, as it shall deem to be in the best interest of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Documents or in Instructions. The Owner Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Operative Document or in any
document or written instruction received by the Owner Trustee pursuant to
Section 6.3; and no implied duties or obligations shall be read into this
Agreement or any Operative Document against the Owner Trustee. The Owner Trustee
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Operative Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
SECTION 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred
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upon the Owner Trustee pursuant to this Agreement, (ii) in accordance with the
Operative Documents and (iii) in accordance with any document or instruction
delivered to the Owner Trustee pursuant to Section 6.3.
SECTION 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. Except as otherwise
provided in this Article VII, in accepting the trusts hereby created
________________________________ acts solely as Owner Trustee hereunder and not
in its individual capacity and all Persons having any claim against the Owner
Trustee by reason of the transactions contemplated by this Agreement or any
Operative Document shall look only to the assets of the Trust for payment or
satisfaction thereof. The Owner Trustee accepts the trusts hereby created and
agrees to perform its duties hereunder with respect to such trusts but only upon
the terms of this Agreement. The Owner Trustee also agrees to disburse all
moneys actually received by it constituting part of the assets of the Trust upon
the terms of the Operative Documents and this Agreement. The Owner Trustee shall
not be liable or accountable hereunder or under any Operative Document under any
circumstances, except (i) for its own gross negligent action, its own gross
negligent failure to act or its own willful misconduct or (ii) in the case of
the inaccuracy of any representation or warranty contained in Section 7.3 and
expressly made by the Owner Trustee. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Mortgage Loan, or the perfection and priority of any security interest
created by any Mortgage Loan in any Property or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the assets
of the Trust or their ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Owners of the Notes under the
Indenture, including, without limitation: the existence, condition and ownership
of any Property; the existence and enforceability of any insurance thereon; the
existence and contents of any Mortgage Loan on any computer or other record
thereof; the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan; the compliance by the Seller or
the Servicer with any warranty or representation made under any Operative
Document or in any related document or the accuracy of any such warranty or
representation or any action of the Indenture Trustee, the Custodian or the
Servicer or any subservicer taken in the name of the Owner Trustee.
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Note Insurer or any Certificateholder;
(c) no provision of this Agreement or any Operative Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Operative Document, if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
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(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Operative Documents,
including the Note Principal Balance and the interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of and
makes no representation as to the validity or sufficiency of any provision of
this Agreement or for the due execution hereof by the Seller or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate or for or in respect of the validity or sufficiency of the Operative
Documents, the Underwriting Agreement, the Notes, the Certificates (other than
the certificate of authentication on the Certificates) or of any Mortgage Loans
or any related documents, and the Owner Trustee shall in no event assume or
incur any liability, duty or obligation to any Owner of a Note or to any
Certificateholder, other than as expressly provided for herein and in the
Operative Documents;
(f) the Owner Trustee shall not be liable for the default or misconduct
of the Indenture Trustee, the Custodian, the Seller or the Servicer under any of
the Operative Documents or otherwise and the Owner Trustee shall have no
obligation or liability to perform the obligations of the Trust under this
Agreement or the Operative Documents that are required to be performed by the
Indenture Trustee under the Indenture, the Custodian under the Custodial
Agreement or the Servicer under the Sale and Servicing Agreement;
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement, the Underwriting Agreement or any Operative Document, at the request,
order or direction of any of the Note Insurer or any of the Certificateholders,
unless the Note Insurer or such Certificateholders have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Operative Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of any such act;
(h) The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare, execute or file any Securities and
Exchange Commission filing or tax return for the Trust or to record this
Agreement or any Operative Document.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Certificateholders, promptly upon receipt of a written request
therefor, duplicate or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Operative Documents, and (b) to the Note Insurer, copies
of any reports, notices, requests, demands, certificates, financial statements,
and any other instruments relating to the Trust, the Certificates or the Notes
in the possession of the Owner Trustee, that the Note Insurer shall request in
writing.
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SECTION 7.3 Representations and Warranties of Owner Trustee.
______________ __________________ hereby represents and warrants to the Seller,
for the benefit of the Certificateholders and the Note Insurer, that:
(a) It is a [banking] corporation duly organized, validly
existing and in good standing under the laws of the State of [Delaware].
(b) It has full power, authority and legal right to execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement.
(c) The execution, delivery and performance by it of this
Agreement (i) shall not violate any provision of any law or regulation governing
the banking and trust powers of ________________________________ or any order,
writ, judgment or decree of any court, arbitrator or governmental authority
applicable to the ________________________________ or any of its assets, (ii)
shall not violate any provision of the corporate charter or by-laws of
____________ ____________________, or (iii) shall not violate any provision of,
or constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of any lien on any properties included in
the Trust pursuant to the provisions of any mortgage, indenture, contract,
agreement or other undertaking to which it is a party, which violation, default
or lien could reasonably be expected to have a materially adverse effect on
_______________________'s performance or ability to perform its duties as Owner
Trustee under this Agreement or on the transactions contemplated in this
Agreement.
(d) This Agreement has been duly executed and delivered by
___________ _____________________ and constitutes the legal, valid and binding
agreement of __________________________, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar law affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) The Owner Trustee is not in default with respect to any
order or decree of any court or any order, regulation or demand of any Federal,
state, municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder.
(f) No litigation is pending or, to the best of the Owner
Trustee's knowledge, threatened against the Owner Trustee which would prohibit
its entering into this Trust Agreement or performing its obligations under this
Trust Agreement.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, note or
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other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties and need not investigate any fact or
matter in any such document. The Owner Trustee may accept a certified copy of a
resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
method of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or other authorized officers
of the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Owner Trustee for any action taken or omitted
to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
Operative Documents, the Owner Trustee: (i) may act directly or through its
agents, attorneys, custodians or nominees, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees shall have been
selected by the Owner Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
opinion or advice of any such counsel, accountants or other such Persons and not
contrary to this Agreement or any of the Operative Documents.
SECTION 7.5 Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Seller, the Indenture Trustee and
the Servicer in transactions in the same manner and with the same rights as it
would have if it were not the Owner Trustee.
SECTION 7.6 Licenses. The Owner Trustee shall cause the Trust to use
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Operative Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
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ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1 Owner Trustee's Fee and Expenses. The Owner Trustee shall
receive from the Seller as compensation for its services hereunder such fees as
have been separately agreed upon before the date hereof between the Seller and
the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by
the Seller for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, custodians, nominees,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder.
SECTION 8.2 Indemnification. The Seller shall be liable as primary
obligor pursuant to the Sale and Servicing Agreement for, and shall indemnify
the Owner Trustee and its successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may at any time be imposed on, incurred by, or asserted
against the Owner Trustee or any Indemnified Party in any way relating to or
arising out of this Agreement, the Operative Documents, the Owner Trust Estate,
the administration of the Trust or the action or inaction of the Owner Trustee
hereunder, except only that the Seller shall not be liable for or required to
indemnify the Owner Trustee from and against Expenses arising or resulting from
the gross negligence, bad faith or willful misconduct of the Owner Trustee. The
indemnities contained in this Section 8.2 shall survive the resignation of the
Owner Trustee, termination of the Trust or the termination of this Agreement.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust
shall terminate and be of no further force or effect on the earlier of: (i) the
final distribution by the Indenture Trustee of all moneys or other property or
proceeds of the assets of the Trust in accordance with the terms of the
Indenture and (ii) the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy (the late ambassador of the
United States to the Court of St. James's). The bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or the Owner Trust Estate or (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) The Certificates shall be subject to an early redemption
or termination at the option of the majority of Servicers, and in certain
instances the Note Insurer, in the manner and subject to the provisions of
Section 5.2 of the Sale and Servicing Agreement.
(c) Except as provided in paragraphs (a) and (b) of this
Section 9.1, none of the Seller, the Servicer, the Note Insurer or any
Certificateholder shall be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Owner Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to the Note Insurer,
the Rating Agencies and the Trust Paying Agent mailed within five Business Days
of receipt of notice of such termination, stating: (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Owner
Trustee therein designated; (ii) the amount of any such final payment; and (iii)
that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Owner Trustee therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Trust Paying Agent at the time such notice is given to
Certificateholders. The Owner Trustee will give notice to the Trust Paying Agent
of each presentation and surrender of the Certificates and the Trust Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.3 of the Sale and Servicing
Agreement.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
SECTION 9.2 Reserved.
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ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $100,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a rating of at least "Baa2" by Moody's and "BBB" by
Standard & Poor's and being acceptable to the Note Insurer. If such corporation
shall publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Owner Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Seller, the Indenture Trustee and the Note
Insurer. Upon receiving such notice of resignation, the Seller shall promptly
appoint a successor Owner Trustee (acceptable to the Note Insurer) by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Owner Trustee and one copy to the successor Owner Trustee. If no
successor Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee or the Note Insurer may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Indenture Trustee, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Note Insurer, or the Indenture Trustee
with the consent of the Note Insurer, may remove the Owner Trustee. If the
Indenture Trustee or the Note Insurer shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Note Insurer, or the
Servicer with the consent of the Note Insurer, shall promptly appoint a
successor Owner Trustee by written instrument in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3, written approval by the
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Note Insurer and payment of all fees and expenses owed to the outgoing Owner
Trustee. The Seller shall provide notice of such resignation or removal of the
Owner Trustee to each of the Rating Agencies and the Note Insurer.
SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Seller, the Indenture Trustee, the Note Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee (if acceptable to the Note
Insurer), without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Seller and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Seller shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Owners, the Note
Insurer and the Rating Agencies. If the Seller fails to mail such notice within
10 days after acceptance of appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Seller.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, and without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto; provided, however, that the Owner Trustee shall mail notice
of such merger or consolidation to the Note Insurer and each of the Rating
Agencies.
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Owner Trust Estate or any Property may at the time be
located, the Owner Trustee (with the consent of the Note Insurer) shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or trustees, of all or
any part of the assets of the Trust, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to
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the other provisions of this Section, such powers, duties, obligations, rights
and trusts as the Note Insurer and the Owner Trustee may consider necessary or
desirable. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
(b) Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee, and such
separate trustee or co-trustee jointly (it being understood
that such separate trustee or co-trustee is not authorized to
act separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any
other trustee under this Agreement; and
(iii) the Owner Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Note Insurer.
(d) Any separate trustee or co-trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes. This Agreement may be amended by the Seller and the Owner Trustee
without the consent of any of the Certificateholders (but with the prior written
consent of the Note Insurer and prior notice to each of the Rating Agencies), to
(i) cure any ambiguity, (ii) correct or supplement any provision in this
Agreement that may be defective or inconsistent with any other provision in this
Agreement, (iii) add or supplement any credit enhancement for the benefit of the
Owners of the Notes or the Certificateholders, (iv) add to the covenants,
restrictions or obligations of the Seller or the Owner Trustee and (v) add,
change or eliminate any other provision of this Agreement in any manner that
shall not, adversely affect in any material respect the interests of the Owners
of the Notes or the Certificateholders. An amendment described above shall be
deemed not to adversely affect in any material respect the interests of any
Certificateholder or Owner of a Note if (i) an opinion of counsel is obtained to
such effect or (ii) the party requesting the amendment satisfies the Rating
Agency Condition with respect to such amendment.
SECTION 11.2 Amendments With Consent of Certificateholders. This
Agreement may be amended from time to time by the Seller and the Owner Trustee
with the consent of the Note Insurer and more than a majority in Percentage
Interests of the Certificates for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Mortgage Loans or distributions that shall be made for the benefit of the
Certificateholders or (b) reduce the aforesaid percentage required to consent to
any such amendment, without the consent of the Holders of all of the
Certificates then outstanding.
SECTION 11.3 Form of Amendments.
(a) Promptly after the execution of any amendment, supplement
or consent pursuant to Section 11.1 or 11.2, the Owner Trustee shall furnish
written notification of the substance of such amendment or consent to each
Certificateholder, the Indenture Trustee, the Note Insurer and each Rating
Agency.
(b) It shall not be necessary for the consent of the
Certificateholders, pursuant to Section 11.2 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Certificateholders provided for in this Agreement or in
any other Operative Document) and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
(c) Promptly after the execution of any amendment to the
Certificate of Trust, the Owner Trustee shall cause the filing of such amendment
with the Secretary of State.
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(d) Prior to the execution of any amendment to this Agreement
or the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.4 No Legal Title to Owner Trust Estate. The
Certificateholders shall not have legal title to any part of the assets of the
Owner Trust Estate. The Certificateholders shall be entitled to receive
distributions with respect to their undivided ownership interest therein only in
accordance with Articles V and IX. No transfer, by operation of law or
otherwise, of any right, title, and interest of the Certificateholders to and in
their ownership interest in the assets of the Trust shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the assets of
the Trust.
SECTION 11.5 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Note Insurer, the Owner Trustee, the
Seller, the Certificateholders and, to the extent expressly provided herein, the
Indenture Trustee and the Owners of the Notes, and nothing in this Agreement,
whether express or implied, shall be construed to give to any other Person any
legal or equitable right, remedy or claim in the assets of the Trust or under or
in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION 11.6 Notices.
(a) All demands, notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
at or mailed by overnight mail, certified mail or registered mail, postage
prepaid, to (i) in the case of the Servicer, First Alliance Mortgage Company,
17305 Von Karman Avenue, Irvine, California 92614-6203, Attention: Manager,
Investor Reporting, or such other addresses as may hereafter be furnished to the
Certificateholders in writing by the Servicer, (ii) in the case of the Seller,
First Alliance Mortgage Company, 17305 Von Karman Avenue, Irvine, California
92614-6203, Attention: Director, Secondary Marketing, or such other addresses as
may hereafter be furnished to the Certificateholders in writing by the Seller,
(iii) in the case of the Owner Trustee, ______________________________,
______________________________ Attention: First Alliance Mortgage Loan Owner
Trust 199_-_, (iv) in the case of the Certificateholders, as set forth in the
Certificate Register, (v) in the case of the Indenture Trustee,
____________________________, _______________ _______________, Attention: First
Alliance Mortgage Loan Owner Trust 199_-_, (vi) in the case of Moody's, 99
Church Street, New York, New York 10007, Attention: Home Equity Monitoring
Group, (vii) in the case of Standard & Poor's, 25 Broadway, New York, New York
10004, Attention: Residential Mortgage Group, and (viii) in the case of the Note
Insurer, _____________________________, _______________ _______________,
Attention: First Alliance Mortgage Loan Owner Trust 199_- _. Any such notices
shall be deemed to be effective with respect to any party hereto upon the
receipt of such notice by such party, except that notices to the
Certificateholders shall be effective upon mailing or personal delivery.
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(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.7 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 11.9 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Seller,
the Owner Trustee, the Note Insurer and each Certificateholder and their
respective successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.10 No Petition Covenant. Notwithstanding any prior
termination of this Agreement, the Trust (or the Owner Trustee on behalf of the
Trust), each Certificateholder and the Indenture Trustee shall not acquiesce,
petition or otherwise invoke or cause the Seller or the Trust to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Seller or the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Seller or the Trust or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Seller or the Trust.
SECTION 11.11 No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Seller, the Servicer, the Owner Trustee, the Indenture
Trustee or any affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Certificates or the Operative Documents.
SECTION 11.12 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.13 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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SECTION 11.14 Reserved.
SECTION 11.15 Third-Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce the provisions hereunder as if it were actually a party hereto. Nothing
in this section, however, shall be construed to mitigate in any way, the
fiduciary responsibilities of the Owner Trustee to the Certificateholders nor to
create a fiduciary responsibility of the Owner Trustee to the Note Insurer.
SECTION 11.16 Suspension and Termination of Note Insurer's Rights.
During the continuation of a Note Insurer Default, rights granted or reserved to
the Note Insurer hereunder shall vest instead in the Certificateholders;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Note Insurer Reimbursement Amount, and the Note Insurer
shall retain those rights under Section 11.1 to consent to any amendment of this
Agreement.
At such time as either (i) the Note Principal Balance has been
reduced to zero or (ii) the Insurance Policy has been terminated and in either
case of (i) or (ii) the Note Insurer has been reimbursed for all Insured
Payments and any other amounts owed under the Insurance Policy and the Insurance
Agreement (and the Note Insurer no longer has any obligation under the Insurance
Policy, except for breach thereof by the Note Insurer), then the rights and
benefits granted or reserved to the Note Insurer hereunder (including the rights
to direct certain actions and receive certain notices) shall terminate and the
Certificateholders shall be entitled to the exercise of such rights and to
receive such benefits of the Note Insurer following such termination to the
extent that such rights and benefits are applicable to the Certificateholders.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
______________________________________
as Owner Trustee
By:___________________________________
Name:______________________________
Title:_____________________________
FIRST ALLIANCE MORTGAGE COMPANY,
as Seller
By:___________________________________
Name:______________________________
Title:_____________________________
Acknowledged and Accepted:
FIRST ALLIANCE MORTGAGE COMPANY,
as Servicer
By:___________________________________
Name:______________________________
Title:_____________________________
_____________________________________
as Indenture Trustee
By:__________________________________
Name:_____________________________
Title:____________________________
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
FIRST ALLIANCE MORTGAGE LOAN TRUST 199_-_
THIS Certificate of Trust of First Alliance Mortgage Loan Owner Trust
199_-_ (the "Trust") dated as of ___________________ ___, 199_, is being duly
executed and filed by ______________________________, a ____________________
corporation, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code, ss.3801 et seq.).
1.Name. The name of the business trust formed hereby is First Alliance
Mortgage Loan Owner Trust 199_-_.
2.Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is ___________________________,
___________________________________ Attention: Corporate Trust Administration.
3. This Certificate of Trust shall be effective as of its filing. IN
WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has
executed this Certificate of Trust as of the date first above written.
_________________________________
not in its individual capacity
but solely as Owner Trustee
By:______________________________
Name:_________________________
Title:________________________
A-1
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EXHIBIT B
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OR (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OR RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING BUT NOT LIMITED TO, FIRST ALLIANCE MORTGAGE COMPANY AND FIRST
ALLIANCE RESIDUAL HOLDING COMPANY) IN A TRANSACTION THAT IS REGISTERED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS
EQUITY INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN
SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED
EITHER
(A) A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT SUCH
TRANSFEREE (1) IS NOT AN "EMPLOYEE BENEFIT PLAN" WITHIN THE
MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A "PLAN" WITHIN
THE MEANING OF SECTION 4975(e)(1) OF THE CODE (ANY SUCH PLAN
OR EMPLOYEE BENEFIT PLAN, A "PLAN") AND IS NOT DIRECTLY OR
INDIRECTLY PURCHASING SUCH CERTIFICATE ON BEHALF OF, AS
INVESTMENT MANAGER OF, AS NAMED FIDUCIARY OF, AS TRUSTEE
OF, OR WITH ASSETS OF A PLAN, OR (2) EITHER (I) SUCH TRANSFEREE
IS ACQUIRING THE CERTIFICATE FOR ITS OWN ACCOUNT AND NO
PART OF THE ASSETS USED TO ACQUIRE THE CERTIFICATE
CONSTITUTES ASSETS OF A PLAN, OR (II) THE SOURCE OF FUNDS TO
BE USED TO ACQUIRE SUCH CERTIFICATE IS AN "INSURANCE
COMPANY GENERAL ACCOUNT," WITHIN THE MEANING OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, 60 FED. REG.
35925 (JULY 12, 1995) (THE "EXEMPTION"), AND THERE IS NO PLAN
WITH RESPECT TO WHICH THE AMOUNT OF SUCH GENERAL
ACCOUNT'S RESERVES FOR THE CONTRACT(S) HELD BY OR ON
BEHALF OF SUCH PLAN (DETERMINED UNDER SECTION 807(d) OF THE
B-1
<PAGE>
CODE), TOGETHER WITH THE AMOUNT OF THE RESERVES OF THE
CONTRACT(S) HELD BY OR ON BEHALF OF ANY OTHER PLANS (DETERMINED
UNDER SECTION 807(d) OF THE CODE) MAINTAINED BY THE SAME
EMPLOYER (OR AN AFFILIATE THEREOF AS DEFINED IN SECTION V(a)(1)
OF THE EXEMPTION) OR BY THE SAME EMPLOYEE ORGANIZATION, EXCEED
10% OF THE TOTAL OF ALL LIABILITIES OF SUCH GENERAL ACCOUNT; OR
(B) AN OPINION OF COUNSEL ACCEPTABLE TO SUCH PERSONS THAT (A)
THE PROPOSED ISSUANCE OR TRANSFER OF THE CERTIFICATE TO
SUCH TRANSFEREE WILL NOT CAUSE ANY ASSETS OF THE TRUST TO
BE DEEMED ASSETS OF A PLAN, OR (B) THE PROPOSED ISSUANCE OR
TRANSFER OF THE CERTIFICATE WILL NOT CAUSE THE OWNER
TRUSTEE OR THE CERTIFICATE REGISTRAR OR ANY OF THEIR
RESPECTIVE SUCCESSORS TO BE A FIDUCIARY OF A PLAN WITHIN
THE MEANING OF SECTION 3(21) OF ERISA AND WILL NOT GIVE RISE
TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR
SECTION 4975(c)(1) OF THE CODE FOR WHICH A STATUTORY OR
ADMINISTRATIVE EXEMPTION IS UNAVAILABLE.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS,
PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE
AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A)
AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO
THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL HOLD THIS CERTIFICATE AS
NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH SECURITY THROUGH THIS
CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT IS A
NON-U.S. PERSON. THE TERM "NON- U.S. PERSON" MEANS A PERSON WHO IS NOT ONE OF
THE FOLLOWING: 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, AN ESTATE THAT IS SUBJECT TO
U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF ITS INCOME OR A TRUST IF (I)
A COURT IN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER THE
ADMINISTRATION OF THE TRUST AND (II) ONE OR MORE UNITED STATES FIDUCIARIES HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST.
B-2
<PAGE>
FIRST ALLIANCE MORTGAGE LOAN OWNER TRUST 199_-_
CERTIFICATE
No. 0001
THIS CERTIFIES THAT First Alliance Residual Holding Company (the "Owner")
is the registered owner of a 100% Percentage Interest in First Alliance Mortgage
Loan Owner Trust 199_-_ (the "Trust") existing under the laws of the State of
Delaware and created pursuant to the Trust Agreement, dated as of
_______________ __, 199_ (the "Trust Agreement"), between First Alliance
Mortgage Company, as Seller, and ________________________________, in its
individual capacity and in its fiduciary capacity as owner trustee under the
Trust Agreement (the "Owner Trustee"). Capitalized terms used but not otherwise
defined herein have the meanings assigned to such terms in the Trust Agreement.
The Owner Trustee, on behalf of the Issuer and not in its individual capacity,
has executed this Certificate by one of its duly authorized signatories as set
forth below. This Certificate is one of the Certificates referred to in the
Trust Agreement and is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement to which the holder of this Certificate by
virtue of the acceptance hereof agrees and by which the holder hereof is bound.
Reference is hereby made to the Trust Agreement for the rights of the holder of
this Certificate, as well as for the terms and conditions of the Trust created
by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Certificate except in accordance with terms and provisions of the Agreement.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Certificate to be duly executed.
FIRST ALLIANCE MORTGAGE LOAN
OWNER TRUST 199_-_
By:_________________________________
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement
By:__________________________________
Authorized Signatory
Dated: _______________ __, 199_
B-3
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
__________________________________
as Owner Trustee
By:_______________________________
Authorized Signatory
B-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- ------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- ------------------------------------------------------------------------------
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
_____________________________________________________________ Attorney to
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________________________
__________________________________________*
Signature Guaranteed:
_________________________________________*/
NOTICE: The signature to this assignment must correspond with the name
as it appears upon the face of the within Instrument in every
particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by a member firm of
the New York Stock Exchange or a commercial bank or trust
company.
B-5
